| NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES NATURE OF OPERATIONS KORU MEDICAL SYSTEMS, INC. (the “Company,” “KORU Medical,”
“KORU,” “we,” “us” or “our”) develops, manufactures and commercializes innovative and
patient-centric large volume subcutaneous infusion solutions primarily for the subcutaneous drug delivery market as governed by the United
States Food and Drug Administration (the “FDA”) quality and regulatory system and international standards for quality system
management. The Company operates as one BASIS OF PRESENTATION We prepare our financial statements and accompanying notes in accordance
with accounting principles generally accepted in the United States of America (“GAAP”). Certain prior year amounts have
been reclassified to conform to the current year presentation in our Financial Statements. CASH AND CASH EQUIVALENTS For purposes of the statements of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to be cash equivalents. The Company has historically held
cash balances in excess of $ 250,000 10.2 million INVENTORY Inventories of raw materials are stated at the lower of standard cost,
which approximates average cost, or market value including allocable overhead. Work-in-process and finished goods are stated at
the lower of standard cost or market value and include direct labor and allocable overhead. We maintain reserves for excess and obsolete inventory resulting from the
potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future
recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates
and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable
than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results. INTANGIBLE ASSETS Certain of our identifiable intangible assets, including patents and trademarks,
are amortized using the straight-line method over their estimated useful lives which range from 6 20 64,469 62,143 The estimated amortization expense for the succeeding years for the intangible
assets is approximately:
Year Ending December 31,
2024 $ 65,869
2025 65,729
2026 64,674
2027 64,242
2028 64,242
Thereafter 429,605
Total amortization expense $ 754,361 INCOME TAXES For interim income tax reporting, the Company estimates its annual effective
tax rate and applies it to fiscal year-to-date pretax loss, excluding unusual or infrequently occurring discrete items. Tax jurisdictions
with losses for which tax benefits cannot be realized are excluded. The Company reported an income tax expense of $ 4.0 2.0 We evaluate our deferred tax assets to determine if they are more likely
than not to be realized by assessing both positive and negative evidence in accordance with ASC Topic 740, Income Taxes. After considering
our cumulative pretax loss (the three-year period ending with the current year), as well as analyzing all available evidence, we
have recorded a valuation allowance of $ 6.0 million Recurring items cause our effective tax rate to differ from the U.S. federal
statutory rate of 21 Beginning in 2022, certain research and development costs are required
to be capitalized and amortized over a five-year period under the Tax Cuts and Jobs Act enacted in December 2017. This change will impact
the expected U.S. federal and state income tax expense and cash taxes to be paid for our fiscal 2023. The Company files income tax returns in the U.S. federal jurisdiction and
in various state jurisdictions. Income tax returns for years prior to fiscal 2019 are no longer subject to examination by tax authorities. PROPERTY AND EQUIPMENT Property and equipment are stated at original acquisition cost less accumulated
depreciation. Additions and improvements are capitalized which increase the value or extend the life of an asset, while maintenance
and repair costs are expensed as incurred. When assets are retired or otherwise disposed, the cost and related accumulated depreciation
or amortization is removed from the respective accounts and any resulting gain or loss is included in income. Depreciation and amortization
are calculated on the straight-line basis over the estimated useful lives of the assets which generally range from 3 10 3 12 805,921 524,994 STOCK-BASED COMPENSATION The Company maintains a stock option plan and omnibus equity incentive
plan under which it grants stock options to certain executives, key employees and consultants. It also has granted stock options outside
of the plans as inducement awards. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing
model. All options are charged against income at their fair value. The entire compensation expense of the award is recognized
over the vesting period. Shares of stock granted for director fees under the non-employee director
compensation plan and under its omnibus equity incentive plan are recorded at the fair value of the shares at the grant date. The Company issues restricted stock awards under its omnibus equity incentive
plan and outside the plan as incentive awards. Restricted stock awards are equity classified and measured at the fair market value of
the underlying stock at the grant date. The fair value of restricted stock awards vesting at certain market capitalization thresholds
were estimated on the date of grant using the Brownian Motion Monte Carlo lattice model. The fair value of other restricted stock awards
were estimated on the date of grant at the current stock price. We recognize restricted stock expense using the straight-line attribution
method over the requisite service period and account for forfeitures as they occur. NET LOSS PER COMMON SHARE Basic net loss per common share is calculated by dividing net loss by the
weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed by dividing net
loss by the weighted average number of common and common equivalent shares outstanding during the period. The Company’s potentially
dilutive common shares are those that result from diluted common stock options and unvested restricted stock awards. The calculation of
diluted loss per share excluded stock options of 12,335 zero The calculation of diluted loss per share excluded performance-based restricted
stock and time-based restricted stock of 904,496 950,000 The following securities were not included in the computation of diluted
shares outstanding for the years ended December 31, 2023, and 2022 because the effect would be anti-dilutive:
Years Ended December 31,
2023 2022
Stock options $ 12,335 $ —
Restricted stock 904,496 950,000
Total $ 916,831 $ 950,000 Schedule of net income per common share
Years Ended
December 31, 2023 December 31, 2022
Net loss $ (13,741,062 ) $ (8,661,142 )
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding 45,601,346 45,002,074
Dilutive effect of outstanding stock options and unvested restricted stock — —
Diluted weighted average shares outstanding 45,601,346 45,020,074
Net loss per share
Basic $ (0.30 ) $ (0.19 )
Diluted $ (0.30 ) $ (0.19 ) Therefore, diluted weighted average number of shares outstanding and diluted
net loss per share were the same as basic weighted average number of shares outstanding and net loss per share for the years ended December
31, 2023 and 2022. See “NOTE 4 — STOCK-BASED COMPENSATION” for further detail. USE OF ESTIMATES IN THE FINANCIAL STATEMENTS The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. Important estimates include but are not limited to asset lives, valuation allowances,
inventory valuation, and accruals. REVENUE RECOGNITION The Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers Our revenues are derived from three business sources: (i) domestic core
(which consists of US and Canada), (ii) international core, and (iii) novel therapies. Our core domestic and international revenues
consist of sales of our syringe drivers, tubing and needles (“Product Revenue”) for the delivery of subcutaneous drugs that
are FDA cleared for use with the KORU Medical infusion system, with the primary delivery for immunoglobulin to treat Primary Immunodeficiency
Diseases (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”). Novel therapies consist of Product
Revenue for feasibility/clinical trials (pre-clinical studies, Phase I, Phase II, Phase III) of biopharmaceutical companies in the drug
development process as well as non-recurring engineering services (“NRE”) revenues (including testing and registration services)
received from biopharmaceutical companies to ready or customize the FREEDOM System for clinical and commercial use across multiple drug
categories. For Product Revenue, we recognize revenues when shipment occurs, and at
which point the customer obtains control and ownership of the goods. Shipping costs generally are billed to customers and are included
in Product Revenue. The Company generally does not accept return of goods shipped unless it
is a Company error. The only credits provided to customers are for defective merchandise. The Company warrants the syringe
driver from defects in materials and workmanship under normal use and the warranty does not include a performance obligation. The
costs under the warranty are expensed as incurred. Rebates are provided to distributors for the difference in selling price
to distributor and pricing specified to select customers. In addition, rebates are provided to customers for meeting growth targets.
Provisions for both distributor pricing and customer growth rebates are variable consideration and are recorded as a reduction of
revenue in the same period the related sales are recorded or when it is probable the growth target will be achieved. We recognize NRE revenue under an input method, which recognizes revenue
on the basis of our efforts or inputs (for example, resources consumed, labor hours expended, costs incurred, or time elapsed) to the
satisfaction of a performance obligation relative to the total expected inputs to the satisfaction of that performance obligation (i.e.
completion milestone). The input method that we use is based on costs incurred. Contracts are often modified to account for changes in contract specifications
and requirements. Contract modifications exist when the modification either creates new, or changes existing, enforceable rights and obligations.
Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and
revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction
price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either
as an increase in or a reduction of revenue) on a cumulative catch-up basis. Contract assets primarily represent revenue earnings over
time that are not yet billable based on the terms of the contracts. Contract liabilities (i.e., deferred revenue) consist of fees invoiced
or paid by the Company’s customers for which the associated performance obligations have not been satisfied and revenue has not
been recognized based on the Company’s revenue recognition criteria described above. As of December 31, 2023, the Company has recognized
a contract asset of zero which is included in other accounts receivable in the accompanying balance sheet. The Company established an allowance for charging off uncollectible trade
accounts receivable that have both of the following characteristics: (a) They have a contractual maturity of one year or less, (b) They
arose from the sale of goods or services. The following table summarizes net revenues by geography for the years
ended December 31, 2023 and 2022:
Years Ended December 31,
2023 2022
Net Revenues
Domestic $ 23,676,039 $ 23,586,254
International 4,841,627 4,309,783
Total $ 28,517,666 $ 27,896,037 LEASES In February 2016, the FASB issued a standard related to leases to increase
transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities
on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by
the Company for those leases classified as operating leases under current GAAP, while our accounting for capital leases remains substantially
unchanged. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess
the amount, timing, and uncertainty of cash flows arising from leases. The standard became effective for us on January 1, 2019.
The standard had a material impact on our balance sheets but did not have a material impact on our statements of operations. See
“NOTE 5 — ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments
– Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments The Company considers the applicability and impact of all recently issued
accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable
to the Company or are not expected to have a material effect on our financial condition or results of operations. FAIR VALUE MEASUREMENTS Fair value is the exit price that would be received to sell an asset or
paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants
would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs
and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on
three levels of inputs, of which the first two are considered observable and the last unobservable:
• Level 1 – Quoted prices in active markets for identical assets or liabilities.
• Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.
• Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and includes instruments for which the determination of fair value requires significant judgment or estimation. The carrying amounts of cash and cash equivalents, accounts receivable,
prepaid expenses, accounts payable and accrued expenses are considered to be representative of their fair values because of the short-term
nature of those instruments. There were no transfers between levels in the fair value hierarchy during the year ended December 31,
2023. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would
be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition
are less than the carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the
impaired asset over its respective fair value. No impairment losses have been recorded through December 31, 2023. |
