This Quarterly Report on Form 10-Q contains, and our officers and
representatives may from time to time make, certain "forward-looking" statements
(as such term is defined in the Private Securities Litigation Reform Act of
1995) and information relating to us that are based on the beliefs of the
management, as well as assumptions made and information currently available.
Forward-looking statements are neither historical facts nor assurances of future
performance. Instead, they are based only on our current beliefs, expectations
and assumptions regarding the future of our business, future plans and
strategies, projections, anticipated events and trends, the economy and other
future conditions. Because forward-looking statements relate to the future, they
are subject to uncertainties, risks and changes in circumstances that are
difficult to predict and many of which are outside of our control.



Our actual results may vary materially from the forward-looking statements made
in this report due to important factors such as uncertainties associated with
global health crises, inflation, war and other geopolitical conflicts, customer
ordering patterns, availability and costs of raw materials and labor and our
ability to recover such costs, our ability to convert inventory to a source of
cash, future operating results, growth of new patient starts and the SCIg
market, our ability to partner with biopharmaceutical companies in our novel
therapies business, Food and Drug Administration and foreign authority
regulations and the outcome of regulatory audits, introduction of competitive
products, acceptance of and demand for new and existing products, ability to
penetrate new markets, success in enforcing and obtaining patents, reimbursement
related risks, government regulation of the home health care industry, success
of our research and development effort, expanding the market of FREEDOM system
demand in the SCIg market, availability of sufficient capital if or when needed,
dependence on key personnel, and the impact of recent accounting pronouncements,
as well as those risks and uncertainties described in Part II.- Item IA. "Risk
Factors" in this report and from time to time in our past and future reports
filed with the Securities and Exchange Commission, including in our Annual
Report on Form 10-K for the year ended December 31, 2022 in addition to others.
When used in this report, the words "estimate," "project," "believe," "may,"
"will," "anticipate," "intend," "expect" and similar expressions are intended to
identify forward-looking statements, which include, without limitation,
statements regarding transition to our secondary manufacturing source, reduction
of inventory, move of our manufacturing facility, need for additional financing,
and 2023 expenses and capital expenditures.  Such statements reflect current
views with respect to future events based on currently available information and
are subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated in such forward-looking statements.  Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof.  The Company does not undertake any
obligation to release publicly any revision to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.



Throughout this report, the "Company," "KORU Medical," "we," "us" or "our" refers to KORU Medical Systems, Inc.


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OVERVIEW



The Company develops, manufactures and markets proprietary portable and
innovative medical devices 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.



Our revenues derive from three business sources: (i) domestic core, (ii)
international core, and (iii) novel therapies.  Our domestic core and
international core revenues consist of sales of our products for the delivery of
subcutaneous drugs that are FDA cleared for use with the Freedom Infusion
System, with the primary use being for the delivery for immunoglobulin to treat
Primary Immunodeficiency Diseases ("PIDD") and Chronic Inflammatory
Demyelinating Polyneuropathy ("CIDP"). Novel therapies consist of product
revenues from our infusion system (syringe drivers, tubing and needles) 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 revenues ("NRE") received from
biopharmaceutical companies to ready or customize the FREEDOM System for
clinical and commercial use.



In March 2023, the Company completed its transition of finished goods manufacturing of needle and tubing sets to Command Medical Products, a third-party contract manufacturing organization, which began in 2021. The transition provides for dual source manufacturing capability and expected cost improvements.





The Company entered into a lease commencing March 1, 2022 for a new corporate
headquarters and manufacturing facility located in Mahwah, NJ. During the
quarter ended June 30, 2022, the Company completed the first phase of the move,
the headquarters and office staff to the new location, and completed the move of
manufacturing during the first quarter of 2023.



The Company ended the 2023 first fiscal quarter with $7.4 million in net revenues, an 18.4% increase, compared with $6.2 million in the same period last year driven by growth in all three of our business sources.





Gross profit, for the three months ended March 31, 2023, was $4.1 million, an
increase of 14.5% from the same period last year and, stated as a percentage of
net revenues was 56.1%, a decline from 58% in the prior year period.



Operating expenses for the three months ended March 31, 2023, were $7.2 million,
up from $6.7 million for the same period last year, driven primarily by an
increase of $0.4 million in research and development expense and an increase of
$0.1 million in depreciation expense, which was partially offset by a reduction
of $0.07 million in selling, general and administrative expenses.



RESULTS OF OPERATIONS


Three months ended March 31, 2023, compared to March 31, 2022





Net Revenues


The following table summarizes our net revenues for the three months ended March 31, 2023, and 2022:





                        Three Months Ended March 31,       Change from Prior Year       % of Net Revenue
                          2023               2022                $              %       2023        2022
Net Revenues
Domestic Core        $     5,719,135    $     4,993,536   $        725,599    14.5%      77.4%       80.0%
International Core         1,097,490            894,942            202,548    22.6%      14.8%       14.3%
Novel Therapies              575,980            355,852            220,128    61.9%       7.8%        5.7%
Total                $     7,392,605    $     6,244,330   $      1,148,275    18.4%




Total net revenues increased $1.1 million, or 18.4%, for the three months ended
March 31, 2023, as compared with the same period last year with double-digit
growth across all businesses. Domestic Core growth of 14.5% was primarily driven
by increased growth in pumps and consumables from a growing SCIg market, new
account wins, increased prefilled syringe adoptions, and increases in average
selling prices. International Core growth of 22.6%, was driven by strength
across several EU markets, expanded distribution, and growing global
Immunoglobulin drug volume availability. Novel Therapies net revenues grew by
61.9% in the first quarter of 2023 primarily related to services performed on an
NRE innovation development agreement for a pharmaceutical customer.



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Gross Profit



Our gross profit for the three months ended March 31, 2023 and 2022 is as
follows:



                              Three Months Ended March 31,        Change from Prior Year
                                2023               2022               $                %
Gross Profit               $     4,147,035    $     3,622,305   $      524,730       14.5%
Stated as a Percentage
of Net Revenues                      56.1%              58.0%




Gross profit increased $0.5 million or 14.5% in the three months ended March 31,
2023, compared to the same period in 2022. The 2023 first quarter gross profit
increase was driven by the increase in net revenues of $1.1 million as described
above. Gross profit as a percentage of revenues decreased to 56.1% in the first
quarter of 2023 compared to 58% from the first quarter of 2022.  The decline in
the gross profit as a percentage of revenues was primarily caused by higher
manufacturing costs associated with labor and materials partially offset by an
increase in average selling prices.



Selling, general and administrative and research and development

Our selling, general and administrative and research and development costs for the three months ended March 31, 2023 and 2022 are as follows:





                            Three Months Ended March 31,        Change from Prior Year
                              2023               2022                $              %
Selling, general and           5,425,877          5,491,213          (65,336)       -1.2%
administrative           $                  $                 $
Research and                   1,564,869          1,148,355           416,514       36.3%
development
                         $     6,990,746    $     6,639,568   $       351,178        5.3%
Stated as a Percentage             94.6%             106.3%
of Net Revenues




Selling, general and administrative expenses decreased $0.07 million, or 1%,
during the three months ended March 31, 2023 compared to the same period last
year, primarily due to a $0.1 million decrease in liability insurance, a $0.1
million decrease in stock compensation, and a $0.1 million decrease in sales
commissions, partially offset by a $0.1 million increase in travel and
entertainment expense and $0.1 million in building expense and tax.



Research and development expenses increased $0.4 million, or 36% during the three months ended March 31, 2023 compared with the same period last year, primarily due to $0.2 million in compensation and benefits, $0.1 million in stock compensation and $0.1 million in recruiting associated with new hires to support our innovation efforts.

Depreciation and amortization





Depreciation and amortization expense increased by 95.07% to $213,117 in the
three months ended March 31, 2023 compared with $109,252 in the three months
ended March 31, 2022 resulting from prior year investments in support of our
corporate office and manufacturing site relocation.



Net Loss



                              Three Months Ended March 31,       Change from Prior Year
                                  2023              2022              $              %
Net Loss                    $     (2,410,885 )  $ (2,537,514 ) $       126,629       5.0%
Stated as a Percentage of
Net Revenues                          (32.6% )        (40.6% )




Our net loss decreased $0.1 million in the three months ended March 31, 2023
compared with the same period last year mostly driven by higher net revenues of
$1.1 million and associated higher gross margin of $0.5 million, offsetting
operating expenses of $0.4 million, and higher other income of $0.1 million due
to higher interest income from our treasury bill investments. A tax benefit of
$0.6 million resulting from the loss was also recorded during the period.



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LIQUIDITY AND CAPITAL RESOURCES





Our principal source of liquidity is our cash on hand of $12.2 million as of
March 31, 2023.  Our principal source of operating cash inflows is from sales of
our products and NRE services to customers. Our principal cash outflows relate
to the purchase and production of inventory, funding of research and
development, and selling, general and administrative expenses. To develop new
products, support future growth, achieve operating efficiencies, and maintain
product quality, we are continuing to invest in research and development,
manufacturing technologies, and equipment.



Our inventory position was $6.6 million at March 31, 2023, which reflected an increase of $0.2 million from December 31, 2022. We have completed the transition of our manufacturing operations to Command and expect to significantly reduce our inventory position during the future quarters of 2023.





On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") was signed into law. The CARES Act contains a provision known as
the Employee Retention Credit ("ERC"), a refundable payroll tax credit for
qualified wages paid to retained full-time employees between March 13, 2020, and
December 31, 2020. The Consolidations Appropriations Act (CAA), signed into law
on December 27, 2020, significantly modified and expanded the provisions of the
ERC to include wages paid in 2021. For 2021, the ERC provides employers a
refundable federal tax credit equal to 70% of the first $10,000 of qualified
wages and benefits paid to retained employees between January 1, 2021, and
December 31, 2021. Credits may be claimed immediately by reducing payroll taxes
sent to the Internal Revenue Service. To the extent that the credit exceeds
employment withholdings, the employer may request a refund of prior taxes paid.
The Company determined that it qualified for this credit and anticipated
utilizing benefits under this act to aid its liquidity position and as a result
recorded a receivable of $0.7 million as of December 31, 2021. We expect the
credit to be received before the end of 2023.



We expect that our cash on hand, cash flows from operations and available
financing sources will be sufficient to meet our requirements at least through
March 31, 2024. Continued execution on our longer-term strategic plan may
require the Company to take on additional debt or raise capital through issuance
of equity, or a combination of both. Our future capital requirements may vary
from those currently planned and will depend on many factors, including our rate
of revenue growth, the timing and extent of spending on various strategic
initiatives including research and development, our international expansion, the
timing of new product introductions, market acceptance of our solutions, and
overall economic conditions including inflation, rising interest rates,
increased demand for equity investor capital and the potential impact of global
supply imbalances on the global financial markets. To the extent that current
and anticipated future sources of liquidity are or are expected to be
insufficient to fund our future business activities and requirements, we may be
required to seek additional equity or debt financing sooner. There can be no
assurance the Company will be able to obtain the financing or raise the capital
required to fund its operations or planned expansion.



Cash Flows


The following table summarizes our cash flows:





                                         Three Months Ended     Three Months Ended
                                           March 31, 2023         March 31, 2022

Net cash used in operating activities $ (4,660,583 ) $ (1,752,072 ) Net cash used in investing activities $

           (283,837 ) $           (752,602 )
Net cash used in financing activities   $           (238,972 ) $           (252,968 )




Operating Activities



Net cash used in operating activities of $4.7 million for the three months ended
March 31, 2023 was primarily due to the net loss of $2.4 million, working
capital changes which included an increase in accounts receivable of $0.6
million, an increase in inventory of $0.2 million, a decrease in accrued
expenses of $1.3 million, a decrease in accounts payable of $0.9 million and a
decrease in prepaid expense of $0.3 million.  Further contributing was an
increase in deferred tax assets of $0.6 million.  Offsetting these were
primarily non-cash charges for stock-based compensation of $0.9 million,
depreciation and amortization of $0.2 million and a loss on disposal of fixed
assets of $0.1 million.



Net cash used in operating activities of $1.8 million for the three months ended
March 31, 2022, was primarily due to the net loss of $2.5 million and the
deferred tax asset of $0.6 million, offset by favorable net working capital of
$0.4 million driven by accounts receivable collections and non-cash charges for
stock-based compensation of $0.8 million, and depreciation and amortization of
$0.1 million.



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Investing Activities


Net cash used in investing activities of $0.3 million for the three months ending March 31, 2023, was for capital expenditures for research and development and office equipment.





Net cash used in investing activities of $0.8 million for the three months ended
March 31, 2022, was for capital improvement expenditures for our new location
and manufacturing and office equipment.



Financing Activities



Net cash used in financing activities for the three months ended March 31, 2023,
is from $0.2 million of net borrowings on our indebtedness for a note payable
for insurance premium financing.



The $0.3 million used in financing activities for the three months ended March 31, 2022, was for financed director and officer liability insurance.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED





Refer to "NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES" in the accompanying financial statements, which is incorporated herein
by reference.

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