10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

or

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________.

Commission File Number: 0-12305

KORU MEDICAL SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3044880
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Corporate Drive, Mahwah, New Jersey	07430
(Address of principal executive offices)	(Zip Code)

(845) 469-2042

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	KRMD	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X] Yes  [_] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  [X] Yes  [_] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer   [X]	Smaller reporting company [X]
	Emerging growth company [_]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [_] Yes  [X] No

As of August 9, 2023, 45,639,081 shares of common stock, $0.01 par value per share, were outstanding, which excludes 3,420,502 shares of treasury stock.

KORU MEDICAL SYSTEMS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements (Unaudited)	3
	Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	3
	Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022	4
	Statements of Cash Flows (Unaudited) for the six months ended June 30,2023 and 2022	5
	Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2023 and 2022	6
	Notes to Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	21
ITEM 4.	Controls and Procedures	21
PART II. OTHER INFORMATION
ITEM 1A.	Risk Factors	21
ITEM 6.	Exhibits	22
	Signatures	23

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PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

KORU MEDICAL SYSTEMS, INC.

BALANCE SHEETS

(UNAUDITED)

	June 30,			December 31,
	2023			2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11,719,405		$	17,408,257
Accounts receivable less allowance for doubtful accounts of $21,459 as of June 30, 2023 and December 31, 2022		3,639,755			3,558,884
Inventory		5,278,224			6,404,867
Other receivables		1,131,115			972,396
Prepaid expenses		772,893			1,457,232
TOTAL CURRENT ASSETS		22,541,392			29,801,636
Property and equipment, net		3,811,843			3,886,975
Intangible assets, net of accumulated amortization of $357,809 and $325,872 as of June 30, 2023 and December 31, 2022, respectively		772,543			787,182
Operating lease right-of-use assets		3,626,348			3,786,545
Deferred income tax assets, net		5,144,876			3,967,480
Other assets		98,970			102,625
TOTAL ASSETS	$	35,995,972		$	42,332,443
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	1,574,630		$	2,391,799
Accrued expenses		1,362,293			2,889,941
Note payable		—			433,295
Other liabilities		263,253			257,337
Accrued payroll and related taxes		422,623			542,399
Financing lease liability – current		101,072			98,335
Operating lease liability – current		352,809			345,834
TOTAL CURRENT LIABILITIES		4,076,680			6,958,940
Financing lease liability, net of current portion		343,053			394,283
Operating lease liability, net of current portion		3,475,092			3,653,257
TOTAL LIABILITIES		7,894,825			11,006,480
Commitments and Contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 75,000,000 shares authorized, 49,033,652 and 48,861,891 shares issued 45,613,150 and 45,441,389 shares outstanding as of June 30, 2023, and December 31, 2022, respectively		490,337			488,619
Additional paid-in capital		45,932,354			44,252,117
Treasury stock, 3,420,502 shares as of June 30, 2023 and December 31, 2022, at cost		(3,843,562	)		(3,843,562	)
Accumulated deficit		(14,477,982	)		(9,571,211	)
TOTAL STOCKHOLDERS’ EQUITY		28,101,147			31,325,963
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	35,995,972		$	42,332,443

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
NET REVENUES	$	6,935,931		$	6,546,628		$	14,328,536		$	12,790,958
Cost of goods sold		3,047,807			3,200,455			6,293,377			5,822,480
Gross Profit		3,888,124			3,346,173			8,035,159			6,968,478
OPERATING EXPENSES
Selling, general and administrative		5,303,167			5,530,022			10,729,044			11,021,235
Research and development		1,596,614			1,303,731			3,161,483			2,452,086
Depreciation and amortization		212,919			125,882			426,036			235,134
Total Operating Expenses		7,112,700			6,959,635			14,316,563			13,708,455
Net Operating Loss		(3,224,576	)		(3,613,462	)		(6,281,404	)		(6,739,977	)
Non-Operating Income/(Expense)
Loss on currency exchange		(2,472	)		(21,705	)		(3,152	)		(28,840	)
Loss on disposal of fixed assets, net		—			—			(56,279	)		—
Interest income, net		131,167			3,566			256,669			2,103
TOTAL OTHER INCOME/(EXPENSE)		128,695			(18,139	)		197,238			(26,737	)
LOSS BEFORE INCOME TAXES		(3,095,881	)		(3,631,601	)		(6,084,166	)		(6,766,714	)
Income Tax Benefit		599,995			710,260			1,177,395			1,307,859
NET LOSS	$	(2,495,886	)	$	(2,921,341	)	$	(4,906,771	)	$	(5,458,855	)
NET LOSS PER SHARE
Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		45,606,603			44,921,870			45,547,427			44,795,625
Diluted		45,606,603			44,921,870			45,547,427			44,795,625

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months Ended
	June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(4,906,771	)	$	(5,458,855	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,681,955			1,579,151
Depreciation and amortization		426,036			235,134
Deferred income taxes		(1,177,395	)		(1,308,069	)
Loss on disposal of fixed assets		56,279			—
ROU landlord credit		(10,994	)		—
Changes in operating assets and liabilities:
(Increase) in Accounts receivable		(239,590)			(454,452	)
Decrease / (Increase) in Inventory		1,126,643			(665,176	)
Decrease in Prepaid expenses and other assets		687,994			334,193
Increase in Other liabilities		5,916			150,501
(Decrease) / Increase in Accounts payable		(817,169	)		1,162,329
(Decrease) / Increase in Accrued payroll and related taxes		(119,776	)		535,438
Decrease in Accrued expenses		(1,527,648	)		(735,508	)
NET CASH USED IN OPERATING ACTIVITIES		(4,814,520	)		(4,625,314	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(375,246	)		(1,915,289	)
Purchases of intangible assets		(17,298	)		(13,540	)
NET CASH USED IN INVESTING ACTIVITIES		(392,544	)		(1,928,829	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on indebtedness		(433,295	)		(508,583	)
Payments on finance lease liability		(48,493	)		(6,611	)
NET CASH USED IN FINANCING ACTIVITIES		(481,788	)		(515,194	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(5,688,852	)		(7,069,337	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		17,408,257			25,334,889
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	11,719,405		$	18,265,552
Supplemental Information
Cash paid during the periods for:
Interest	$	20,165		$	6,204
Income taxes	$	3,160		$	—
Schedule of Non-Cash Operating, Investing and Financing Activities:
Issuance of common stock as compensation	$	266,023		$	258,005

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

				Additional								Total
	Common Stock			Paid-in		Accumulated			Treasury			Stockholders’
	Shares	Amount		Capital		Deficit			Stock			Equity
Three and Six Months Ended June 30, 2023
BALANCE, DECEMBER 31, 2022	48,861,891	$	488,619	$	44,252,117	$	(9,571,211	)	$	(3,843,562	)	$	31,325,963
Accrued compensation paid in shares	48,875		489		175,287		—			—			175,776
Compensation expense related to stock options	—		—		535,059		—			—			535,059
Compensation expense related to restricted stock awards	50,000		500		169,887		—			—			170,387
Net loss	—		—		—		(2,410,885	)		—			(2,410,885	)
BALANCE, MARCH 31, 2023	48,960,766	$	489,608	$	45,132,350	$	(11,982,096	)	$	(3,843,562	)	$	29,796,300
Accrued compensation paid in shares	22,886		229		90,018		—			—			90,247
Compensation expense related to stock options	—		—		540,099		—			—			540,099
Compensation expense related to restricted stock awards	50,000		500		169,887		—			—			170,387
Net loss	—		—		—		(2,495,886	)		—			(2,495,886	)
BALANCE, JUNE 30, 2023	49,033,652	$	490,337	$	45,932,354	$	(14,477,982	)	$	(3,843,562	)	$	28,101,147

				Additional									Total
	Common Stock			Paid-in			Accumulated			Treasury			Stockholders’
	Shares	Amount		Capital			Deficit			Stock			Equity
Three and Six Months Ended June 30, 2022
BALANCE, DECEMBER 31, 2021	48,044,162	$	480,441	$	40,774,245		$	(910,069	)	$	(3,843,562	)	$	36,501,055
Accrued compensation paid in shares	47,500		475		142,025			—			—			142,500
Compensation expense related to stock options	—		—		524,670			—			—			524,670
Compensation expense related to restricted stock awards	—		—		170,386			—			—			170,386
Issuance upon options exercised	29,627		296		(296	)		—			—			—
Net loss	—		—		—			(2,537,514	)		—			(2,537,514	)
BALANCE, MARCH 31, 2022	48,121,289	$	481,212	$	41,611,030		$	(3,447,583	)	$	(3,843,562	)	$	34,801,097
Accrued compensation paid in shares	69,707		697		114,808			—			—			115,505
Compensation expense related to stock options	—		—		527,736			—			—			527,736
Compensation expense related to restricted stock awards	50,000		500		231,011			—			—			231,511
Issuance upon options exercised	166,623		1,667		(134,825	)		—			—			(133,158	)
Net loss	—		—		—			(2,921,341	)		—			(2,921,341	)
BALANCE, JUNE 30, 2022	48,407,619	$	484,076	$	42,349,760		$	(6,368,924	)	$	(3,843,562	)	$	32,621,350

The accompanying notes are an integral part of these financial statements.

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KORU MEDICAL SYSTEMS, INC.

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

KORU MEDICAL SYSTEMS, INC. (the “Company,” “KORU Medical,” “we,” “us” or “our”) designs, 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 regulations and standards for quality system management. The Company operates as one segment.

BASIS OF PRESENTATION

The accompanying financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2022 (“Annual Report”).  In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited financial statements of the Company. The accompanying interim financial statements are unaudited and reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented.  All such adjustments are of a normal, recurring nature.  The Company’s results of operations and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

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 at its primary commercial bank, which exceeds FDIC insurance limits. To reduce the risk of uninsured deposits, the Company entered an insured cash sweep program with KeyBank during the second quarter of 2023 to automatically invest its uninsured bank cash balances over $250,000 into FDIC insured banks so there is no more than $250,000 maintained at any one bank. Further, as of June 30, 2023 the Company had invested $10.4 million in a US Treasury bill that matures every 90 days.

PATENTS

Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents.

STOCK-BASED COMPENSATION

The Company maintains a stock option plan and an omnibus equity incentive plan under which it grants stock options to certain executives, key employees and consultants. 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.

The Company also maintains a non-employee director compensation plan. Shares of stock granted for director fees are recorded at the fair value of the shares at the grant date.

The Company issues restricted stock 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 restricted stock awards with time-based vesting were estimated on the date of grant at the current stock price. The fair value of restricted stock awards vesting at certain annual sales growth thresholds were estimated as of the date of Board acknowledgement of the achievement, 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.

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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 11,784 and 137,539, respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 14,001 and 166,441 respectively in weighted-average shares for each of the six months ended June 30, 2023 and 2022, respectively, as their effect was ant-diluted as a result of the net loss incurred for those periods.

The calculation of diluted loss per share excluded performance-based restricted stock and RSUs of 904,496 and 950,000 respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 904,496 and 950,000 respectively in weighted-average shares for the six months ended June 30, 2023 and 2022, respectively, as their effect was anti-diluted as a result of the net loss incurred for those periods.

The following securities were not included in the computation of diluted shares outstanding for the three and six months ended June 30, 2023, and 2022 because the effect would be anti-dilutive:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Common stock options	$	11,784	$	137,539	$	14,001	$	166,441
RSUs		54,496		—		54,496		—
Restricted stock - PSU		850,000		950,000		850,000		950,000
Total	$	916,280	$	1,087,539	$	916,280	$	1,116,441

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 three and six months ended June 30, 2023 and 2022.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Net loss	$	(2,495,886	)	$	(2,921,341	)	$	(4,906,771	)	$	(5,458,855	)
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Dilutive effect of outstanding stock options and unvested restricted stock		—			—			—			—
Diluted weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Net loss per share
Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)

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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, deferred tax valuation allowances, inventory valuation, and customer rebate and incentive accruals. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire 2023 fiscal year.

REVENUE RECOGNITION

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 June 30, 2023, the Company has recognized a contract asset of $282,118 which is included in other accounts receivable in the accompanying balance sheet.

The following table summarizes net revenues by geography for the three and six months ended June 30, 2023, and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Domestic	$	5,686,427	$	5,512,173	$	11,970,392	$	10,813,561
International		1,249,504		1,034,455		2,358,144		1,977,397
Total	$	6,935,931	$	6,546,628	$	14,328,536	$	12,790,958

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ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

 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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The Company adopted the pronouncement on January 1, 2023, and there is no impact on its financial statements.

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, including investments in short-term U.S. Treasury bills, 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 three and six months ended June 30, 2023 and 2022.

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.  The Company did not record any impairment losses through June 30, 2023.

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NOTE 2 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:

	June 30, 2023			December 31, 2022
Furniture and office equipment	$	1,345,456		$	1,456,745
Leasehold improvements		1,933,591			2,413,820
Manufacturing equipment and tooling		2,952,214			2,810,813
Total property and equipment		6,231,261			6,681,378
Less: accumulated depreciation and amortization		(2,419,418	)		(2,794,403	)
Property and equipment, net	$	3,811,843		$	3,886,975

Leasehold improvements and accumulated amortization each decreased of $0.5 million is due to the closure of the Company’s former Chester, New York office and manufacturing site.

Depreciation expense was $196,865 and $110,478 for the three months ended June 30, 2023 and 2022, respectively, and $394,099 and $204,562 for the six months ended June 30, 2023 and 2022, respectively.

NOTE 3 — STOCK-BASED COMPENSATION

The Company has three equity incentive plans: the 2015 Stock Option Plan, as amended (the “2015 Plan”), the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), and the Non-Employee Director Compensation Plan. The Company has also issued restricted stock as employment inducement awards to its Chief Executive Officer.

As of June 30, 2023, there were options to purchase 2,600,000 shares of the Company’s common stock outstanding to certain executives, key employees and consultants under the 2015 Plan, of which zero were issued during the three months ended June 30, 2023 and 40,000 were issued during the six months ended June 30, 2023. Additional options may be issued under the 2015 Plan as outstanding options are forfeited, subject to a maximum 59,250 available for issuance under the 2015 Plan as of June 30, 2023.

The 2021 Plan provides for the grant of up to 1,000,000 incentive stock options, nonqualified stock options, stock awards, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, consultants and directors. During the three months ended June 30, 2023, there were 45,000 option awards issued under the 2021 Plan. As of June 30, 2023, there had been 156,758 shares of common stock issued as directors fees, 21,100 executive bonus shares and 520,000 shares issued as executive and key employee compensation under the 2021 Plan in total. Additional options may be issued under the 2021 Plan as outstanding options are forfeited, subject to a maximum 302,142 available for issuance under the 2021 Plan as of June 30, 2023.

Each non-employee director of the Company (other than the Chairman of the Board) is eligible to receive $110,000 annually, to be paid quarterly $12,500 in cash and $15,000 in common stock.  The Chairman of the Board is eligible to receive $140,000 annually, to be paid quarterly $12,500 in cash and $22,500 in common stock. From May 18, 2021 to May 6, 2022, non-employee director compensation was paid pursuant to the 2021 Plan. Since May 6, 2022, non-employee director compensation has been paid pursuant to the Non-Employee Director Compensation Plan. All payments were and are pro-rated for partial service.

The per share weighted average fair value of stock options granted during the six months ended June 30, 2023 and June 30, 2022 was $2.78 and $2.03, respectively.  The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the six months ended June 30, 2023 and June 30, 2022. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options.  The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued. We have recognized tax benefits associated with stock-based compensation of $125,504 and $107,855 for the six months ended June 30, 2023 and 2022, respectively.

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The following table summarizes the activities for our stock option plans for the six months ended June 30, 2023, and 2022.

	June 30,
	2023		2022
Dividend yield		0.00%		0.00%
Expected Volatility		56.8% - 61.3%		65.9% - 77.5%
Weighted-average volatility		—		—
Expected dividends		—		—
Expected term (in years)		10		10
Risk-free rate		3.50% - 3.53%		1.81% - 2.99%

The following table summarizes the status of the time based stock options:

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at January 1	3,035,000	$	3.92		3,672,500	$	3.42
Granted	85,000	$	3.94		770,000	$	2.68
Exercised	—	$	—		618,750	$	1.57
Forfeited	—	$	—		411,250	$	2.94
Outstanding at June 30	3,120,000	$	3.92		3,412,500	$	3.64
Options exercisable at June 30	1,158,750	$	4.37		837,500	$	3.47
Weighted average fair value of options granted during the period	—	$	2.78		—	$	2.03
Stock-based compensation expense	—	$	1,075,158		—	$	1,052,405

Total stock-based compensation expense was $1,075,158 and $1,052,405 for the six months ended June 30, 2023, and 2022, respectively. No cash was received from option exercises for the six months ended June 30, 2023, and 2022.

The weighted-average grant-date fair value of options granted during the six months ended June 30, 2023, and 2022 was $0.2 million and $1.6 million, respectively.  There were no options exercised during the six months ended June 30, 2023 and 618,750 options exercised during the six months ended June 30, 2022.

The following table presents information pertaining to options outstanding at June 30, 2023:

Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.25-$9.49	3,120,000	8.5 years	$	3.92	1,158,750	$	4.37

As of June 30, 2023, there was $4,248,300 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted-average period of 46 months.  The total fair value of shares vested as of June 30, 2023, and June 30, 2022, was $3,798,884 and $2,149,858, respectively.

As of June 30, 2023, an aggregate of 361,392 shares remain for future stock grants under the Company’s stock option plans.

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RESTRICTED STOCK AWARDS

The following table summarizes the activities for our restricted stock awards for the six months ended June 30, 2023, and 2022.

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value
Unvested at January 1	950,000	$	3.04	1,000,000	$	3.01
Granted	54,496	$	3.68	—	$	—
Vested	100,000	$	3.31	50,000	$	3.31
Forfeited/canceled	—	$	—	—	$	—
Unvested at June 30	904,496	$	2.97	950,000	$	2.99

As of June 30, 2023, and 2022, there was $1,477,730 and $1,958,952 of unrecognized compensation cost related to unvested employee restricted stock units. This amount is expected to be recognized over a weighted-average period of 21 months. We have recognized tax benefits associated with restricted stock award compensation of $71,563 and $71,563 for the six months ended June 30, 2023 and 2022, respectively.

NOTE 4 — DEBT OBLIGATIONS

The Company had a $3,500,000 revolving line of credit with Keybank National Association that expired on June 1,2023. The Company did not borrow against the line of credit during the six-month period ended June 30, 2023.

On August 5, 2022, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.8 million bearing an annual percentage rate of 6.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2022 through June 1, 2023. The balance of AON note was $433,295 and zero as of December 31, 2022 and June 30, 2023, respectively.

NOTE 5 — LEASES

The Company has an operating lease for its corporate office, and finance leases for certain office and computer equipment.  Our operating lease has remaining lease term of 9.2 years. Our finance leases, which were entered into in June 2022 and October 2022, respectively, have remaining lease terms of 3.9 and 4.3 years, respectively.

The components of lease expense were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Operating lease cost	$	112,279	$	161,140	$	224,801	$	239,582
Short-term lease cost		25,143		28,579		78,037		78,288
Total lease cost	$	137,422	$	189,719	$	302,838	$	317,870
Finance lease cost:
Amortization of right-of-use assets	$	27,224	$	5,918	$	54,447	$	5,918
Interest on lease liabilities		6,387		0		13,107		0
Total finance lease cost	$	33,611	$	5,918	$	67,554	$	5,918

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Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	229,879	$	181,544
Financing cash flows from finance leases		61,600		6,611

Supplemental balance sheet information related to leases was as follows:

	June 30, 2023			December 31, 2022
Operating Leases
Operating lease right-of-use assets	$	3,626,348		$	3,786,545
Operating lease current liabilities		352,809			345,834
Operating lease long term liabilities		3,475,092			3,653,257
Total operating lease liabilities	$	3,827,901		$	3,999,091
Finance Leases
Property and equipment, at cost	$	544,468		$	544,468
Accumulated depreciation		(105,342	)		(50,895	)
Property and equipment, net	$	439,126		$	493,573
Finance lease current liabilities		101,072			98,335
Finance lease long term liabilities		343,053			394,283
Total finance lease liabilities	$	444,125		$	492,618

	June 30, 2023	December 31, 2022
Weighted Average Remaining Lease Term
Operating leases	9.2 Years	9.7 Years
Finance leases	4.0 Years	4.6 Years
Weighted Average Discount Rate
Operating leases	4.00%	4.00%
Finance leases	4.25%	4.25%

Maturities of lease liabilities are as follows:

Year Ending December 31,	Operating Leases			Finance Leases
Remainder of 2023	$	249,752			61,600
2024		499,503			123,200
2025		499,503			123,200
2026		499,503			123,200
2027		499,503			65,957
Thereafter		2,331,015			—
Total undiscounted lease payments		4,578,779			497,157
Less: imputed interest		(750,878	)		(53,032	)
Total lease liabilities	$	3,827,901		$	444,125

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NOTE 6 — 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 benefit of $0.6 million and income tax benefit of $0.7 million for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June, 30 2023 and 2022, the Company reported income tax benefit of $1.2 million and income tax benefit of $1.3 million, respectively.

Each reporting period, we evaluate the realizability of our net deferred tax assets and perform an assessment of both positive and negative evidence. Based on our evaluation of all available positive and negative evidence, we determined, as of June 30, 2023 and December 31, 2022, that it is more likely than not that our net U.S. deferred tax assets will be realized. Due to estimates and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record a valuation allowance in future reporting periods that could have a material effect on our results of operations.

Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including U.S. federal R&D credits, U.S. state tax rates, and stock-based compensation.

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.

NOTE 7 — COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company has been and may again become involved in legal proceedings, claims and litigation arising in the ordinary course of business.  KORU Medical is not presently a party to any litigation or other legal proceeding that is believed to be material to its financial condition.

NOTE 8 — SUBSEQUENT EVENTS

On July 25, 2023, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.6 million bearing an annual percentage rate of 9.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2023 through June 1, 2024.

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PART I — ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 reduction of inventory, receipt of ERC payroll tax credit, , and need for additional financing.  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.

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 regulations and standards for quality system management.

Our revenues derive from three business sources: (i) domestic core (consisting of US and Canada), (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 cleared by FDA and other applicable global regulatory authorities (e.g. EU Competent Authorities) for use with the FREEDOM 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. Our novel therapies revenues can fluctuate and may not be consistent from period to period. Engineering work performed on our product may be specialized and tailored to the specific needs of each independent clinical trial and not uniform in nature. The clinical trial size and scope of protocols may also range greatly from customer to customer, and there is no expectation of repeat customers on a consistent basis compared to our core business.

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. This arrangement 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.

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The Company ended the 2023 second fiscal quarter with $6.9 million in net revenues, an 5.9% increase, compared with $6.5 million in the same period last year driven by growth in our core business.

Gross profit for the three months ended June 30, 2023, increased $0.5 million, an increase of 16.2% from the same period last year and, stated as a percentage of net revenues was 56.1%, an increase from 51.1% in the prior year period.

Operating expenses for the three months ended June 30, 2023, were $7.1 million, up from $7.0 million for the same period last year, driven primarily by an increase of $0.3 million in research and development expense, which was mostly offset by a reduction of $0.2 million in selling, general and administrative expenses.

RESULTS OF OPERATIONS

Three months ended June 30, 2023, compared to June 30, 2022

Net Revenues

The following table summarizes our net revenues for the three months ended June 30, 2023, and 2022:

	Three Months Ended June 30,				Change from Prior Year					% of Net Revenues
	2023		2022		$			%		2023	2022
Net Revenues
Domestic Core	$	5,388,173	$	4,996,791	$	391,382		7.8%		77.7%	76.3%
International Core		1,117,004		951,485		165,519		17.4%		16.1%	14.5%
Novel Therapies		430,754		598,352		(167,598	)	(28.0%	)	6.2%	9.2%
Total	$	6,935,931	$	6,546,628	$	389,303		5.9%

Total net revenues increased $0.4 million, or 5.9%, for the three months ended June 30, 2023, as compared with the same period last year. Domestic Core growth of 7.8% was primarily driven by increased growth in consumables and pumps, new accounts, and increased prefilled syringe adoptions. The US growth was affected by a Q2 decline in US market prescriptions for subcutaneous immunoglobulin drugs. International Core growth of 17.4%, was driven by strength across several European markets and growing global Immunoglobulin drug volume availability. Novel Therapies net revenues declined by 28.0% in the second quarter of 2023 primarily related to strong NRE revenues in the comparable quarter last year as well as the timing of 2023 pipeline wins.

Gross Profit

Our gross profit for the three months ended June 30, 2023 and 2022 is as follows:

	Three Months Ended June 30,				Change from Prior Year
	2023		2022		$		%
Gross Profit	$	3,888,124	$	3,346,173	$	541,951	16.2%
Stated as a Percentage of Net Revenues		56.1%		51.1%

Gross profit increased $0.5 million or 16.2% in the three months ended June 30, 2023, compared to the same period in 2022. The 2023 second quarter gross profit increase was driven by the increase in net revenues of $0.4 million as described above. Gross profit as a percentage of revenues increased to 56.1% compared to 51.1% in the second quarter of 2022.  The increase in the gross profit as a percentage of revenues was primarily driven by increased production efficiencies when compared to the prior year.

Selling, general and administrative and research and development

Our selling, general and administrative and research and development costs for the three months ended June 30, 2023 and 2022 are as follows:

	Three Months Ended June 30,				Change from Prior Year
	2023		2022		$			%
Selling, general and administrative	$	5,303,167	$	5,530,022	$	(226,855	)	(4.1%	)
Research and development		1,596,614		1,303,731		292,883		22.5%
	$	6,899,781	$	6,833,753	$	66,028		1.0%
Stated as a Percentage of Net Revenues		99.5%		104.4%

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Selling, general and administrative expenses decreased $0.2 million, or 4.1%, during the three months ended June 30, 2023 compared with the same period last year, primarily due to a $0.3 million decrease in recruiting costs and $0.2 million compensation and benefits related to the vacancy in the Chief Financial Officer role, partially offset by $0.3 million investments in business development and medical affairs.

Research and development expenses increased $0.3 million, or 22.5% during the three months ended June 30, 2023 compared with the same period last year, primarily due to increases in outside consulting associated with the support of our innovation efforts.

Depreciation and amortization

Depreciation and amortization expense increased by 69.1% to $212,919 in the three months ended June 30, 2023 compared with $125,882 in the three months ended June 30, 2022 resulting from prior year investments in our Mahwah facility which includes our corporate office, in-house manufacturing, and research and development labs.

Net Loss

	Three Months Ended June 30,						Change from Prior Year
	2023			2022			$		%
Net Loss	$	(2,495,886	)	$	(2,921,341	)	$	425,455	(14.6%	)
Stated as a Percentage of Net Revenues		(36.0%	)		(44.6%	)

Our net loss decreased $0.4 million in the three months ended June 30, 2023 compared with the same period last year mostly driven by an increase in net revenues of $0.4 million and associated higher gross profit of $0.5 million and an increase in other income of $0.2 million due to higher interest and dividend income from our treasury bill investments, which was partially offset by higher operating expenses of $0.2 million. A tax benefit of $0.6 million resulting from the loss was also recorded during the period.

Six months ended June 30, 2023, compared to June 30, 2022

Net Revenues

The following table summarizes our net revenues for the six months ended June 30, 2023, and 2022:

	Six Months Ended March 31,				Change from Prior Year			% of Net Revenue
	2023		2022		$		%	2023	2022
Net Revenues
Domestic Core	$	11,107,308	$	9,990,327	$	1,116,981	11.2%	77.5%	78.1%
International Core		2,214,494		1,846,427		368,067	19.9%	15.5%	14.4%
Novel Therapies		1,006,734		954,204		52,530	5.5%	7.0%	7.5%
Total	$	14,328,536	$	12,790,958	$	1,537,578	12.0%

Total net revenues increased $1.5 million, or 12.0%, for the six months ended June 30, 2023, as compared with the same period last year. Domestic Core growth of 11.2% was primarily driven by growth in consumables and pumps, new account wins, and increased prefilled syringe adoptions despite a decline in US market prescriptions for subcutaneous immunoglobulin drugs. International Core growth of 19.9%, was driven by strength across several EU markets and growing global immunoglobulin drug availability. Novel Therapies net revenues grew by 5.5% in the first half of 2023 driven by timing of work performed on a NRE development contract.

Gross Profit

Our gross profit for the six months ended June 30, 2023 and 2022 is as follows:

	Six Months Ended June 30,				Change from Prior Year
	2023		2022		$		%
Gross Profit	$	8,035,159	$	6,968,478	$	1,066,681	15.3%
Stated as a Percentage of Net Revenues		56.1%		54.5%

Gross profit increased $1.1 million or 15.3% in the six months ended June 30, 2023, compared to the same period in 2022. The increase in the first half of 2023 was driven by the increase in net revenues of $1.5 million as described above. Gross profit as a percentage of revenues increased to 56.1% in the first half of 2023 compared to 54.5% from the first half of 2022.  The increase in the gross profit as a percentage of revenues was primarily driven by increased manufacturing efficiencies versus the prior year. Additionally, we realized improved NRE margin vs PY driven by a more profitable mix of services performed.

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Selling, general and administrative and research and development

Our selling, general and administrative and research and development costs for the six months ended June 30, 2023 and 2022 are as follows:

	Six Months Ended June 30,				Change from Prior Year
	2023		2022		$			%
Selling, general and administrative	$	10,729,044	$	11,021,235	$	(292,191	)	(2.7%	)
Research and development		3,161,483		2,452,086		709,397		28.9%
	$	13,890,527	$	13,473,321	$	417,206		3.1%
Stated as a Percentage of Net Revenues		96.9%		105.3%

Selling, general and administrative expenses decreased $0.3 million, or 2.7%, during the six months ended June 30, 2023 compared with the same period last year, primarily due to a $0.3 million decrease in recruiting, a $0.2 million decrease in compensation and benefits partially offset by a $0.2 million increase in travel and entertainment expense for tradeshows.

Research and development expenses increased $0.7 million, or 28.9% during the six months ended June 30, 2023 compared with the same period last year, primarily due to $0.3 million in compensation and benefits, $0.1 million in stock compensation and $0.2 million in consulting to support acceleration of our innovation efforts.

Depreciation and amortization

Depreciation and amortization expense increased by 81.2% to $426,036 in the six months ended June 30, 2023 compared with $235,134 in the six months ended June 30, 2022 resulting from prior year investments in our Mahwah corporate facility which includes our corporate office, in-house manufacturing, and research and development labs.

Net Loss

	Six Months Ended June 30,						Change from Prior Year
	2023			2022			$		%
Net Loss	$	(4,906,771	)	$	(5,458,855	)	$	552,084	10.1%
Stated as a Percentage of Net Revenues		(34.2%	)		(42.7%	)

Our net loss decreased $0.6 million in the six months ended June 30, 2023 compared with the same period last year mostly driven by an increase in net revenues of $1.5 million and associated higher gross profit of $1.1 million, an increase in other income of $0.2 million due to higher interest and dividend income from our treasury bill investments, which was partially offset by higher operating expenses of $0.6 million. A tax benefit of $1.2 million resulting from the loss was also recorded during the period.

LIQUIDITY AND CAPITAL RESOURCES.

Our principal source of liquidity is our cash and cash equivalents on hand of $11.7 million as of June 30, 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 $5.3 million as of June 30, 2023, which reflected a decrease of $1.1 million from December 31, 2022. We have completed the transition of our manufacturing operations to Command and expect to continue to reduce our inventory position during the remaining 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.

- 19 -

We expect that our cash on hand, cash flows from operations and available financing sources will be sufficient to meet our requirements at least the next twelve months from the issuance of this Form 10-Q. Continued execution on our longer-term strategic plan may require the Company to take on additional debt. The Company is actively exploring potential debt financing sources in the event additional cash is needed beyond twelve months. Alternatively, or in addition, we may need to raise capital through issuance of equity or other securities. 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:

	Six Months Ended June 30, 2023			Six Months Ended June 30, 2022
Net cash used in operating activities	$	(4,814,520	)	$	(4,625,314	)
Net cash used in investing activities	$	(392,544	)	$	(1,928,829	)
Net cash used in financing activities	$	(481,788	)	$	(515,194	)

Operating Activities

Net cash used in operating activities was $4.8 million for the six months ended June 30, 2023. This net cash usage was primarily due to the net loss of $4.9 million, plus cash flows used to fund a decrease in accrued expenses of $1.7 million, primarily from the payment of 2022 bonuses, and a decrease in accounts payable of $0.8 million, offset by cash flows generated from a decrease in inventory of $1.1 million, an increase in accounts receivable of $0.2 million and a decrease in prepaid expense of $0.7 million. Further contributing to this change were non-cash items including an increase in deferred tax assets of $1.2 million offset by stock-based compensation expense of $1.7 million, depreciation and amortization expense of $0.4 million and a loss on disposal of fixed assets of $0.1 million.

Net cash used in operating activities was $4.6 million for the six months ended June 30, 2022. This net cash usage was primarily due to the net loss of $5.5 million, plus cash flows used to fund a decrease in accrued expense of $0.7 million, primarily from the payment of 2021 bonuses, cash flows used to fund an increase in inventory of $0.7 million, an increase in accounts receivable of $0.5 million, and a decrease in prepaids of $0.3 million related to insurance payments, offset by an increase in accounts payable of $1.2 million and an increase in accrued payroll of $0.5 million.  Further contributing to this change were non-cash items including deferred tax assets of $1.3 million offset by stock-based compensation expense of $1.6 million, and depreciation and amortization of $0.2 million.

Investing Activities

Net cash used in investing activities of $0.4 million for the six months ending June 30, 2023, was for capital expenditures for research and development and manufacturing equipment.

Net cash used in investing activities of $1.9 million for the six months ending June 30, 2022, was for capital expenditures for manufacturing and office equipment for our corporate office and manufacturing facilities move.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2023, is from $0.4 million of payments on our prior note payable for insurance premium financing and $0.1 million for payments on our finance leases.

Net cash used in financing activities for the six months ended June 30, 2022, is from $0.5 million of payments on our prior note payable for insurance premium financing.

- 20 -

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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

The Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as such is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon their evaluations, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company’s internal control over financial reporting during the six months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1A.  RISK FACTORS

Our operations and financial results are subject to various risks and uncertainties, including those described in “PART 1, ITEM 1A. RISK FACTORS” in our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 and described below, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

Our business is currently principally dependent on the growth of the SCIg market.

Revenues from our domestic core business represented 77% of our total revenues for the first six months of fiscal year 2023 and 76% of our total revenues for fiscal year 2022. Growth of our domestic core business is currently principally dependent on growth of the market for SCIg drugs in the US and Canada. There can be no assurance that the market for SCIg drugs in the US and Canada will continue to grow at or near historical rates. If the market for SCIg drugs in the US and Canada does not grow at or near historical rates, or even declines, our business and outlook may be materially and adversely affected, which would materially and adversely affect our financial condition.

As of June 30, 2023, we had approximately $5.1 million in net deferred income tax assets (DTAs). These DTAs can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. At this time, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that some or all of these NOL carryforwards could ultimately be unused, especially if our strategic plan objectives are not met. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance to reduce our DTAs may be required, which would materially increase our expenses in the period the allowance is recognized and materially adversely affect our results of operations and statement of financial condition.

- 21 -

PART II – ITEM 6.  EXHIBITS.

Exhibit No.	Description
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act 2002
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002
32.2	Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 2002
101.INS	Inline XBRL Instance Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

- 22 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	KORU MEDICAL SYSTEMS, INC.
August 9, 2023	/s/ Linda Tharby
	Linda Tharby, President and Chief Executive Officer (Principal Executive Officer)
August 9, 2023	/s/ Thomas Adams
	Thomas Adams, Chief Financial Officer and Treasurer (Principal Financial Officer)

- 23 -

EX-31

EXHIBIT 31.1

RULE 13A-14(A) / 15D-14(A) CERTIFICATION OF

PRINCIPAL EXECUTIVE OFFICER

I, Linda Tharby, Principal Executive Officer, certify that:

1)	I have reviewed this Quarterly Report on Form 10-Q of KORU Medical Systems, Inc. (the “Report”);
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing this equivalent function):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2023

/s/ Linda Tharby

Linda Tharby

President and Chief Executive Officer

EX-31

EXHIBIT 31.2

RULE 13A-14(A) / 15D-14(A) CERTIFICATION OF

PRINCIPAL FINANCIAL OFFICER

I, Thomas Adams, Principal Financial Officer, certify that:

1)	I have reviewed this Quarterly Report on Form 10-Q of KORU Medical Systems, Inc. (the “Report”);
2)	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3)	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4)	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing this equivalent function):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2023

/s/ Thomas Adams

Thomas Adams

Chief Financial Officer and Treasurer

(Principal Financial Officer)

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KORU Medical Systems, Inc. (the “Company”) on Form 10-Q (the “Report”) for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission, I, Linda Tharby, Principal Executive Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2023

/s/ Linda Tharby

Linda Tharby

President and Chief Executive Officer

EX-32

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KORU Medical Systems, Inc. (the “Company”) on Form 10-Q (the “Report”) for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission, I, Thomas Adams, Principal Financial Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2023

/s/ Thomas Adams

Thomas Adams

Chief Financial Officer and Treasurer

(Principal Financial Officer)

XML

Cover - $ / shares	6 Months Ended
	Jun. 30, 2023	Aug. 09, 2023	Dec. 31, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2023
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Entity File Number	0-12305
Entity Registrant Name	KORU MEDICAL SYSTEMS, INC.
Entity Central Index Key	0000704440
Entity Tax Identification Number	13-3044880
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	100 Corporate Drive
Entity Address, City or Town	Mahwah
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	07430
City Area Code	845
Local Phone Number	469-2042
Title of 12(b) Security	Common stock, $0.01 par value
Trading Symbol	KRMD
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		45,639,081
Entity Listing, Par Value Per Share	$ 0.01
Treasury Stock, Common, Shares	3,420,502	3,420,502	3,420,502

XML

BALANCE SHEETS (UNAUDITED) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
CURRENT ASSETS
Cash and cash equivalents	$ 11,719,405	$ 17,408,257
Accounts receivable less allowance for doubtful accounts of $21,459 as of June 30, 2023 and December 31, 2022	3,639,755	3,558,884
Inventory	5,278,224	6,404,867
Other receivables	1,131,115	972,396
Prepaid expenses	772,893	1,457,232
TOTAL CURRENT ASSETS	22,541,392	29,801,636
Property and equipment, net	3,811,843	3,886,975
Intangible assets, net of accumulated amortization of $357,809 and $325,872 as of June 30, 2023 and December 31, 2022, respectively	772,543	787,182
Operating lease right-of-use assets	3,626,348	3,786,545
Deferred income tax assets, net	5,144,876	3,967,480
Other assets	98,970	102,625
TOTAL ASSETS	35,995,972	42,332,443
CURRENT LIABILITIES
Accounts payable	1,574,630	2,391,799
Accrued expenses	1,362,293	2,889,941
Note payable		433,295
Other liabilities	263,253	257,337
Accrued payroll and related taxes	422,623	542,399
Financing lease liability – current	101,072	98,335
Operating lease liability – current	352,809	345,834
TOTAL CURRENT LIABILITIES	4,076,680	6,958,940
Financing lease liability, net of current portion	343,053	394,283
Operating lease liability, net of current portion	3,475,092	3,653,257
TOTAL LIABILITIES	7,894,825	11,006,480
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 75,000,000 shares authorized, 49,033,652 and 48,861,891 shares issued 45,613,150 and 45,441,389 shares outstanding as of June 30, 2023, and December 31, 2022, respectively	490,337	488,619
Additional paid-in capital	45,932,354	44,252,117
Treasury stock, 3,420,502 shares as of June 30, 2023 and December 31, 2022, at cost	(3,843,562)	(3,843,562)
Accumulated deficit	(14,477,982)	(9,571,211)
TOTAL STOCKHOLDERS’ EQUITY	28,101,147	31,325,963
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 35,995,972	$ 42,332,443

XML

BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Accounts receivable, allowance for credit loss, current	$ 21,459	$ 21,459
Finite-lived intangible assets, accumulated amortization	$ 357,809	$ 325,872
Common stock, par or stated value per share	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares, issued	49,033,652	48,861,891
Common stock, shares, outstanding	45,613,150	45,441,389
Treasury stock, shares	3,420,502	3,420,502

XML

STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Statement [Abstract]
NET REVENUES	$ 6,935,931	$ 6,546,628	$ 14,328,536	$ 12,790,958
Cost of goods sold	3,047,807	3,200,455	6,293,377	5,822,480
Gross Profit	3,888,124	3,346,173	8,035,159	6,968,478
OPERATING EXPENSES
Selling, general and administrative	5,303,167	5,530,022	10,729,044	11,021,235
Research and development	1,596,614	1,303,731	3,161,483	2,452,086
Depreciation and amortization	212,919	125,882	426,036	235,134
Total Operating Expenses	7,112,700	6,959,635	14,316,563	13,708,455
Net Operating Loss	(3,224,576)	(3,613,462)	(6,281,404)	(6,739,977)
Non-Operating Income/(Expense)
Loss on currency exchange	(2,472)	(21,705)	(3,152)	(28,840)
Loss on disposal of fixed assets, net			(56,279)
Interest income, net	131,167	3,566	256,669	2,103
TOTAL OTHER INCOME/(EXPENSE)	128,695	(18,139)	197,238	(26,737)
LOSS BEFORE INCOME TAXES	(3,095,881)	(3,631,601)	(6,084,166)	(6,766,714)
Income Tax Benefit	599,995	710,260	1,177,395	1,307,859
NET LOSS	$ (2,495,886)	$ (2,921,341)	$ (4,906,771)	$ (5,458,855)
NET LOSS PER SHARE
Basic	$ (0.05)	$ (0.07)	$ (0.11)	$ (0.12)
Diluted	$ (0.05)	$ (0.07)	$ (0.11)	$ (0.12)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic	45,606,603	44,921,870	45,547,427	44,795,625
Diluted	45,606,603	44,921,870	45,547,427	44,795,625

XML

STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$ (4,906,771)	$ (5,458,855)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense	1,681,955	1,579,151
Depreciation and amortization	426,036	235,134
Deferred income taxes	(1,177,395)	(1,308,069)
Loss on disposal of fixed assets	56,279
ROU landlord credit	(10,994)
Changes in operating assets and liabilities:
(Increase) in Accounts receivable	(239,590)	(454,452)
Decrease / (Increase) in Inventory	1,126,643	(665,176)
Decrease in Prepaid expenses and other assets	687,994	334,193
Increase in Other liabilities	5,916	150,501
(Decrease) / Increase in Accounts payable	(817,169)	1,162,329
(Decrease) / Increase in Accrued payroll and related taxes	(119,776)	535,438
Decrease in Accrued expenses	(1,527,648)	(735,508)
NET CASH USED IN OPERATING ACTIVITIES	(4,814,520)	(4,625,314)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(375,246)	(1,915,289)
Purchases of intangible assets	(17,298)	(13,540)
NET CASH USED IN INVESTING ACTIVITIES	(392,544)	(1,928,829)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on indebtedness	(433,295)	(508,583)
Payments on finance lease liability	(48,493)	(6,611)
NET CASH USED IN FINANCING ACTIVITIES	(481,788)	(515,194)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(5,688,852)	(7,069,337)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	17,408,257	25,334,889
CASH AND CASH EQUIVALENTS, END OF PERIOD	11,719,405	18,265,552
Cash paid during the periods for:
Interest	20,165	6,204
Income taxes	3,160
Schedule of Non-Cash Operating, Investing and Financing Activities:
Issuance of common stock as compensation	$ 266,023	$ 258,005

XML

STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock, Common [Member]	Total
Beginning balance, value at Dec. 31, 2021	$ 480,441	$ 40,774,245	$ (910,069)	$ (3,843,562)	$ 36,501,055
Beginning balance (in shares) at Dec. 31, 2021	48,044,162
Accrued compensation paid in shares	$ 475	142,025			142,500
Issuance of stock-based compensation (in shares)	47,500
Compensation expense related to stock options		524,670			524,670
Compensation expense related to restricted stock awards		170,386			170,386
Ending balance, value at Mar. 31, 2022	481,212	41,611,030	(3,447,583)	(3,843,562)	34,801,097
Net loss			(2,537,514)		(2,537,514)
Issuance upon options exercised	$ 296	(296)
Issuance upon options exercised (in shares)	29,627
Ending balance (in shares) at Mar. 31, 2022	48,121,289
Beginning balance, value at Dec. 31, 2021	$ 480,441	40,774,245	(910,069)	(3,843,562)	36,501,055
Beginning balance (in shares) at Dec. 31, 2021	48,044,162
Ending balance, value at Jun. 30, 2022	$ 484,076	42,349,760	(6,368,924)	(3,843,562)	32,621,350
Net loss					(5,458,855)
Ending balance (in shares) at Jun. 30, 2022	48,407,619
Beginning balance, value at Mar. 31, 2022	$ 481,212	41,611,030	(3,447,583)	(3,843,562)	34,801,097
Beginning balance (in shares) at Mar. 31, 2022	48,121,289
Accrued compensation paid in shares	$ 697	114,808			115,505
Issuance of stock-based compensation (in shares)	69,707
Compensation expense related to stock options		527,736			527,736
Compensation expense related to restricted stock awards	$ 500	231,011			231,511
Issuance of restricted stock awards (in shares)	50,000
Ending balance, value at Jun. 30, 2022	$ 484,076	42,349,760	(6,368,924)	(3,843,562)	32,621,350
Net loss			(2,921,341)		(2,921,341)
Issuance upon options exercised	$ 1,667	(134,825)			(133,158)
Issuance upon options exercised (in shares)	166,623
Ending balance (in shares) at Jun. 30, 2022	48,407,619
Beginning balance, value at Dec. 31, 2022	$ 488,619	44,252,117	(9,571,211)	(3,843,562)	31,325,963
Beginning balance (in shares) at Dec. 31, 2022	48,861,891
Accrued compensation paid in shares	$ 489	175,287			175,776
Issuance of stock-based compensation (in shares)	48,875
Compensation expense related to stock options		535,059			535,059
Compensation expense related to restricted stock awards	$ 500	169,887			170,387
Issuance of restricted stock awards (in shares)	50,000
Ending balance, value at Mar. 31, 2023	$ 489,608	45,132,350	(11,982,096)	(3,843,562)	29,796,300
Net loss			(2,410,885)		(2,410,885)
Ending balance (in shares) at Mar. 31, 2023	48,960,766
Beginning balance, value at Dec. 31, 2022	$ 488,619	44,252,117	(9,571,211)	(3,843,562)	31,325,963
Beginning balance (in shares) at Dec. 31, 2022	48,861,891
Ending balance, value at Jun. 30, 2023	$ 490,337	45,932,354	(14,477,982)	(3,843,562)	28,101,147
Net loss					(4,906,771)
Ending balance (in shares) at Jun. 30, 2023	49,033,652
Beginning balance, value at Mar. 31, 2023	$ 489,608	45,132,350	(11,982,096)	(3,843,562)	29,796,300
Beginning balance (in shares) at Mar. 31, 2023	48,960,766
Accrued compensation paid in shares	$ 229	90,018			90,247
Issuance of stock-based compensation (in shares)	22,886
Compensation expense related to stock options		540,099			540,099
Compensation expense related to restricted stock awards	$ 500	169,887			170,387
Issuance of restricted stock awards (in shares)	50,000
Ending balance, value at Jun. 30, 2023	$ 490,337	45,932,354	(14,477,982)	(3,843,562)	28,101,147
Net loss			$ (2,495,886)		$ (2,495,886)
Ending balance (in shares) at Jun. 30, 2023	49,033,652

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NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

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,” “we,” “us” or “our”) designs, 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 regulations and standards for quality system management. The Company operates as one segment.

BASIS OF PRESENTATION

The accompanying financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2022 (“Annual Report”).  In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited financial statements of the Company. The accompanying interim financial statements are unaudited and reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented.  All such adjustments are of a normal, recurring nature.  The Company’s results of operations and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

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 at its primary commercial bank, which exceeds FDIC insurance limits. To reduce the risk of uninsured deposits, the Company entered an insured cash sweep program with KeyBank during the second quarter of 2023 to automatically invest its uninsured bank cash balances over $250,000 into FDIC insured banks so there is no more than $250,000 maintained at any one bank. Further, as of June 30, 2023 the Company had invested $10.4 million in a US Treasury bill that matures every 90 days.

PATENTS

Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents.

STOCK-BASED COMPENSATION

The Company maintains a stock option plan and an omnibus equity incentive plan under which it grants stock options to certain executives, key employees and consultants. 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.

The Company also maintains a non-employee director compensation plan. Shares of stock granted for director fees are recorded at the fair value of the shares at the grant date.

The Company issues restricted stock 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 restricted stock awards with time-based vesting were estimated on the date of grant at the current stock price. The fair value of restricted stock awards vesting at certain annual sales growth thresholds were estimated as of the date of Board acknowledgement of the achievement, 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 11,784 and 137,539, respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 14,001 and 166,441 respectively in weighted-average shares for each of the six months ended June 30, 2023 and 2022, respectively, as their effect was ant-diluted as a result of the net loss incurred for those periods.

The calculation of diluted loss per share excluded performance-based restricted stock and RSUs of 904,496 and 950,000 respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 904,496 and 950,000 respectively in weighted-average shares for the six months ended June 30, 2023 and 2022, respectively, as their effect was anti-diluted as a result of the net loss incurred for those periods.

The following securities were not included in the computation of diluted shares outstanding for the three and six months ended June 30, 2023, and 2022 because the effect would be anti-dilutive:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Common stock options	$	11,784	$	137,539	$	14,001	$	166,441
RSUs		54,496		—		54,496		—
Restricted stock - PSU		850,000		950,000		850,000		950,000
Total	$	916,280	$	1,087,539	$	916,280	$	1,116,441

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 three and six months ended June 30, 2023 and 2022.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Net loss	$	(2,495,886	)	$	(2,921,341	)	$	(4,906,771	)	$	(5,458,855	)
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Dilutive effect of outstanding stock options and unvested restricted stock		—			—			—			—
Diluted weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Net loss per share
Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)

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, deferred tax valuation allowances, inventory valuation, and customer rebate and incentive accruals. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire 2023 fiscal year.

REVENUE RECOGNITION

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 June 30, 2023, the Company has recognized a contract asset of $282,118 which is included in other accounts receivable in the accompanying balance sheet.

The following table summarizes net revenues by geography for the three and six months ended June 30, 2023, and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Domestic	$	5,686,427	$	5,512,173	$	11,970,392	$	10,813,561
International		1,249,504		1,034,455		2,358,144		1,977,397
Total	$	6,935,931	$	6,546,628	$	14,328,536	$	12,790,958

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

 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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The Company adopted the pronouncement on January 1, 2023, and there is no impact on its financial statements.

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, including investments in short-term U.S. Treasury bills, 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 three and six months ended June 30, 2023 and 2022.

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.  The Company did not record any impairment losses through June 30, 2023.

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PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 2 — PROPERTY AND EQUIPMENT

Property and equipment consists of the following at:

	June 30, 2023			December 31, 2022
Furniture and office equipment	$	1,345,456		$	1,456,745
Leasehold improvements		1,933,591			2,413,820
Manufacturing equipment and tooling		2,952,214			2,810,813
Total property and equipment		6,231,261			6,681,378
Less: accumulated depreciation and amortization		(2,419,418	)		(2,794,403	)
Property and equipment, net	$	3,811,843		$	3,886,975

Leasehold improvements and accumulated amortization each decreased of $0.5 million is due to the closure of the Company’s former Chester, New York office and manufacturing site.

Depreciation expense was $196,865 and $110,478 for the three months ended June 30, 2023 and 2022, respectively, and $394,099 and $204,562 for the six months ended June 30, 2023 and 2022, respectively.

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

NOTE 3 — STOCK-BASED COMPENSATION

The Company has three equity incentive plans: the 2015 Stock Option Plan, as amended (the “2015 Plan”), the 2021 Omnibus Equity Incentive Plan (the “2021 Plan”), and the Non-Employee Director Compensation Plan. The Company has also issued restricted stock as employment inducement awards to its Chief Executive Officer.

As of June 30, 2023, there were options to purchase 2,600,000 shares of the Company’s common stock outstanding to certain executives, key employees and consultants under the 2015 Plan, of which zero were issued during the three months ended June 30, 2023 and 40,000 were issued during the six months ended June 30, 2023. Additional options may be issued under the 2015 Plan as outstanding options are forfeited, subject to a maximum 59,250 available for issuance under the 2015 Plan as of June 30, 2023.

The 2021 Plan provides for the grant of up to 1,000,000 incentive stock options, nonqualified stock options, stock awards, restricted stock awards, restricted stock units and/or stock appreciation rights to employees, consultants and directors. During the three months ended June 30, 2023, there were 45,000 option awards issued under the 2021 Plan. As of June 30, 2023, there had been 156,758 shares of common stock issued as directors fees, 21,100 executive bonus shares and 520,000 shares issued as executive and key employee compensation under the 2021 Plan in total. Additional options may be issued under the 2021 Plan as outstanding options are forfeited, subject to a maximum 302,142 available for issuance under the 2021 Plan as of June 30, 2023.

Each non-employee director of the Company (other than the Chairman of the Board) is eligible to receive $110,000 annually, to be paid quarterly $12,500 in cash and $15,000 in common stock.  The Chairman of the Board is eligible to receive $140,000 annually, to be paid quarterly $12,500 in cash and $22,500 in common stock. From May 18, 2021 to May 6, 2022, non-employee director compensation was paid pursuant to the 2021 Plan. Since May 6, 2022, non-employee director compensation has been paid pursuant to the Non-Employee Director Compensation Plan. All payments were and are pro-rated for partial service.

The per share weighted average fair value of stock options granted during the six months ended June 30, 2023 and June 30, 2022 was $2.78 and $2.03, respectively.  The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the six months ended June 30, 2023 and June 30, 2022. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options.  The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued. We have recognized tax benefits associated with stock-based compensation of $125,504 and $107,855 for the six months ended June 30, 2023 and 2022, respectively.

The following table summarizes the activities for our stock option plans for the six months ended June 30, 2023, and 2022.

	June 30,
	2023		2022
Dividend yield		0.00%		0.00%
Expected Volatility		56.8% - 61.3%		65.9% - 77.5%
Weighted-average volatility		—		—
Expected dividends		—		—
Expected term (in years)		10		10
Risk-free rate		3.50% - 3.53%		1.81% - 2.99%

The following table summarizes the status of the time based stock options:

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at January 1	3,035,000	$	3.92		3,672,500	$	3.42
Granted	85,000	$	3.94		770,000	$	2.68
Exercised	—	$	—		618,750	$	1.57
Forfeited	—	$	—		411,250	$	2.94
Outstanding at June 30	3,120,000	$	3.92		3,412,500	$	3.64
Options exercisable at June 30	1,158,750	$	4.37		837,500	$	3.47
Weighted average fair value of options granted during the period	—	$	2.78		—	$	2.03
Stock-based compensation expense	—	$	1,075,158		—	$	1,052,405

Total stock-based compensation expense was $1,075,158 and $1,052,405 for the six months ended June 30, 2023, and 2022, respectively. No cash was received from option exercises for the six months ended June 30, 2023, and 2022.

The weighted-average grant-date fair value of options granted during the six months ended June 30, 2023, and 2022 was $0.2 million and $1.6 million, respectively.  There were no options exercised during the six months ended June 30, 2023 and 618,750 options exercised during the six months ended June 30, 2022.

The following table presents information pertaining to options outstanding at June 30, 2023:

Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.25-$9.49	3,120,000	8.5 years	$	3.92	1,158,750	$	4.37

As of June 30, 2023, there was $4,248,300 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan.  That cost is expected to be recognized over a weighted-average period of 46 months.  The total fair value of shares vested as of June 30, 2023, and June 30, 2022, was $3,798,884 and $2,149,858, respectively.

As of June 30, 2023, an aggregate of 361,392 shares remain for future stock grants under the Company’s stock option plans.

RESTRICTED STOCK AWARDS

The following table summarizes the activities for our restricted stock awards for the six months ended June 30, 2023, and 2022.

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value
Unvested at January 1	950,000	$	3.04	1,000,000	$	3.01
Granted	54,496	$	3.68	—	$	—
Vested	100,000	$	3.31	50,000	$	3.31
Forfeited/canceled	—	$	—	—	$	—
Unvested at June 30	904,496	$	2.97	950,000	$	2.99

As of June 30, 2023, and 2022, there was $1,477,730 and $1,958,952 of unrecognized compensation cost related to unvested employee restricted stock units. This amount is expected to be recognized over a weighted-average period of 21 months. We have recognized tax benefits associated with restricted stock award compensation of $71,563 and $71,563 for the six months ended June 30, 2023 and 2022, respectively.

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DEBT OBLIGATIONS

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

DEBT OBLIGATIONS

NOTE 4 — DEBT OBLIGATIONS

The Company had a $3,500,000 revolving line of credit with Keybank National Association that expired on June 1,2023. The Company did not borrow against the line of credit during the six-month period ended June 30, 2023.

On August 5, 2022, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.8 million bearing an annual percentage rate of 6.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2022 through June 1, 2023. The balance of AON note was $433,295 and zero as of December 31, 2022 and June 30, 2023, respectively.

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LEASES

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

LEASES

NOTE 5 — LEASES

The Company has an operating lease for its corporate office, and finance leases for certain office and computer equipment.  Our operating lease has remaining lease term of 9.2 years. Our finance leases, which were entered into in June 2022 and October 2022, respectively, have remaining lease terms of 3.9 and 4.3 years, respectively.

The components of lease expense were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Operating lease cost	$	112,279	$	161,140	$	224,801	$	239,582
Short-term lease cost		25,143		28,579		78,037		78,288
Total lease cost	$	137,422	$	189,719	$	302,838	$	317,870
Finance lease cost:
Amortization of right-of-use assets	$	27,224	$	5,918	$	54,447	$	5,918
Interest on lease liabilities		6,387		0		13,107		0
Total finance lease cost	$	33,611	$	5,918	$	67,554	$	5,918

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	229,879	$	181,544
Financing cash flows from finance leases		61,600		6,611

Supplemental balance sheet information related to leases was as follows:

	June 30, 2023			December 31, 2022
Operating Leases
Operating lease right-of-use assets	$	3,626,348		$	3,786,545
Operating lease current liabilities		352,809			345,834
Operating lease long term liabilities		3,475,092			3,653,257
Total operating lease liabilities	$	3,827,901		$	3,999,091
Finance Leases
Property and equipment, at cost	$	544,468		$	544,468
Accumulated depreciation		(105,342	)		(50,895	)
Property and equipment, net	$	439,126		$	493,573
Finance lease current liabilities		101,072			98,335
Finance lease long term liabilities		343,053			394,283
Total finance lease liabilities	$	444,125		$	492,618

	June 30, 2023	December 31, 2022
Weighted Average Remaining Lease Term
Operating leases	9.2 Years	9.7 Years
Finance leases	4.0 Years	4.6 Years
Weighted Average Discount Rate
Operating leases	4.00%	4.00%
Finance leases	4.25%	4.25%

Maturities of lease liabilities are as follows:

Year Ending December 31,	Operating Leases			Finance Leases
Remainder of 2023	$	249,752			61,600
2024		499,503			123,200
2025		499,503			123,200
2026		499,503			123,200
2027		499,503			65,957
Thereafter		2,331,015			—
Total undiscounted lease payments		4,578,779			497,157
Less: imputed interest		(750,878	)		(53,032	)
Total lease liabilities	$	3,827,901		$	444,125

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INCOME TAXES

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 6 — 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 benefit of $0.6 million and income tax benefit of $0.7 million for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June, 30 2023 and 2022, the Company reported income tax benefit of $1.2 million and income tax benefit of $1.3 million, respectively.

Each reporting period, we evaluate the realizability of our net deferred tax assets and perform an assessment of both positive and negative evidence. Based on our evaluation of all available positive and negative evidence, we determined, as of June 30, 2023 and December 31, 2022, that it is more likely than not that our net U.S. deferred tax assets will be realized. Due to estimates and the potential for changes in facts and circumstances, it is reasonably possible that we will be required to record a valuation allowance in future reporting periods that could have a material effect on our results of operations.

Recurring items cause our effective tax rate to differ from the U.S. federal statutory rate of 21%, including U.S. federal R&D credits, U.S. state tax rates, and stock-based compensation.

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.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 7 — COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company has been and may again become involved in legal proceedings, claims and litigation arising in the ordinary course of business.  KORU Medical is not presently a party to any litigation or other legal proceeding that is believed to be material to its financial condition.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2023

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 8 — SUBSEQUENT EVENTS

On July 25, 2023, the Company entered into a commercial insurance premium finance and security agreement with AON Premium Finance, LLC in the aggregate principal amount of $0.6 million bearing an annual percentage rate of 9.5%, to finance its insurance premiums. Monthly payments are due on the first of each month beginning August 1, 2023 through June 1, 2024.

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NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

NATURE OF OPERATIONS

NATURE OF OPERATIONS

KORU MEDICAL SYSTEMS, INC. (the “Company,” “KORU Medical,” “we,” “us” or “our”) designs, 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 regulations and standards for quality system management. The Company operates as one segment.

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The accompanying financial statements should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2022 (“Annual Report”).  In accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited financial statements of the Company. The accompanying interim financial statements are unaudited and reflect all adjustments which are in the opinion of management necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for the periods presented.  All such adjustments are of a normal, recurring nature.  The Company’s results of operations and cash flows for the interim periods are not necessarily indicative of the results of operations and cash flows that it may achieve in future periods.

CASH AND CASH EQUIVALENTS

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 at its primary commercial bank, which exceeds FDIC insurance limits. To reduce the risk of uninsured deposits, the Company entered an insured cash sweep program with KeyBank during the second quarter of 2023 to automatically invest its uninsured bank cash balances over $250,000 into FDIC insured banks so there is no more than $250,000 maintained at any one bank. Further, as of June 30, 2023 the Company had invested $10.4 million in a US Treasury bill that matures every 90 days.

PATENTS

PATENTS

Costs incurred in obtaining patents have been capitalized and are being amortized over the legal life of the patents.

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

The Company maintains a stock option plan and an omnibus equity incentive plan under which it grants stock options to certain executives, key employees and consultants. 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.

The Company also maintains a non-employee director compensation plan. Shares of stock granted for director fees are recorded at the fair value of the shares at the grant date.

The Company issues restricted stock 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 restricted stock awards with time-based vesting were estimated on the date of grant at the current stock price. The fair value of restricted stock awards vesting at certain annual sales growth thresholds were estimated as of the date of Board acknowledgement of the achievement, 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

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 11,784 and 137,539, respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 14,001 and 166,441 respectively in weighted-average shares for each of the six months ended June 30, 2023 and 2022, respectively, as their effect was ant-diluted as a result of the net loss incurred for those periods.

The calculation of diluted loss per share excluded performance-based restricted stock and RSUs of 904,496 and 950,000 respectively, in weighted-average shares for each of the three months ended June 30, 2023 and 2022 and 904,496 and 950,000 respectively in weighted-average shares for the six months ended June 30, 2023 and 2022, respectively, as their effect was anti-diluted as a result of the net loss incurred for those periods.

The following securities were not included in the computation of diluted shares outstanding for the three and six months ended June 30, 2023, and 2022 because the effect would be anti-dilutive:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Common stock options	$	11,784	$	137,539	$	14,001	$	166,441
RSUs		54,496		—		54,496		—
Restricted stock - PSU		850,000		950,000		850,000		950,000
Total	$	916,280	$	1,087,539	$	916,280	$	1,116,441

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 three and six months ended June 30, 2023 and 2022.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Net loss	$	(2,495,886	)	$	(2,921,341	)	$	(4,906,771	)	$	(5,458,855	)
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Dilutive effect of outstanding stock options and unvested restricted stock		—			—			—			—
Diluted weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Net loss per share
Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

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, deferred tax valuation allowances, inventory valuation, and customer rebate and incentive accruals. The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the entire 2023 fiscal year.

REVENUE RECOGNITION

REVENUE RECOGNITION

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 June 30, 2023, the Company has recognized a contract asset of $282,118 which is included in other accounts receivable in the accompanying balance sheet.

The following table summarizes net revenues by geography for the three and six months ended June 30, 2023, and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Domestic	$	5,686,427	$	5,512,173	$	11,970,392	$	10,813,561
International		1,249,504		1,034,455		2,358,144		1,977,397
Total	$	6,935,931	$	6,546,628	$	14,328,536	$	12,790,958

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

 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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.  For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.  The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected.  For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down.  This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.  The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.  The Company adopted the pronouncement on January 1, 2023, and there is no impact on its financial statements.

FAIR VALUE MEASUREMENTS

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, including investments in short-term U.S. Treasury bills, 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 three and six months ended June 30, 2023 and 2022.

IMPAIRMENT OF LONG-LIVED ASSETS

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.  The Company did not record any impairment losses through June 30, 2023.

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NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2023

Accounting Policies [Abstract]

Schedule of net income per common share

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 three and six months ended June 30, 2023 and 2022.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Net loss	$	(2,495,886	)	$	(2,921,341	)	$	(4,906,771	)	$	(5,458,855	)
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Dilutive effect of outstanding stock options and unvested restricted stock		—			—			—			—
Diluted weighted average shares outstanding		45,606,603			44,921,870			45,547,427			44,795,625
Net loss per share
Basic	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)
Diluted	$	(0.05	)	$	(0.07	)	$	(0.11	)	$	(0.12	)

Schedule of net sales by geography

The following table summarizes net revenues by geography for the three and six months ended June 30, 2023, and 2022:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenues
Domestic	$	5,686,427	$	5,512,173	$	11,970,392	$	10,813,561
International		1,249,504		1,034,455		2,358,144		1,977,397
Total	$	6,935,931	$	6,546,628	$	14,328,536	$	12,790,958

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PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

Property and equipment consists of the following at:

	June 30, 2023			December 31, 2022
Furniture and office equipment	$	1,345,456		$	1,456,745
Leasehold improvements		1,933,591			2,413,820
Manufacturing equipment and tooling		2,952,214			2,810,813
Total property and equipment		6,231,261			6,681,378
Less: accumulated depreciation and amortization		(2,419,418	)		(2,794,403	)
Property and equipment, net	$	3,811,843		$	3,886,975

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Schedule of time based stock options

The following table summarizes the activities for our stock option plans for the six months ended June 30, 2023, and 2022.

	June 30,
	2023		2022
Dividend yield		0.00%		0.00%
Expected Volatility		56.8% - 61.3%		65.9% - 77.5%
Weighted-average volatility		—		—
Expected dividends		—		—
Expected term (in years)		10		10
Risk-free rate		3.50% - 3.53%		1.81% - 2.99%

Schedule of status of time based stock options

The following table summarizes the status of the time based stock options:

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at January 1	3,035,000	$	3.92		3,672,500	$	3.42
Granted	85,000	$	3.94		770,000	$	2.68
Exercised	—	$	—		618,750	$	1.57
Forfeited	—	$	—		411,250	$	2.94
Outstanding at June 30	3,120,000	$	3.92		3,412,500	$	3.64
Options exercisable at June 30	1,158,750	$	4.37		837,500	$	3.47
Weighted average fair value of options granted during the period	—	$	2.78		—	$	2.03
Stock-based compensation expense	—	$	1,075,158		—	$	1,052,405

Schedule of information pertaining to options outstanding

The following table presents information pertaining to options outstanding at June 30, 2023:

Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.25-$9.49	3,120,000	8.5 years	$	3.92	1,158,750	$	4.37

The following table summarizes the activities for our restricted stock awards for the six months ended June 30, 2023, and 2022.

The following table summarizes the activities for our restricted stock awards for the six months ended June 30, 2023, and 2022.

	Six Months Ended June 30,
	2023			2022
	Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value
Unvested at January 1	950,000	$	3.04	1,000,000	$	3.01
Granted	54,496	$	3.68	—	$	—
Vested	100,000	$	3.31	50,000	$	3.31
Forfeited/canceled	—	$	—	—	$	—
Unvested at June 30	904,496	$	2.97	950,000	$	2.99

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LEASES (Tables)

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Schedule of components of lease expense

The components of lease expense were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Operating lease cost	$	112,279	$	161,140	$	224,801	$	239,582
Short-term lease cost		25,143		28,579		78,037		78,288
Total lease cost	$	137,422	$	189,719	$	302,838	$	317,870
Finance lease cost:
Amortization of right-of-use assets	$	27,224	$	5,918	$	54,447	$	5,918
Interest on lease liabilities		6,387		0		13,107		0
Total finance lease cost	$	33,611	$	5,918	$	67,554	$	5,918

Schedule of cash flow information related to leases

Supplemental cash flow information related to leases was as follows:

	Six Months Ended
	June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	229,879	$	181,544
Financing cash flows from finance leases		61,600		6,611

Schedule of balance sheet information related to leases

Supplemental balance sheet information related to leases was as follows:

	June 30, 2023			December 31, 2022
Operating Leases
Operating lease right-of-use assets	$	3,626,348		$	3,786,545
Operating lease current liabilities		352,809			345,834
Operating lease long term liabilities		3,475,092			3,653,257
Total operating lease liabilities	$	3,827,901		$	3,999,091
Finance Leases
Property and equipment, at cost	$	544,468		$	544,468
Accumulated depreciation		(105,342	)		(50,895	)
Property and equipment, net	$	439,126		$	493,573
Finance lease current liabilities		101,072			98,335
Finance lease long term liabilities		343,053			394,283
Total finance lease liabilities	$	444,125		$	492,618

	June 30, 2023	December 31, 2022
Weighted Average Remaining Lease Term
Operating leases	9.2 Years	9.7 Years
Finance leases	4.0 Years	4.6 Years
Weighted Average Discount Rate
Operating leases	4.00%	4.00%
Finance leases	4.25%	4.25%

Schedule of maturities of lease liabilities

Maturities of lease liabilities are as follows:

Year Ending December 31,	Operating Leases			Finance Leases
Remainder of 2023	$	249,752			61,600
2024		499,503			123,200
2025		499,503			123,200
2026		499,503			123,200
2027		499,503			65,957
Thereafter		2,331,015			—
Total undiscounted lease payments		4,578,779			497,157
Less: imputed interest		(750,878	)		(53,032	)
Total lease liabilities	$	3,827,901		$	444,125

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Schedule of net income per common share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Net loss	$ (2,495,886)	$ (2,921,341)	$ (4,906,771)	$ (5,458,855)
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding	45,606,603	44,921,870	45,547,427	44,795,625
Diluted weighted average shares outstanding	45,606,603	44,921,870	45,547,427	44,795,625
Net loss per share
Basic	$ (0.05)	$ (0.07)	$ (0.11)	$ (0.12)
Diluted	$ (0.05)	$ (0.07)	$ (0.11)	$ (0.12)
Common Stock [Member]
Weighted Average Outstanding Shares:
Basic weighted average shares outstanding	45,606,603	44,921,870	45,547,427	44,795,625
Diluted weighted average shares outstanding	45,606,603	44,921,870	45,547,427	44,795,625

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Schedule of net sales by geography (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Revenues	$ 6,935,931	$ 6,546,628	$ 14,328,536	$ 12,790,958
UNITED STATES
Revenues	5,686,427	5,512,173	11,970,392	10,813,561
Non-US [Member]
Revenues	$ 1,249,504	$ 1,034,455	$ 2,358,144	$ 1,977,397

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NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative)	6 Months Ended
	Jun. 30, 2023 USD ($) Number
Number of segment | Number	1
FDIC cash uninsured amount	$ 250,000
Investment securities treasury bill	10,400,000
Other accounts receivable	282,118
F D I C Bank [Member]
FDIC cash uninsured amount	$ 250,000

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Schedule of property and equipment (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 6,231,261	$ 6,681,378
Less: accumulated depreciation and amortization	(2,419,418)	(2,794,403)
Property and equipment, net	3,811,843	3,886,975
Furniture And Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	1,345,456	1,456,745
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	1,933,591	2,413,820
Manufacturing Equipment And Tooling [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 2,952,214	$ 2,810,813

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PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Property, Plant and Equipment [Abstract]
Construction in progress gross	$ 500,000		$ 500,000
Depreciation expense	$ 196,865	$ 110,478	$ 394,099	$ 204,562

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Schedule of time based stock options (Details) - Stock Option Plans 2015 And 2021 Combined [Member] - Time Based Shares Options [Member] - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Dividend yield	0.00%	0.00%
Weighted-average volatility	0.00%	0.00%
Expected dividends	$ 0	$ 0
Expected term (in years)	10 years	10 years
Minimum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate	56.80%	65.90%
Risk-free rate	3.50%	1.81%
Maximum [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate	61.30%	77.50%
Risk-free rate	3.53%	2.99%

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Schedule of status of time based stock options (Details) - Stock Option Plans 2015 And 2021 Combined [Member]	6 Months Ended
	Jun. 30, 2023 USD ($) $ / shares shares	Jun. 30, 2022 USD ($) $ / shares shares
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Outstanding at beginning | shares	3,035,000	3,672,500
Outstanding at beginning	$ 3.92	$ 3.42
Granted | shares	85,000	770,000
Granted	$ 3.94	$ 2.68
Exercised | shares		618,750
Exercised		$ 1.57
Forfeited | shares		411,250
Forfeited		$ 2.94
Outstanding at ending | shares	3,120,000	3,412,500
Outstanding at ending	$ 3.92	$ 3.64
Options exercisable | shares	1,158,750	837,500
Options exercisable	$ 4.37	$ 3.47
Weighted average fair value of options granted during the period	$ 2.78	$ 2.03
Stock-based compensation expense | $	$ 1,075,158	$ 1,052,405

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Schedule of information pertaining to options outstanding (Details) - Stock Option Plans 2015 And 2021 Combined [Member] - Time Based Shares Options [Member] - Exercise Price1 [Member]	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Number outstanding | shares	3,120,000
Weighted average remaining contractual life	8 years 6 months
Weighted average exercise price | $ / shares	$ 3.92
Number exercisable | shares	1,158,750
Weighted average exercise price | $ / shares	$ 4.37

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The following table summarizes the activities for our restricted stock awards for the six months ended June 30, 2023, and 2022. (Details) - Restricted Stock Awards [Member] - $ / shares	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Outstanding at beginning	950,000	1,000,000
Outstanding at beginning	$ 3.04	$ 3.01
Granted	54,496
Granted	$ 3.68
Vested	100,000	50,000
Vested	$ 3.31	$ 3.31
Forfeited/canceled
Forfeited/canceled
Outstanding at ending	904,496	950,000
Outstanding at ending	$ 2.97	$ 2.99

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STOCK-BASED COMPENSATION (Details Narrative) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Jun. 30, 2022
Restricted Stock Awards [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Unrecognized compensation cost		$ 1,477,730	$ 1,958,952
Tax benefit from restricted stock compensation		$ 71,563	$ 71,563
Non Employee Director And Board Advisor [Member[
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Nonemployee services transaction cost		110,000
Share-based goods and non-employee services transaction		to be paid quarterly $12,500 in cash and $15,000 in common stock.
Board of Directors Chairman [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Share-based goods and non-employee services transaction		to be paid quarterly $12,500 in cash and $22,500 in common stock.
Non-employee director compensation		140,000
Stock Option Plan 2015 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Shares available for issuance	59,250	59,250
Stock Option Plan 2015 [Member] | Executiveskey Employees And Consultants [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Option shares outstanding under plan	2,600,000	2,600,000
Stock issued during period		40,000
Stock Option Plan 2021 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock issuable under plan (in shares)		1,000,000
Issuance of option awards (in shares)	45,000
Stock Option Plan 2021 [Member] | Director [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Director fee shares issued under plan	156,758	156,758
Stock Option Plan 2021 [Member] | Executive [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Bonus shares issued under plan	21,100	21,100
Stock Option Plan 2021 [Member] | Executive Officer [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Total shares issued under plan	520,000	520,000
Stock Option Plans 2015 And 2021 Combined [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock options granted		$ 2.78	$ 2.03
Tax benefit from stock-based compensation		$ 125,504	$ 107,855
Fair value of shares	$ 3,798,884	$ 3,798,884	2,149,858
Shares remaining for future stockgrants	361,392	361,392
Stock Option Plans 2015 And 2021 Combined [Member] | Time Based Shares Options [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Stock-based compensation expense		$ 1,075,158	1,052,405
Weighted-average grant-date fair value options granted	$ 200,000	$ 200,000	$ 1,600,000
Number of options exercised		0	618,750
Total unrecognized compensation cost	$ 4,248,300	$ 4,248,300
Weighted-average period (in years)		46 months

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DEBT OBLIGATIONS (Details Narrative) - USD ($)	Aug. 05, 2022	Jun. 01, 2022	Jun. 30, 2023	Dec. 31, 2022
Short-Term Debt [Line Items]
Description of the frequency of periodic payments	Monthly payments are due on the first of each month beginning August 1, 2022 through June 1, 2023.
A O N Premium Finance L L C [Member]
Short-Term Debt [Line Items]
Balance of AON note			$ 0	$ 433,295
A O N Premium Finance L L C [Member] | Promissory Note [Member]
Short-Term Debt [Line Items]
Notes payable	$ 800,000
A O N Premium Finance L L C [Member] | Promissory Note [Member] | Line of Credit [Member]
Short-Term Debt [Line Items]
Note payable terms	6.50%
Key Equipment Finance [Member] | Progress Payment Loan And Security Agreement [Member]
Short-Term Debt [Line Items]
Loans, principal amount		$ 3,500,000

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Schedule of components of lease expense (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Leases [Abstract]
Operating lease cost	$ 112,279	$ 161,140	$ 224,801	$ 239,582
Short-term lease cost	25,143	28,579	78,037	78,288
Total lease cost	137,422	189,719	302,838	317,870
Finance lease cost:
Amortization of right-of-use assets	27,224	5,918	54,447	5,918
Interest on lease liabilities	6,387	0	13,107	0
Total finance lease cost	$ 33,611	$ 5,918	$ 67,554	$ 5,918

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Schedule of cash flow information related to leases (Details) - USD ($)	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$ 229,879	$ 181,544
Financing cash flows from finance leases	$ 61,600	$ 6,611

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Schedule of balance sheet information related to leases (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Operating Leases
Operating lease right-of-use assets	$ 3,626,348	$ 3,786,545
Operating lease current liabilities	352,809	345,834
Operating lease long term liabilities	3,475,092	3,653,257
Total operating lease liabilities	3,827,901	3,999,091
Finance Leases
Property and equipment, at cost	544,468	544,468
Accumulated depreciation	(105,342)	(50,895)
Property and equipment, net	439,126	493,573
Finance lease current liabilities	101,072	98,335
Finance lease long term liabilities	343,053	394,283
Total finance lease liabilities	$ 444,125	$ 492,618
Operating leases	9 years 2 months 12 days	9 years 8 months 12 days
Finance leases	4 years	4 years 7 months 6 days
Operating leases	4.00%	4.00%
Finance leases	4.25%	4.25%

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Schedule of maturities of lease liabilities (Details) - USD ($)	Jun. 30, 2023	Dec. 31, 2022
Leases [Abstract]
2023 (excluding the three months ended March 31, 2023)	$ 249,752
2023 (excluding the three months ended March 31, 2023)	61,600
2024	499,503
2024	123,200
2025	499,503
2025	123,200
2026	499,503
2026	123,200
2027	499,503
2027	65,957
Thereafter	2,331,015
Thereafter
Total undiscounted lease payments	4,578,779
Total undiscounted lease payments	497,157
Less: imputed interest	(750,878)
Less: imputed interest	(53,032)
Total lease liabilities	3,827,901	$ 3,999,091
Total lease liabilities	$ 444,125	$ 492,618

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LEASES (Details Narrative)	6 Months Ended		10 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Oct. 31, 2022
Leases [Abstract]
Description of lease term	Our operating lease has remaining lease term of 9.2 years.
Operating lease, options to terminate		3 years 10 months 25 days	4 years 3 months 19 days

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INCOME TAXES (Details Narrative) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Tax Disclosure [Abstract]
Income tax benefit	$ 0.6	$ 0.7	$ 1.2	$ 1.3
Statutory rate			21.00%

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SUBSEQUENT EVENTS (Details Narrative) - Subsequent Event [Member] - Security Agreement [Member] - A O N Premium Finance L L C [Member] $ in Millions	Jul. 25, 2023 USD ($)
Subsequent Event [Line Items]
Debt Instrument, Issued, Principal	$ 0.6
Annual percentage rate	9.50%
Description of monthly payments	Monthly payments are due on the first of each month beginning August 1, 2023 through June 1, 2024.