ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and

results of operations should be read together with our consolidated financial statements and related notes included under ITEM 8 of this

Annual Report on Form 10-K. This discussion contains forward-looking statements about our business and operations. Our actual

results may differ materially from those we currently anticipate as a result of many factors, including those described under Part I –

FORWARD LOOKING STATEMENTS and elsewhere in this Annual Report.

OVERVIEW

The Company designs, manufactures and markets proprietary portable and

innovative medical devices primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration

(the “FDA”) quality and regulatory system and international standards for quality system management.

KORU Medical continues to monitor its operations and government recommendations

as they relate to the COVID-19 pandemic. We cannot predict the effects the pandemic may have on our business, in particular with

respect to demand for our products, our strategy, and our prospects, the effects on our customers, or the impact on our financial results.

For example, our future net revenue growth may continue to be impacted due to fewer new prescriptions for individuals with Primary

Immune Deficiency Disease (“PIDD”) and Chronic Inflammatory Demyelinating Polyneuropathy (“CIDP”) as a result

of patients not seeking care during the pandemic. We believe that the pandemic has precipitated limited availability and rising costs

of raw materials and labor. We have accounted for these costs of which we are aware, but we may see a future impact on our financial results

if current trends continue.

On March 15, 2021, the Company entered into an employment agreement with

its President and Chief Executive Officer, Linda Tharby. Ms. Tharby has over 25 years of executive leadership experience building and

leading strong performing global organizations, developing and commercializing products and service innovations, and delivering solutions

to patients in the home setting.

The Company began its implementation of secondary sourcing of our needle

and tubing sets to Command at the beginning of 2021 and is expected to complete the implementation by the second half of 2022. The Company

has entered into a lease commencing March 1, 2022 for a new manufacturing facility and corporate headquarters, into which the Company

expects to move in June 2022.

Our revenues derive from three business sources: (i) domestic core, (ii)

international core, and (iii) novel therapies. Our core domestic and international revenues consist of sales of our products for

the delivery of subcutaneous drugs that are FDA cleared for use with the KORU Medical infusion system, with the primary delivery today

for immunoglobulin to treat PIDD and CIDP. Novel therapies consist of product revenues of 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 received from biopharmaceutical companies to ready or customize

the FREEDOM System for clinical and commercial use.

The Company achieved four quarters of sequential quarterly growth in 2021,

ending the year with net revenues of $23.5 million, or 2.8% below 2020, with the shortfall driven by novel therapies where we had a large

clinical trial order in 2020. Our domestic core net revenues for 2021 were 0.8% higher than last year mostly due to price in the second

half of the year, and our international core net revenues were up 14.5% compared to last year driven by growth in key customers.

Our gross margin, which is our gross profit stated as a percentage of net

revenues, for 2021 was 58.6%, a decline from prior year of 61.8%. The majority of the decline was driven by delays in the transition to

our secondary manufacturing source. We expect this transition to be completed in the second half of 2022.

Operating expenses in 2021 increased by 28.9%, or $4.6 million compared

to last year, mostly driven by costs associated with building out our executive team, regulatory efforts in support of 510(k) approvals

and research and development spend in support of our innovation efforts.

- 24 -

RESULTS OF OPERATIONS

Year Ended December 31, 2021 compared to Year Ended December 31, 2020

Net Revenues

The following table summarizes our net revenues for the years ended December

31, 2021 and 2020:

Years Ended December 31, Change from Prior Year % of Net Sales

Net Revenues

Total net revenues decreased $0.7 million or 2.8% for the year ended December

31, 2021, as compared to the prior year period, driven by lower novel therapies revenue due to a large clinical trial in 2020. Domestic

core revenue grew 0.8% mostly due to price in the second half of the year and international core grew 14.5%, driven by growth in key customers.

Gross Profit

Our gross profit for the years ended December 31, 2021, and 2020 is as

follows:

Years Ended December 31, Change from Prior Year

Stated as a Percentage of Net Revenues 58.6% 61.8%

Gross profit decreased $1.2 million or 7.8% for the year ended December

31, 2021, as compared to the same period in 2020.

Gross profit, stated as a percentage of net revenues, which is referred

to as gross margin, declined to 58.6% for the year ended December 31, 2021, compared to 61.8% for the same period last year. The majority

of the decline was driven by unfavorable product mix and a delay in the transition to our secondary manufacturing source. This was partially

offset by price favorability due to a price increase in the second half of 2021.

Selling, general and administrative, Litigation, and Research and

development

Our selling, general and administrative, litigation and research and development

costs for the years ended December 31, 2021, and 2020 are as follows:

Years Ended December 31, Change from Prior Year

Stated as a Percentage of Net Revenues 86.6% 65.2%

Selling, general and administrative expenses increased $5.8 million, or

48.5%, for the year ended December 31, 2021 compared to the same period last year, due to higher salary, benefits and recruiting fees

of $2.4 million related to new hires to support expansion of our quality and regulatory, commercial and business development teams.

Further contributing to the increase was $1.6 million in costs associated with the departure and replacement of the former chief executive

officer and the recruitment of two new Board members, which includes non-cash equity expense of $0.4 million. Market research, testing

and consulting fees to support commercialization and regulatory filings of $1.1 million and higher director fees and director and officer

liability insurance of $0.8 million also contributed.

- 25 -

Litigation fees decreased $2.4 million compared to the same period last

year due to the settlement agreement reached with EMED Technologies Corporation (“EMED”) in the prior year.

Research and development expenses increased $1.2 million for the year ended

December 31, 2021, compared with the same period last year mostly due to fees related to personnel to support product development.

Depreciation and amortization

For the year ended December 31, 2021, depreciation and amortization expense

increased $44,535, or 10.6%, compared with the same period last year. We continued to invest in capital assets, mostly related to

manufacturing and computer equipment.

Net Loss

Years Ended December 31, Change from Prior Year

Stated as a Percentage of Net Revenues (19.4% ) (5.0% )

Our net loss for the year ended December 31, 2021, was $4.6 million, as

compared to net loss of $1.2 million for the year ended December 31, 2020, driven by higher selling, general and administrative expenses

and research and development costs, partially offset by lower litigation costs, all as described above. Further offsetting the loss was

a tax benefit of $0.3 million resulting from book to tax differences related to stock option expense and the tax benefit for the net operating

losses of approximately $1.5 million.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of liquidity is our cash of $25.3 million as of December

31, 2021, and $3.5 million of funds available under our revolving credit facility. Our principal source of operating cash inflows is from

sales of our products to customers. Our principal cash outflows relate to the purchase and production of inventory and related costs,

selling, general and administrative expenses and research and development costs.

To develop new products, support future growth, achieve operating efficiencies,

and maintain product quality, we must continue to invest in manufacturing technologies, facilities and equipment, and research and development.

We estimate expenses to be between $27.0 million and $28.0 million in 2022. We expect our 2022 capital investments for manufacturing and

leasehold improvements for our new facility to be in aggregate between $1.5 million and $2.0 million, net of financing arrangements.

Our inventory position was $6.1 million at December 31, 2021. We expect

these levels to rise as we build to ensure timely order fulfillment as we complete the transition of the manufacturing of our needle sets

and tubing products to our secondary source and for supply continuity as we move our manufacturing facility to our new location in 2022.

As the relocation and transition to our secondary source are completed, this inventory is expected to convert to a source of cash in the

future.

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 has determined that it has qualified for this credit and anticipates

utilizing benefits under this act to aid its liquidity position and as a result has recorded a receivable of $0.7 million as of December

31, 2021.

In 2020, the Company purchased 683,271 shares of its common stock outstanding

for $3.5 million under its stock repurchase program, which expired on December 31, 2021. No repurchases under the program were made in

2021.

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Cash Flows

The following table summarizes our cash flows:

Operating Activities

Operating cash outflows were $4.3 million for the year ended December 31,

2021 and was mostly attributable to net loss adjusted for non-cash charges of $3.2 million, an increase in accounts receivable of $1.0

million due to higher sales in the fourth quarter of this year compared with last year, an increase in other receivables of $0.7 million

for the ERC refund, an increase in prepaids of $0.8 million related to raw materials in transit, all partially offset by a decrease in

inventory of $0.7 million, and an increase in accounts payable of $0.6 million.

Net cash used in operating activities of $0.7 million for the year ended

December 31, 2020, was mostly attributable to non-cash charges for stock-based compensation and litigation settlement expense of $2.9

million, and an increase in accrued expenses and accrued payroll of $1.4 million, driven by the litigation settlement with EMED and customer

rebates. Further adding to the increase was an increase in depreciation and amortization of $0.4 million and a decrease in accounts

receivable of $0.7 million due to timing of collections. Offsetting these were primarily working capital changes which include an

increase in inventory of $4.4 million as we built inventory to keep pace with sales growth and to ensure timely order fulfillment during

the transition to our secondary manufacturing source, an increase in prepaid expenses and other assets of $0.4 million relating to increased

insurance premiums, and a decrease in accrued tax liability of $0.2 million resulting from book to tax differences related to stock option

expense.

Investing Activities

Our net cash used in investing activities of $0.4 million for the year

ended December 31, 2021, was primarily for capital expenditures for manufacturing equipment and computers for new hires and replacement

of retired computers.

Our net cash used in investing activities of $1.0 million for the year

ended December 31, 2020, was primarily for capital expenditures for research and development and strategic initiatives.

Financing Activities

The $2.7 million provided by financing activities for the year ended December

31, 2021 is attributed to cash received for options exercised of $1.3 million, the issuance of common stock as settlement for litigation

of $0.9 million, and $0.5 million on borrowings from indebtedness.

The $23.2 million provided by financing activities for the year ended December

31, 2020 is from the $26.6 million capital raise, net of expenses, and $0.1 million from options exercised, offset against the repurchase

of the Company’s common stock outstanding of $3.5 million.

We expect that our cash on hand, cash flows from operations, and our fully

available credit facility will be sufficient to meet our requirements at least through the next 12 months and thereafter for the foreseeable

future.

See “NOTE 10 — DEBT OBLIGATIONS” for further detail regarding

the promissory note and loan agreement, and “NOTE 11 — EQUITY” regarding the equity offering in the accompanying “Notes

to Financial Statements” appearing in this Annual Report on Form 10-K. Also, see “NOTE 4 — STOCK-BASED COMPENSATION”

for further detail regarding the EMED settlement.

Debt and Borrowing Capacity

Refer to “NOTE 10 — DEBT OBLIGATIONS” in the accompanying

“Notes to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding debt.

- 27 -

COMMITMENTS AND CONTRACTUAL OBLIGATIONS

Lease Commitments

We currently rent a building located at 24 Carpenter Road, Chester, New

York. This facility is used as our headquarters and for our general operations. We expect to move in June 2022 from this building

into 43,975 square feet of a building located at 100 Corporate Drive, Mahwah, New Jersey. The Company’s existing lease expires December

31, 2022, and the new lease commences March 1, 2022, and expires August 31, 2032.

Refer to “NOTE 5 – LEASES” in the accompanying “Notes

to Financial Statements” appearing in this Annual Report on Form 10-K for further details regarding our operating and finance leases.

SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with generally accepted

accounting principles of the United States (“GAAP”) requires estimates and assumptions that affect the reported amounts of

assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the financial statements and accompanying

notes. The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of

the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective

judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we

have identified some of our more critical accounting estimates below. We also have other key accounting policies, which involve

the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information,

see “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES” in the accompanying “Notes

to Financial Statements” appearing in this Annual Report on Form 10-K. Although we believe that our estimates, assumptions,

and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from

these estimates under different assumptions, judgments, or conditions.

Revenue Recognition

The Financial Accounting Standards Board (“FASB”) issued Accounting

Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive

model for entities to use in accounting for revenue arising from contracts with customers. We adopted this ASU effective January

1, 2018, on a full retrospective basis. Adoption of this standard did not result in significant changes to our accounting policies,

business processes, systems or controls, or have a material impact on our financial position, results of operations and cash flows or

related disclosures. As such, prior period financial statements were not recast.

The Company’s revenues result from the sale of assembled products.

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 sales.

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.

Provisions for distributor pricing and annual 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 annual growth target will be achieved. Rebates are provided to distributors for the difference in selling price to distributor

and pricing specified to select customers.

The Company established an allowance for charging off uncollectible trade

accounts receivable that have both of the following characteristics: (a) They have a contractual maturity of one year or less, (b)

They arose from the sale of goods or services.

Inventory

Inventories of raw materials are stated at the lower of standard cost,

which approximates average cost, or market value including allocable overhead. Work-in-process and finished goods are stated at

the lower of standard cost or market value and include direct labor and allocable overhead.

- 28 -

We maintain reserves for excess and obsolete inventory resulting from the

potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future recoverability

of the costs of these products and record provisions based on historical experience, expiration of sterilization dates and expected future

trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable than projected by

management, additional inventory write downs may be required, which could unfavorably affect future operating results.

ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.

ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Refer to “NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES” in the accompanying “Notes to Financial Statements” appearing in this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

- 29 -

REPRO MED SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID 256) 31

Financial Statements

Statements of Operations for the years ended December 31, 2021 and 2020 34

Statements of Stockholders’ Equity as of December 31, 2021 and 2020 35

Statements of Cash Flows for the years ended December 31, 2021 and 2020 36

Notes to Financial Statements 37

- 30 -

Report of Independent Registered Public Accounting

Firm

To the Shareholders and the Board of Directors of

Repro Med Systems, Inc.

Chester, New York

Opinion on the Financial Statements

We have audited the accompanying balance sheets of

Repro Med Systems, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity

and cash flows for the years then ended, and the related notes to the financial statements (collectively, the financial statements). In

our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,

2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our

audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (PCAOB) and are required to be independent with respect to the Company in accordance

with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards

of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements

are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,

an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal

control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal

control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are

matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the

audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially

challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the

financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

on the critical audit matters or on the accounts or disclosures to which they relate.

Grant of Stock Options

Description of the Matter:

As discussed in Note 4 to the financial statements,

the Company granted 2,000,000 options to purchase shares of its common stock with 10-year terms and a grant-date fair value of $5,699,986

to employees, directors and consultants during the year ended December 31, 2021. Management is required to analyze the fair value of each

option granted and amortize it over its vesting period.

We identified the grant of the stock options as a critical audit matter.

Management’s estimates regarding the fair value of options result in the application of a high degree of auditor judgment.

- 31 -

How We Addressed the Matter in Our Audit:

We obtained an understanding of the Company’s

processes and controls in place for determining the fair value of each granted option. We evaluated the option price model management

selected to determine the fair value, and analyzed the underlying data used to estimate the fair value of the awards. We also recalculated

the fair value of each option granted during the year.

/s/ McGrail Merkel Quinn & Associates, P.C.

We have served as the Company's auditor since 2014.

Scranton, Pennsylvania

March 2, 2022

- 32 -

REPRO MED SYSTEMS, INC.

BALANCE SHEETS

December 31, December 31,

ASSETS

CURRENT ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Finance lease liability – current — 2,646

Operating lease liability, net of current portion — 95,553

Commitments and contingencies (Refer to Note 8)

STOCKHOLDERS’ EQUITY

See accompanying Notes to Financial Statements.

- 33 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF OPERATIONS

For the Years Ended December 31,

OPERATING EXPENSES

Non-Operating Income

Gain/(Loss) on foreign currency exchange (28,905) 1,536

NET LOSS PER SHARE

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

See accompanying Notes to Financial Statements.

- 34 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

Additional Retained Total

Common Stock Paid-in Earnings Treasury Stockholders’

Shares Amount Capital /(Deficit) Stock Equity

Compensation expense related to stock options — — 1,377,772 — — 1,377,772

Compensation expense related to stock options — — 2,049,041 — — 2,049,041

See accompanying Notes to Financial Statements.

- 35 -

REPRO MED SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net (loss) to net cash used in operating activities:

Stock-based litigation settlement expense — 1,285,102

Gain on disposal of fixed assets (1,009 ) (16,591 )

Provision for doubtful accounts — (8,176 )

Abandonment of intangible assets — 41,919

Changes in operating assets and liabilities:

Increase in other receivables (718,220 ) —

Increase in prepaid expenses and other assets (761,041 ) (420,614 )

(Decrease)/Increase in accrued payroll and related taxes (126,527 ) 96,865

Increase in deferred revenue 90,000 —

Decrease in accrued tax liability — (204,572 )

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of property and equipment 9,065 25,000

CASH FLOWS FROM FINANCING ACTIVITIES

Common stock issuance settlement of litigation 938,094 —

Purchase of treasury stock — (3,499,358 )

Payments on finance lease liability (2,646 ) (5,296 )

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,980,397 ) 21,444,357

Supplemental Information

Cash paid during the years 5for:

Schedule of Non-Cash Operating, Investing and Financing Activities:

Issuance of common stock as settlement for litigation $ 938,094 $ 938,094

See accompanying Notes to Financial Statements.

- 36 -

REPRO MED SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

NOTE 1 — NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

NATURE OF OPERATIONS

REPRO MED SYSTEMS, INC. (the “Company,” “KORU Medical,”

“KORU,” “we,” “us” or “our”) designs, manufactures and markets proprietary portable and

innovative medical devices primarily for the ambulatory infusion market as governed by the United States Food and Drug Administration

(the “FDA”) quality and regulatory system and international standards for quality system management. The Company operates

as one segment.

BASIS OF PRESENTATION

We prepare our financial statements and accompanying

notes in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain

prior year amounts have been reclassified to conform to the current year presentation in our Financial Statements.

CASH AND CASH EQUIVALENTS

For purposes of the statement 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 holds cash in excess

of $250,000 at its depository, which exceeds the FDIC insurance limits and is, therefore, uninsured.

INVENTORY

Inventories of raw materials are stated at the lower of standard cost,

which approximates average cost, or market value including allocable overhead. Work-in-process and finished goods are stated at

the lower of standard cost or market value and include direct labor and allocable overhead.

We maintain reserves for excess and obsolete inventory resulting from the

potential inability to sell certain products at prices in excess of current carrying costs. We make estimates regarding the future

recoverability of the costs of these products and record provisions based on historical experience, expiration of sterilization dates

and expected future trends. If actual product life cycles, product demand or acceptance of new product introductions are less favorable

than projected by management, additional inventory write downs may be required, which could unfavorably affect future operating results.

INTANGIBLE ASSETS

Certain of our identifiable intangible assets, including patents and trademarks,

are amortized using the straight-line method over their estimated useful lives which range from 6 to 20 years. All of our intangible

assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be

recoverable. Our management is responsible for determining if impairment exists and considers various factors when making these

determinations. Amortization expense related to intangible assets for the years ended December 31, 2021 and 2020 was $63,830 and

$62,177, respectively.

The estimated amortization expense for the succeeding

years for the intangible assets is approximately:

Schedule of amortization expense

Year Ending December 31,

Total amortization expense $ 808,813

- 37 -

INCOME TAXES

Deferred income taxes are provided using the liability method whereby deferred

tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities

are recognized for taxable temporary differences.

The Company believes that it has no uncertain tax positions requiring disclosure

or adjustment.

PROPERTY AND EQUIPMENT

Property and equipment are stated at original acquisition cost less accumulated

depreciation. Additions and improvements are capitalized which increase the value or extend the life of an asset, while maintenance

and repair costs are expensed as incurred. When assets are retired or otherwise disposed, the cost and related accumulated depreciation

or amortization is removed from the respective accounts and any resulting gain or loss is included in income. Depreciation and amortization

are calculated on the straight-line basis over the estimated useful lives of the assets which generally range from 3-10 years for furniture

and office equipment, 3-12 years for manufacturing equipment and tooling and shorter of the lease term or their estimated useful lives

for leasehold improvements. Depreciation and amortization expense related to property and equipment for the years ended December 31, 2021

and 2020 was $399,300 and $356,418, respectively.

STOCK-BASED COMPENSATION

The Company maintains a stock option 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. Shares of stock granted for director fees are recorded at the fair value of

the shares at the grant date.

The Company also maintains an omnibus equity incentive plan. To date the

Company has only granted shares of stock for director fees under this plan and those shares of stock granted 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. 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 earnings per share are computed on the weighted average of common

shares outstanding during each year. Diluted earnings per share includes only an increase in the weighted average shares by the

common shares issuable upon exercise of stock options. See “NOTE 4 — STOCK-BASED COMPENSATION” for further detail.

Schedule of net income per common share

Years Ended

Weighted Average Outstanding Shares:

Option shares includable — (a) — (a)

Net loss per share

__________

- 38 -

USE OF ESTIMATES IN THE FINANCIAL STATEMENTS

The preparation of financial statements in conformity with GAAP requires

management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual

results could differ from those estimates. Important estimates include but are not limited to asset lives, valuation allowances,

inventory valuation, and accruals.

REVENUE RECOGNITION