What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-06-29 compared with 2020-06-29 · 385 added, 283 removed, 399 unchanged (63% of the section changed)

2 unchanged sentences

FINANCIAL STATEMENTS

Report of Independent Registered Accounting Firm –

Farber Haas Hurley LLP

of Independent Registered Accounting Firm –

Farber Hass Hurley LLP

Consolidated Balance Sheets

12 unchanged sentences

ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements

present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019, 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.

In our opinion, the consolidated financial

statements present fairly, in all material respects, the financial position of the Company as of March 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.

of Matter –

Going Concern

10 unchanged sentences

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

of a novel strain of coronavirus (COVID-19) in the first quarter of 2020 has caused significant volatility in the United States

There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as

well as its impact on the U.S.

The extent of the impact of COVID-19 on the Company’s operational and financial

performance will depend on certain developments, including the duration and spread of the outbreak, and the impact on customers,

employees and vendors, all of which are uncertain and cannot be determined at this time.

The consolidated financial statements

have not been adjusted as a result of this uncertainty.

These consolidated

22 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Audit Matters

audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that

were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are

material to the consolidated financial statements and (ii) involved especially challenging, subjective, or complex judgment.

communication of critical audit matters does not alter in any way our opinion on the consolidated 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.

further in Note 1 to the financial statements, the Company has incurred losses since inception, and expects to continue to incur

operating losses for the foreseeable future and incur cash outflows from operations as it continues to invest in the development

and subsequent commercialization of its product.

The Company expects that its research and development and general and administrative

expenses will continue to increase, and, as a result, it will eventually need to generate significant product revenues to achieve

profitability.

These circumstances raise substantial doubt about the Company’s ability to continue as a going concern within

one year after the date that these consolidated financial statements are issued.

We identified

management’s assessment of the Company’s ability to continue as a going concern as a critical audit matter due to

inherent complexities and uncertainties related to the Company’s projections of operations.

Auditing management’s

going concern assessment involved a high degree of auditor judgment and audit effort due to the impact of these assumptions on

the determination of the degree of doubt regarding the ability of the entity to continue as a going concern.

The primary procedures

we performed to address this critical audit matter included:

evaluated the reasonableness of key assumptions underlying management’s conclusion.

evaluated that the disclosures included in the Form 10-K were complete and accurate and

in accordance with accounting principles generally accepted in the United States of America.

evaluated the impact of the Company’s existing financing arrangements on their

ability to continue as a going concern.

of Stock Options

in Note 5, during the year ended March 31, 2021, the Company granted 490,476 options to purchase shares of its common stock with

10-year terms and a grant-date fair value of $1,101,737 to employees, directors and consultants.

Management is required to analyze

the fair value of each option granted and amortize it over its vesting period.

We identified

the grant of stock options as a critical audit matter.

Management’s estimates regarding fair value of options

result in the application of a high degree of auditor judgment.

procedures we performed to address this critical audit matter included the following:

gained an understanding of Company’s processes and controls in place for determining

the fair value of each granted option.

evaluated the option price model the management selected to determine the fair value,

and analyzed the underlying data used in the calculations.

also recalculated the fair value of each option granted.

/s/ Farber Hass Hurley

4 unchanged sentences

Modular Medical,

And its Subsidiary

(f/k/a - Bear

Lake Recreation, Inc.)

Balance Sheets

1 unchanged sentence

Cash and cash equivalents

Prepaid expenses and other

Prepaid expenses

Other current assets

TOTAL CURRENT ASSETS

Intangible assets, net

Property and equipment, net

Security deposit

Right of use asset, net

Security deposit

TOTAL NON-CURRENT ASSETS

4 unchanged sentences

Short-term lease liability

PPP note payable

Convertible notes payable

TOTAL CURRENT LIABILITIES

Long-term lease liability

Other liability

Bonus payable

TOTAL LIABILITIES

1 unchanged sentence

STOCKHOLDERS’

EQUITY (DEFICIT)

Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding

3 unchanged sentences

Accumulated deficit

(15,947,010 )

TOTAL STOCKHOLDERS’

EQUITY (DEFICIT)

TOTAL LIABILITIES AND STOCKHOLDERS’

EQUITY (DEFICIT)

The accompanying

1 unchanged sentence

Modular Medical,

And its Subsidiary

Lake Recreation, Inc.)

Statements of Operations

Years ended March 31,

Year ended March 31,

Operating expenses

4 unchanged sentences

Interest income

Interest expense

Loss before income taxes

9 unchanged sentences

Modular Medical,

And its Subsidiary

(f/k/a - Bear

Lake Recreation, Inc.)

Statements of Stockholders’

Equity (Deficit)

Stockholders’

Equity (Deficit)

Balance as of March 31, 2019

Issuance of common stock

$ (3,248,161 )

Placement of common stock

Shares issued for services

7 unchanged sentences

$ (15,947,010 )

The accompanying notes are an integral part of these audited consolidated financial statements

$ (1,275,149 )

The accompanying

notes are an integral part of these audited consolidated financial statements

Modular Medical,

And its Subsidiary

(f/k/a - Bear

Lake Recreation, Inc.)

Statements of Cash Flows

7 unchanged sentences

Shares for services

Amortization of lease right-of-use asset

Change in lease liability

Amortization of debt issuance costs

Changes in assets and liabilities:

Prepaid expenses and other assets

Other assets and prepaid expenses

Security deposits

2 unchanged sentences

Cash flows from investing activities

Purchase of property and equipment

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities

Proceeds from private placement

Repayment to related party

Proceeds from private placement, net of issuance costs

Proceeds from issuance of convertible notes

Proceeds from issuance of PPP note payable

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents, at beginning of year

4 unchanged sentences

notes are an integral part of these audited consolidated financial statements

MEDICAL, INC.

LAKE RECREATION, INC.

MODULAR MEDICAL,

NOTES TO CONSOLIDATED

30 unchanged sentences

The following summarizes the more significant of such policies:

Financial Accounting Standards

Board (FASB) Accounting Standard Update (ASU) No.

2014-15 (ASU 2014-15), Going Concern, requires management to evaluate

whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability

to continue as a going concern within one year after the date that the financial statements are issued.

If management identifies

conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management must

consider if there are plans that are probable to be implemented, and whether it is probable that the plans will mitigate the conditions

or events raising the substantial doubt about the entity’s ability to continue as a going concern.

If the substantial

doubt is not alleviated after consideration of management’s plans, the entity must include a statement in the notes to the

financial statements indicating that there is substantial doubt about the entity’s ability to continue as a going concern

within one year after the date that the financial statements are issued including:

1) the principal conditions or events that

raise substantial doubt about the entity’s ability to continue as a going concern, 2) management’s evaluation of the

significance of those conditions or events in relation to the entity’s ability to meet its obligations, and 3) management’s

plans to attempt to mitigate the conditions or events causing the substantial doubt about the entity’s ability to continue

Accounting Standards Board (FASB) Accounting Standard Update (ASU) No.

2014-15 (ASU 2014-15), Going Concern,

requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt

about the entity’s ability to continue as a going concern within one year after the date that the financial statements are

If management identifies conditions or events that raise substantial doubt about an entity’s ability to continue

as a going concern, management must consider if there are plans that are probable to be implemented, and whether it is probable

that the plans will mitigate the conditions or events raising the substantial doubt about the entity’s ability to continue

as a going concern.

If the substantial doubt is not alleviated after consideration of management’s plans, the entity

must include a statement in the notes to the financial statements indicating that there is substantial doubt about the entity’s

ability to continue as a going concern within one year after the date that the financial statements are issued including:

principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, 2)

management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet

its obligations, and 3) management’s plans to attempt to mitigate the conditions or events causing the substantial doubt

about the entity’s ability to continue as a going concern.

expects to continue to incur operating losses for the foreseeable future and incur cash outflows from operations as it continues

4 unchanged sentences

These circumstances raise substantial doubt about the Company’s ability to continue

as a going concern within one year after the date that these financial statements are issued.

Implementation of the Company’s

plans and its ability to continue as a going concern will depend upon the Company’s ability to raise additional capital,

through the sale of additional equity or debt securities, to support its future operations.

There can be no assurance that such

additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such

capital will be offered on terms and conditions acceptable to the Company.

As discussed in Notes 6 and 11, the Company is

currently pursuing additional equity financing through a private placement of its common stock and a public offering of its preferred

In addition, the Company obtained a loan from Silicon Valley Bank in April 2020.

as a going concern within one year after the date that these consolidated financial statements are issued.

Implementation of the

Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to raise additional

capital, through the sale of additional equity or debt securities, to support its future operations.

There can be no assurance

that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available,

that such capital will be offered on terms and conditions acceptable to the Company.

As discussed in notes 3 and 11, in

February 2021, the Company commenced a private placement of its convertible promissory notes to investors to fund its operations.

In addition, during fiscal 2021, the Company obtained additional equity financing through a private placement of its common stock

(see note 6), and the Company obtained a loan from Silicon Valley Bank in April 2020 (see notes 3 and 12).

The Company’s

9 unchanged sentences

do not include any adjustments that might result from this uncertainty.

of Presentation

The consolidated

financial statements include the accounts of the Company and its wholly-owned subsidiary, Quasuras, Inc.

financial statements include the accounts of the Company and its wholly-owned subsidiary, Quasuras.

All significant intercompany

24 unchanged sentences

financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public

outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency

The global outbreak

of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by

government in March 2020.

12 unchanged sentences

original maturities of three months or less.

Property & Equipment

Property and equipment are originally

recorded at cost.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally

three to five years.

Depreciation is recorded in operating expenses in the consolidated statements of operations.

Leasehold improvements

and assets acquired through capital leases are amortized over the shorter of their estimated useful life or the lease term, and

amortization is recorded in operating expenses in the consolidated statements of operations.

Property and Equipment

equipment are originally recorded at cost.

Depreciation is computed using the straight-line method over the estimated useful lives

of the assets, generally three to five years.

Depreciation is recorded in operating expenses in the consolidated statements of

Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated

useful life or the lease term, and amortization is recorded in operating expenses in the consolidated statements of operations.

Fair Value of Financial Instruments

The Company measures the fair value

of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair

value into three broad levels:

1 inputs to the valuation methodology are quoted prices for identical assets or liabilities

in active markets.

2 inputs to the valuation methodology include quoted prices for similar assets and liabilities

in active markets, and inputs that are observable for the asset or liability, either

directly or indirectly, for substantially the full term of the financial instrument.

3 inputs to the valuation methodology are unobservable and significant to the fair value

short-term nature, the carrying values of cash equivalents, accounts payable and accrued expenses, approximate fair value.

measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques

used to measure fair value into three broad levels:

· Level 1 inputs to the valuation

methodology are quoted prices for identical assets or liabilities in active markets.

· Level 2 inputs to the valuation

methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the

asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

· Level 3 inputs to the valuation

methodology are unobservable and significant to the fair value measurement.

their short-term nature, the carrying values of cash equivalents, accounts payable and accrued expenses, approximate fair value.

and Development

12 unchanged sentences

over the term of the awards, and projected stock option exercise behaviors.

net loss per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding

Basic net loss

per share is computed by dividing net loss for the period by the weighted-average number of shares of common stock outstanding

during the period.

10 unchanged sentences

has recorded a full valuation allowance.

accounts for uncertain tax positions in accordance with FASB Accounting Standards Codification (ASC) Topic 740, Income Taxes .

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities,

while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately

The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based

on all available evidence, management believes it is more likely than not that the position will be sustained upon examination,

including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated with other

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit

that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

The portion of the

benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for

unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that

would be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits is classified

as interest expense and penalties are classified in selling, general and administrative expenses in the consolidated statements

accounts for uncertain tax positions in accordance with FASB Accounting Standards Codification (ASC) Topic 740, Income

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing

authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that

would be ultimately sustained.

The benefit of a tax position is recognized in the consolidated financial statements in the period

during which, based on all available evidence, management believes it is more likely than not that the position will be sustained

upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or aggregated

with other positions.

Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount

of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as

a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and

penalties that would be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits

is classified as interest expense and penalties are classified in selling, general and administrative expenses in the consolidated

statements of operations.

federal and state income tax returns in jurisdictions with varying statutes of limitations.

10 unchanged sentences

2020, the Company’s comprehensive loss was the same as its net loss.

Adopted Accounting Pronouncements

FASB issued ASU No.

2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement,

presentation and disclosure of leases.

The standard introduces a new lessee model that requires most leases to be recorded on

the balance sheet and eliminates the required use of bright-line tests for determining lease classification.

In July 2018, the

FASB issued the following standards which clarified ASU No.

2016-02 and have the same effective date as the original standard:

2018-10, Codification Improvements to Topic 842 , Leases and ASU No.

2018-11, Leases (Topic 842):

Improvements .

2018-11 includes an option to not restate comparative periods in transition and elect to use the

effective date of ASU No.

2016-02 as the date of initial application of transition.

In March 2019, the FASB issued ASU No.

2019-01, Leases (Topic 842):

Codification Improvements, which clarifies ASU No.

2016-02 and is effective

for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.

The Company adopted ASU

2016-02, as amended, on April 1, 2019, using the optional transition method provided by the FASB in ASU No.

The Company elected to use the practical expedient that allowed it to not reassess:

(1) whether any expired or existing contracts

are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for

any expired or existing leases as well as the practical expedient that allows lessees to treat the lease and non-lease components

of leases as a single lease component for all asset classes.

The adoption of this standard did not have a material impact on the

Company’s balance sheet, results of operations or cash flows.

In January 2020, the Company entered into a lease for

a new corporate facility and accounted for this lease in accordance with ASC 842.

See Note 3 for further information.

2018, the FASB issued ASU No.

2018-07 , Improvements to Nonemployee Share-Based Payment Accounting .

Previously, share-based

payments to nonemployees were accounted for under Subtopic 505-50, which significantly differs from the guidance for share-based

payments to employees under FASB ASC Topic 718 (Topic 718).

This ASU supersedes ASC Subtopic 505-50 by expanding the scope of

Topic 718 to include nonemployee awards and generally aligning the accounting for nonemployee awards with the accounting for employee

The Company adopted

this ASU on April 1, 2019 with no material impact on its results of operations, financial position and cash flows.

NOTE 2 –

5 unchanged sentences

Machinery and equipment

accumulated depreciation

accumulated depreciation and amortization

Accrued expenses:

Accrued bonuses

Wages and employee benefits

Professional fees and consulting

The Company has recorded accrued

employee bonuses of $312,500 at March 31, 2020, of which $172,500 was recorded as a current liability and $140,000 as a long-term

The current liability amount includes $32,500 of bonuses for non-executive employees that were paid in April 2020.

The remaining $280,000 represents a bonus to the Company’s chief executive officer, which is payable ratably over the 24

months commencing March 31, 2020, and the Company has recorded the $140,000 payable subsequent to March 31, 2021 as a long-term

liability in the consolidated balance sheet.

Accrued wages and bonus

Accrued placement fees

Accrued interest

NOTE 3 –

in Note 1, effective April 1, 2019, the Company adopted ASC 842, as amended, using the alternative transition method, which allowed

the Company to initially apply the new lease standard at the adoption date (the “effective date method”).

2020, the Company executed a lease for a new, larger corporate facility in San Diego, California and

paid a $100,000 security deposit.

The 39-month lease term commenced on April 1, 2020, and the lease provides for an initial

monthly rent of approximately $12,400 with annual rent increases of approximately 3%.

In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating

The right-to-use asset and corresponding liability for the facility lease have been measured at the present value of the

future minimum lease payments.

A discount rate of 11%, which approximated the Company’s incremental borrowing rate, was

used to measure the lease asset and liability.

NOTES PAYABLE

2020, the Company received a $368,780 unsecured loan (the PPP Note) under the Paycheck Protection Program (the PPP), which was

established under the U.S.

government’s Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

to the Company was made through Silicon Valley Bank (the Lender), and the Company entered into a U.S.

Small Business Administration

Paycheck Protection Program Note (the Agreement) with the Lender evidencing the PPP Note.

The full amount

of the PPP Note is due in April 2022.

Interest will accrue on the outstanding principal balance of the PPP Note at a fixed rate

of 1.0% per annum, which shall be deferred for 10 months after the covered period during which the Company used the proceeds.

The Company may prepay principal of the PPP Note at any time in any amount without penalty.

The Agreement contains customary events

of default relating to, among other things, payment defaults, breach of representations and warranties or provisions of the PPP

The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts

owing from the Company, and/or filing suit and obtaining judgment against the Company.

applied to the Lender for forgiveness of the PPP Note in October 2020, and the amount which may be forgiven will be equal to the

sum of the payroll and benefit costs and covered rent and utility payments incurred by the Company, as calculated in accordance

with the terms of the CARES Act.

Promissory Notes

February and March 2021, the Company sold $2,210,000 of convertible promissory notes (the Notes), at par in a private placement

transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended

(the 2021 Placement).

The Notes bear interest at an annual rate of 12%, and interest is accrued or payable monthly in cash.

Notes mature on September 30, 2021 (the Maturity Date) and may be prepaid prior to the Maturity Date.

aggregate principal amount of the Notes plus accrued but unpaid interest thereon shall automatically convert upon the closing

of an offering of the Company’s equity securities to investors or a strategic corporate investor resulting in aggregate

gross proceeds to the Company of at least $5,000,000 (excluding conversion of the Notes or other convertible securities issued

for capital raising purposes) (a Qualified Financing).

In the event of a Qualified Financing, all such outstanding principal and

accrued interest shall convert into the same equity securities purchased by and on the same terms and conditions as the other

investors in such Qualified Financing at a conversion price equal to 80% (a 20% discount) of the lowest price paid per unit or

share by investors in the Qualified Financing.

In the event that additional bridge financing is obtained by the Company, the Notes

shall convert into the same securities and on the same terms and conditions as the other investors therein and all such purchases

will be treated as one, single round of financing going forward.

As of March 31, 2021, the Notes could be converted into 770,305

shares of common stock, excluding the effects of any payments of interest in kind.

any time on or following the Maturity Date, the holders of the Notes may demand repayment of the Notes, and the Company shall

repay the outstanding aggregate principal amount plus accrued but unpaid interest thereon.

The holders of the Notes, however,

retain the right for 30 days after the Maturity Date to convert all or part of the aggregate principal amount plus accrued but

unpaid interest on the Notes into the Company’s common stock at the conversion price of $2.87 per share or at a 20% discount

to any financing consummated during the 30-day period following the Maturity Date.

a Qualified Financing has not occurred immediately prior to the consummation of a Change of Control (as defined below), the Note

holders shall have the option of either (i) converting all or any portion of the aggregate principal amount of the Notes plus

accrued but unpaid interest thereon into common stock of the Company at a conversion price equal to $2.87 per share or (ii) having

the Company repay the aggregate principal amount of the Notes and accrued but unpaid interest.

The term “Change of Control”

means (i) a consolidation or merger of the Company with or into any other corporation or other entity or person, or any other

corporate reorganization, other than any such consolidation, merger or reorganization in which the shares of capital stock of

the Company immediately prior to such consolidation, merger or reorganization continue to represent a majority of the voting power

of the surviving entity immediately after such consolidation, merger or reorganization;

(ii) any transaction or series of related

transactions to which the Company is a party in which in excess of 50% of the Company’s voting power is transferred;

the sale or transfer of all or substantially all of the Company’s assets, or the exclusive license of all or substantially

all of the Company’s material intellectual property;

or (iv) the dissolution and winding up of the Company.

The Company incurred debt issuance

costs of $88,800, which were recorded as a debt discount and are being amortized to interest expense over the term of the Notes

using the effective interest rate method.

The interest expense related to the debt discount during the year ended March

31, 2021 was approximately $13,000.

NOTE 4 –

Effective April

1, 2019, the Company adopted ASC No.

842, as amended, using the alternative transition method, which allowed the Company to initially

apply the new lease standard at the adoption date (the “effective date method”).

In January 2020, the Company executed

a lease for a new, larger corporate facility in San Diego, California and paid a $100,000

security deposit.

The 39-month lease term commenced on April 1, 2020, and the lease provides for an initial monthly

rent of approximately $12,400 with annual rent increases of approximately 3%.

addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs.

The right-to-use asset and corresponding liability for the facility lease have been measured at the present value of the future

minimum lease payments.

A discount rate of 11%, which approximated the Company’s incremental borrowing rate, was used to

measure the lease asset and liability.

Lease expense is recognized on a straight line basis over the lease term.

The Company obtained a right-of-use

asset of $270,950 in exchange for is obligations under the operating lease.

The landlord also provided a lease incentive of approximately

$139,000, which was paid in June 2020, for the Company to make improvements to the leased space.

Future minimum payments under

the facility operating lease, net of the lease incentive, as of March 31, 2020 are listed in the table below.

obtained a right-of-use asset of $270,950 in exchange for is obligations under the operating lease.

The landlord also provided

a lease incentive of approximately $139,000, which was paid to the Company in June 2020, for the Company to make improvements

to the leased space.

Future minimum

payments under the facility operating lease, net of the lease incentive, as of March 31, 2021, are listed in the table below.

Annual Fiscal Years

Imputed interest

Lease incentive

Present value of lease liabilities

was $107,540 and $35,766 for the years ended March 31, 2021 and 2020, respectively.

RELATED PARTY TRANSACTIONS

During the year

ended March 31, 2020, the Company entered into consulting agreements with a member of its board of directors.

Under the consulting

agreements, during the year ended March 31, 2020, the Company paid the director consulting fees of $140,625 in

cash, and the director was granted stock options with a fair value of $76,875.

The options were for a total of 47,062 shares of

common stock, were fully vested on the grant dates and have terms of 10 years.

The most recent consulting agreement,

which was entered into between the Company and the director in September 2019, was terminated in March 2020.

At March 31, 2020,

the Company had an outstanding payable to the director of $5,585, which was included in accounts payable in the consolidated balance

NOTE 5 –

STOCK-BASED COMPENSATION

Compensation Plan

2017, the Company’s board of directors (the Board) approved the 2017 Equity Incentive Plan (the 2017 Plan) with 3,000,000

shares of common stock reserved for issuance.

In January 2020, the Board approved an amendment to the 2017 Plan to increase the

number of shares reserved for issuance by 1,000,000 shares.

Under the 2017 Plan, eligible employees, directors and consultants

may be granted a broad range of awards, including stock options, stock appreciation rights, restricted stock, performance-based

awards and restricted stock units.

The 2017 Plan is administered by the Board or, in the alternative, a committee designated by

Equity Compensation

In October 2017,

the Company’s board of directors (the Board) approved the 2017 Equity Incentive Plan (the 2017 Plan) with 3,000,000 shares

of common stock reserved for issuance.

In January 2020, the Board approved an amendment to the 2017 Plan to increase the number

of shares reserved for issuance by 1,000,000 shares.

Under the 2017 Plan, eligible employees, directors and consultants may be

granted a broad range of awards, including stock options, stock appreciation rights, restricted stock, performance-based awards

and restricted stock units.

The 2017 Plan is administered by the Board or, in the alternative, a committee designated by the Board.

or purchase price of a stock option shall be calculated as follows:

case of an incentive stock option, (a) granted to employees, who, at the time of the grant of such incentive stock option

own stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company, the per share

exercise price shall be not less than one hundred ten percent (110%) of the fair market value per share on the date of grant;

or (b) granted to employees, other than to employees, described in the preceding clause, the per share exercise price shall

be not less than one hundred percent (100%) of the fair market value per share on the date of grant;

In the case of a non-qualified

stock option, the per share exercise price shall be not less than one hundred percent (100%) of the fair market value per

own stock representing more than 10% of the voting power of all classes of stock of the Company, the per share exercise price

shall be not less than 110% of the fair market value per share on the date of grant;

or (b) granted to employees, other than

to employees, described in the preceding clause, the per share exercise price shall be not less than 100% of the fair market

value per share on the date of grant;

case of a non-qualified stock option, the per share exercise price shall be not less than 100% of the fair market value per

share on the date of grant unless otherwise determined by the Board;

6 unchanged sentences

based on the grant date fair value.

The unamortized compensation cost, as of March 31, 2020 was $2,495,385 related to stock

options and is expected to be recognized as expense over a weighted-average period of approximately 2.7 years.

The unamortized compensation cost, as of March 31, 2021 was $2,242,352 related to stock options

and is expected to be recognized as expense over a weighted-average period of approximately 2 years.

the year ended March 31, 2021, options granted to purchase shares of its common stock to employees, directors and consultants

had 10-year terms and a grant-date fair value of $1,101,737.

Options to purchase 152,204 shares vested immediately on the grant

Options to purchase 10,476 shares vested immediately on the respective

The following assumptions were used

21 unchanged sentences

Exercise Price

Balance at April 1, 2018

Options granted

Balance at March 31, 2019

3 unchanged sentences

Balance at March 31, 2020

Options granted

Options cancelled and returned to the Plan

Balance at March 31, 2021

There were no

11 unchanged sentences

of stock options as financing cash flows in the consolidated statements of cash flows.

For the years ended March 31, 2020

and 2019, there were no such tax benefits associated with the exercise of stock options.

For the years ended March 31, 2021 and

2020, there were no such tax benefits associated with the exercise of stock options.

NOTE 6 –

STOCKHOLDERS’

In March 2020,

the Company initiated a private placement of shares of its common stock (the 2020 Placement).

As of March 31, 2020, the Company

sold an aggregate of 321,950 shares of common stock, at a purchase price of $2.87 per share, for aggregate proceeds of approximately

As the 321,950 shares were issued by the Company’s transfer agent subsequent to March 31, 2020, the $924,000 has

been recorded as common stock payable in the stockholders’

equity section of the consolidated balance sheet at March 31,

Subsequent to March 31, 2020, the Company sold approximately 349,350 shares of common stock for aggregate proceeds of approximately

Under the terms of the common stock purchase agreements between the Company and the investors, the Company must use

commercially reasonable efforts to file a registration statement with the SEC within 90 days of the closing of the 2020 Placement

to register the shares of common stock sold in the 2020 Placement.

Private Placement

Between March

and December 2020, the Company completed a private placement of shares of its common stock (the 2020 Placement).

The Company sold

962,387 shares of common stock, at a purchase price of $2.87 per share, for gross proceeds of $2,762,054.

The Company paid placement

agent fees on the 2020 Placement of $52,256 during fiscal 2021.

Under the terms of the common stock purchase agreements between

the Company and the investors, the Company must use commercially reasonable efforts to file a registration statement with the

SEC to register for resale the shares of common stock sold.

NOTE 7 –

7 unchanged sentences

As of March 31,

the Company had net operating loss carryforwards (NOLs) of approximately $7,000,000 for federal and state income tax purposes.

These NOLs are available to reduce future taxable income and will expire at various times from 2037 through 2040, except federal

NOLs from fiscal 2018, 2019 and 2020 which will never expire.

The Company also had federal

research and development tax credit carryforwards of approximately $179,000, which will begin expiring at various times from 2038

through 2040, and state research and development credits of approximately $74,000, which do not have an expiration date.

A reconciliation of income taxes

provided at the federal statutory rate (21% for fiscal 2020 and 2019) to the actual income tax provision is as follows:

2021, the Company had net operating loss carryforwards (NOLs) of approximately $13,954,000 for federal income tax purposes and

$14,019,000 for state income tax purposes.

These NOLs are available to reduce future taxable income and will expire at various

times from 2037 through 2041, except federal NOLs from fiscal 2018, 2019 and 2020 which will never expire.

also had federal research and development tax credit carryforwards of approximately $535,000, which will begin expiring at various

times from 2038 through 2040, and state research and development credits of approximately $141,000, which do not have an expiration

A reconciliation

of income taxes provided at the federal statutory rate (21% for fiscal 2021 and 2020) to the actual income tax provision is as

Year Ended March 31,

16 unchanged sentences

Deferred tax assets, net

Based on the available information

and other factors, management believes it is more likely than not that the net deferred tax assets at March 31, 2020 and 2019,

will not be fully realizable.

Accordingly, management has recorded a full valuation allowance against its net deferred tax assets

at March 31, 2020 and 2019.

The valuation allowance increased by approximately $776,000 during fiscal 2019.

Management has evaluated and concluded

that there were no material uncertain tax positions requiring recognition in the Company’s consolidated financial statements

at March 31, 2020 and 2019.

The Company does not expect any significant changes in its unrecognized tax benefits within twelve

months of the reporting date.

available information and other factors, management believes it is more likely than not that the net deferred tax assets at March

31, 2021 and 2020, will not be fully realizable.

Accordingly, management has recorded a full valuation allowance against its net

deferred tax assets at March 31, 2021 and 2020.

Management has

evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated

financial statements at March 31, 2021 and 2020.

The Company does not expect any significant changes in its unrecognized tax benefits

within twelve months of the reporting date.

NOTE 8 –

ROYALTY AGREEMENT

In July 2017,

4 unchanged sentences

to the Founder on any sales of the royalty product sold or otherwise commercialized by the Company equal to (a) $0.75 on each

sale of a royalty product or (b) five percent (5%) of the gross sale price of the royalty product, whichever is less.

payments will cease, and the agreement will terminate, at such time as the total sum of royalty payments actually paid to the

Founder, pursuant to the agreement, reaches $10,000,000.

The Company has the option to terminate the agreement at any time upon

payment, to the Founder, of the difference between total royalty payments actually made to him to date and the sum of $10,000,000.

All payments of the royalties, if due, for the preceding quarter, will be made by the Company to the Founder within thirty days

after the end of each calendar quarter.

sale of a royalty product or (b) 5% of the gross sale price of the royalty product, whichever is less.

The royalty payments will

cease, and the agreement will terminate, at such time as the total sum of royalty payments actually paid to the Founder, pursuant

to the agreement, reaches $10,000,000.

The Company has the option to terminate the agreement at any time upon payment, to the

Founder, of the difference between total royalty payments actually made to him to date and the sum of $10,000,000.

of the royalties, if due, for the preceding quarter, will be made by the Company to the Founder within thirty days after the end

of each calendar quarter.

NOTE 9 –

RETIREMENT SAVINGS

Effective March

6 unchanged sentences

became effective and began accepting participant contributions in April 2020.

COMMITMENTS & CONTINGENCIES

NOTE 10 –

COMMITMENTS AND CONTINGENCIES

Claims and Assessments

normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course

In the normal

course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of

The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable

Indemnification

ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties

In the ordinary

course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties

from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims

9 unchanged sentences

not made any payments related to these indemnification agreements.

RELATED PARTY TRANSACTIONS

During the year

ended March 31, 2020, the Company entered into consulting agreements with a member of its board of directors.

Under the consulting

agreements, during the year ended March 31, 2020, the Company paid the director consulting fees of $140,625 in

cash, and the director was granted stock options with a fair value of $76,875.

The options were for a total of 47,062 shares of

common stock, were fully vested on the grant dates and have terms of 10 years.

The most recent consulting agreement,

which was entered into between the Company and the director in September 2019, was terminated in March 2020.

At March 31, 2020,

the Company had an outstanding payable to the director of $5,585, which was included in accounts payable in the consolidated balance

The Company paid the $5,585 to the director during fiscal 2021.

2021 Placement

Company’s chief executive officer and an existing investor, which is represented by a member of the Company’s board

of directors, purchased $100,000 and $1,000,000, respectively, aggregate principal amount of the Notes (the Related Party Notes)

in the 2021 Placement.

As of March 31, 2021, $1,677 and $16,767 of interest was payable by the Company on the Related Party Notes

to its chief executive officer and to the investor, respectively.

NOTE 12 –

SUBSEQUENT EVENTS

Unit Public Offering

2, 2020, the Company’s board of directors authorized the designation of 2,000,000 shares of the Company’s preferred

stock as 13% Series A Cumulative Redeemable Perpetual Preferred Stock (the Series A Preferred Stock).

On April 9, 2020, the Company

filed a registration statement on Form S-1 (No.

333-237615) with the SEC, which was declared effective on May 11, 2020, to register

2,000,000 preferred units (the Preferred Units) at a price of $25.00 per unit.

Each Preferred Unit consists of (i) one share of

Series A Preferred Stock with a $25.00 liquidation preference amount and (ii) three common stock purchase warrants, each to purchase

one share of the Company’s common stock at an exercise price of $11.00 per share.

To date, the Company has not sold any

of the Preferred Units.

24, 2020, the Company received a $368,780 unsecured loan (the PPP Loan) under the Paycheck Protection Program (the PPP), which

was established under the U.S.

government’s Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).

Loan to the Company was made through Silicon Valley Bank (the Lender), and the Company entered into a U.S.

Promissory Notes

Subsequent to

March 31, 2021, the Company issued an additional $4,250,000 of the Notes in the 2021 Placement pursuant to a Securities Purchase

Agreement between the Company and each investor (the SPA) and warrants to purchase shares of its common stock (the Warrants).

The Notes are unsecured obligations of the Company with each Note having a stated maturity date of 12 months from its issue date

(the Issue Date).

The Notes bear interest at a rate of 12% per annum, payable on maturity, provided that, if the Company fails

to pay any amounts when due under a Note, the interest rate increases to the greater of 16% or the maximum amount permitted by

Each Note may be prepaid at the Company’s option during the first 270 calendar days following its Issue Date (the 270 th day,

the Trigger Date), subject to a 110% prepayment penalty on all principal and accrued but unpaid interest then outstanding.

Notes may be prepaid in whole or in part after the Trigger Date.

remain outstanding after the Trigger Date, the Notes may be converted into shares of the Company’s common stock at an initial

conversion price of $2.87 per share;

provided, that a Note holder may not convert any portion of its Note that would cause it

to beneficially own in excess of 4.99% of the Company’s outstanding common stock.

The conversion price and number of shares

of Company common stock issuable upon conversion of the Notes will be subject to adjustment from time to time for any subdivision

or consolidation of shares and other standard dilutive and certain other corporate events, as provided in the Notes.

certain Exempt Issuances (as defined in the Notes), if at any time while a Note is outstanding, the Company sells, issues or grants

any shares of its common stock or other securities entitling the holder to acquire shares of the Company’s common stock

at a price per share less than the then conversion price, such conversion price shall be reduced to such lesser price, and the

number of shares of the Company’s common stock issuable upon conversion of the Notes shall be increased, as provided in

If the Company

completes an offering of its common stock or other securities in excess of $12,000,000 of gross proceeds (a Qualified Capital

Raise), each Note holder will be required to convert its Adjusted Note Amount into the securities of such Qualified Capital Raise.

For purposes hereof, Adjusted Note Amount equals the product of (i) the sum of all outstanding principal plus accrued but unpaid

interest on a Note, multiplied by (ii) 1.25.

The Notes contain

a number of Company events of default (Events of Default) including, without limitation (i) failure to pay any principal or interest

thereon when due, (ii) failure to timely deliver shares upon conversions, (iii) failure to comply with SEC reporting requirements

under the Exchange Act, (iv) certain breaches of the SPA, the Notes, the Warrants, and the Registration Rights Agreement, (v)

material restatements of the Company’s consolidated financial statements filed with the SEC, (vi) a holder’s inability

to rely on Rule 144 for sales of shares underlying the Notes, (vii) the Company’s common stock is suspended or halted from

trading and/or fails to be quoted or listed (as applicable) on the OTCQB, OTCQX, any tier of the NASDAQ Stock Market, the New

York Stock Exchange, or the NYSE American within 10 days thereafter, (viii) failure to file with the SEC a registration statement

covering the resale of shares of common stock underlying the Notes and Warrants within 60 calendar days following the Issue Date,

(ix) failure to cause such registration statement to become effective within 120 calendar days following the Issue Date, or (x)

certain merger consolidations, business combinations and sales of all or substantially all of the Company’s assets in the

event the Company is not the survivor of such transaction.

Upon an Event

of Default, a Note holder may declare all amounts under its Note(s) due and payable, in which event the Company will be required

to pay such Noteholder the product of (i) all then outstanding principal amount and accrued but unpaid interest thereon, multiplied

by (ii) 125%;

and all collection costs including legal fees and expenses in connection therewith.

At the option of a Note holder,

in the event the Company receive cash proceeds as a result of certain events including, but not limited to, from customers, issuances

of debt or equity securities, exercise of warrants or asset sales, the Company will be required to use such proceeds to repay

all or any lesser outstanding amounts due under such holder’s Note.

The Notes also

includes various covenants, including negative covenants, representations, warranties, other payment obligations and agreements

by the Company including, without limitation, most-favored nation clauses, rights of participation and first refusal and exchange

In connection with the issuance of the Notes, the Company issued Warrants to purchase 2,285,736 shares of its common stock

(Warrant Shares) at an initial exercise price of $8.00 per share.

The Warrants may be exercised for a period of 5 years from the

Trigger Date.

that, prior to the Trigger Date, the Company (i) completes a Qualified Capital Raise, the outstanding Warrants shall be cancelled

or (ii) prepays a holder’s Note(s) in whole or in part, such holder’s pro-rata number of its Warrants shall be cancelled.

Effective April

30, 2021, each of the holders of the $2,210,000 of Notes outstanding at March 31, 2021 entered into a revocation and replacement

agreement with the Company (the Revocation Agreement).

Under the terms of the Revocation Agreement, the $2,210,000 of Notes and

accrued interest of $50,091 were replaced with new Notes consistent with the terms described above.

a member of the Board purchased $200,000 of the Notes.

of the Company’s request for loan forgiveness, on May 29, 2021, the Company was notified that the outstanding principal

and accrued interest for the PPP Note was forgiven in full by the U.S.

Small Business Administration.

Paycheck Protection Program Note (the Agreement) with the Lender evidencing the PPP Loan.

the PPP Loan is two years.

Interest will accrue on the outstanding principal balance of the PPP Loan at a fixed rate of 1.0%,

which shall be deferred for the first six months of the term of the PPP Loan.

Monthly payments will be due and payable beginning

in October 2020 and continue each month thereafter until maturity of the PPP Loan.

The Company may prepay principal of the PPP

Loan at any time in any amount without penalty.

The Agreement contains customary events of default relating to, among other things,

payment defaults, breach of representations and warranties or provisions of the PPP Loan.

The occurrence of an event of default

may result in the repayment of all amounts outstanding, collection of all amounts owing from the Company, and/or filing suit and

obtaining judgment against the Company.

may apply to the Lender for forgiveness of the PPP Loan, and the amount which may be forgiven will be equal to the sum of the

payroll and benefit costs and covered rent and utility payments incurred by the Company, as calculated in accordance with the

terms of the CARES Act.

No assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part,

but the Company intends to use the proceeds in accordance with the PPP Loan program.

CHANGES IN AND

DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data