What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-12 compared with 2021-08-16 · 322 added, 245 removed, 306 unchanged (65% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

June 30, 2021

September 30,

CURRENT ASSETS

23 unchanged sentences

Common Stock, $ 0.001 par value, 50,000,000 shares authorized;

18,971,656 and 18,906,148 shares issued and outstanding as of June 30, 2021 and March 31, 2021, respectively

18,982,562 and 18,906,148 shares issued and outstanding as of September 30, 2021 and March 31, 2021, respectively

Additional paid-in capital

Common stock issuable

Accumulated deficit

10 unchanged sentences

Three Months Ended

September 30,

Six Months Ended

September 30,

Operating expenses

5 unchanged sentences

( 1,859,178 )

( 7,068,000 )

( 3,733,390 )

Interest expense

( 1,194,670 )

Loss on debt extinguishment

( 1,321,450 )

Loss before income taxes

( 4,380,157 )

( 1,859,129 )

( 9,215,248 )

( 3,733,286 )

Provision for income taxes

$ ( 4,381,757 )

$ ( 1,860,729 )

$ ( 9,216,848 )

$ ( 3,734,886 )

Net loss per share

18 unchanged sentences

$ ( 1,581,488 )

Stock-based compensation

( 4,381,757 )

Balance as of September 30, 2021

$ ( 25,163,858 )

$ ( 5,100,814 )

Stockholders’

7 unchanged sentences

$ ( 10,443,191 )

Stock-based compensation

( 1,860,729 )

Balance as of September 30, 2020

$ ( 12,303,920 )

The accompanying

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

September 30,

$ ( 9,216,848 )

5 unchanged sentences

Depreciation and amortization

Shares for services

Amortization of lease right-of-use asset

Shares issued for services

Amortization of lease right-to-use asset

Change in lease liability

1 unchanged sentence

Changes in assets and liabilities:

Other assets and prepaid expenses

Prepaid expenses and other assets

Accounts payable and accrued expenses

6 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from private placement

Proceeds from private placement, net of issuance costs

Proceeds from issuance of convertible notes, net of placement fees

Issuance of PPP note

Proceeds from issuance of PPP note payable

Net cash provided by financing activities

Net increase in cash and cash equivalents

Net decrease in cash and cash equivalents

( 1,635,560 )

Cash and cash equivalents at beginning of period

6 unchanged sentences

MODULAR MEDICAL,

F/K/A BEAR LAKE RECREATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

14 unchanged sentences

to Modular Medical, Inc.

is a development-stage medical device company focused on the design, development and eventual commercialization of an innovative

insulin pump to address shortcomings and problems represented by the relatively limited adoption of currently available pumps

for insulin-dependent people with diabetes.

The Company has developed a hardware technology allowing people with insulin-dependent

diabetes to receive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount

of insulin to be in the blood at all times and a “bolus” delivery to address meal time glucose input and to address

when the blood glucose level becomes excessively high.

By addressing the time and effort required to effectively treat their condition,

the Company believes it can address the less technically savvy, less motivated part of the market.

Company is a development-stage, medical-device company focused on the design, development, and commercialization of an innovative

insulin pump using modernized technology to increase pump adoption in the diabetes marketplace.

Through the creation of a novel

two-part, patch pump product, the Company seeks to fundamentally alter the trade-offs between cost and complexity and access to

the higher standards of care that presently available insulin pumps provide.

By simplifying and streamlining the user experience

from introduction, prescription, reimbursement, training and day-to-day use, the Company seeks to expand the wearable insulin

delivery device market beyond the highly motivated “super users” and expand the category into the mass market.

Company’s pump product seeks to serve both the type 1 and type 2 diabetes markets.

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

13 unchanged sentences

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

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 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.

The Company 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.

The Company’s expected operating losses and cash burn and the need to repay the convertible promissory notes

and accrued interest in the first half of 2022 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 disclosed in note 9, the Company recently sold shares

of its common stock to two of its officers, obtained access to a credit facility and filed a registration statement to offer shares

of its common stock.

The Company’s

operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital

expenditures.

The Company’s future capital requirements and the adequacy of its available funds will depend on many factors,

including the Company’s ability to successfully commercialize its product, competing technological and market developments,

and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement

its product offering.

If the Company is unable to secure additional capital, it may be required to curtail its research and development

initiatives and take additional measures to reduce costs in order to conserve its cash.

These condensed consolidated financial

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

operating needs include the planned costs to operate its business, including amounts required to repay its convertible promissory

notes (if not converted), fund working capital and capital expenditures.

The Company’s future capital requirements and the

adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize

its product, competing technological and market developments, and the need to enter into collaborations with other companies or

acquire other companies or technologies to enhance or complement its product offering.

If the Company is unable to secure additional

capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in

order to conserve its cash.

These condensed consolidated financial statements do not include any adjustments that might result

from this uncertainty.

Basis of Presentation

4 unchanged sentences

to the fiscal year ending March 31, 2022).

The condensed consolidated financial statements include the accounts of the

Company and its wholly-owned subsidiary, Quasuras.

All significant intercompany transactions and balances have been eliminated

in consolidation.

The condensed consolidated financial statements include the accounts of the Company

and its wholly-owned subsidiary, Quasuras.

All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying

11 unchanged sentences

and cash flows for the interim periods presented.

The operating results for the three months ended June 30, 2021 are not necessarily

indicative of the results that may be expected for the year ending March 31, 2022 or for any other future period.

The operating results for the three months ended September 30, 2021 are not

necessarily indicative of the results that may be expected for the year ending March 31, 2022 or for any other future period.

The preparation

43 unchanged sentences

of the assets, generally three to five years.

Depreciation is recorded in operating expenses in the consolidated statements of

Depreciation is recorded in operating expenses in the condensed 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.

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

Fair Value of Financial

1 unchanged sentence

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, accrued expenses and notes payable approximate

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.

Per-Share Amounts

Basic net loss

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

Basic net loss per share is

computed by dividing loss for the period by the weighted-average number of shares of common stock outstanding during the period.

Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period.

the three months ended June 30, 2021 and 2020, outstanding options to purchase 3,751,437 and 3,407,587 shares of common stock

For the six months

ended September 30, 2021 and 2020, outstanding options to purchase 4,972,948 and 3,480,088 shares of common stock, respectively,

were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

7 unchanged sentences

comprehensive loss may include certain changes in equity that are excluded from net loss.

For the three months ended June 30,

For the three and six months ended September

30, 2021 and 2020, the Company’s comprehensive loss was the same as its net loss.

Adopted Accounting Pronouncement

In August 2020, the FASB issued ASU

2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts

in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity (ASU

ASU 2020-06 simplifies the accounting for convertible instruments by removing major separation models required

under current GAAP.

Consequently, more convertible debt instruments will be reported as a single liability instrument with no

separate accounting for embedded conversion features.

ASU 2020-06 removes certain settlement conditions that are required for

equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

2020-06 also simplifies the diluted net income per share calculation in certain areas.

In August 2020,

the FASB issued ASU No.

2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and

Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity’s

Own Equity (ASU 2020-06) .

ASU 2020-06 simplifies the accounting for convertible instruments by removing major separation

models required under current GAAP.

Consequently, more convertible debt instruments will be reported as a single liability instrument

with no separate accounting for embedded conversion features.

ASU 2020-06 removes certain settlement conditions that are required

for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

ASU 2020-06 also simplifies the diluted net income per share calculation in certain areas.

The new guidance is effective for annual

6 unchanged sentences

1, 2019, the Company adopted ASU No.

2016-02, Leases (ASC 842), and related ASUs, 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.

2016-02, Leases (ASC 842), and related ASUs, 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 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 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.

term commenced April 1, 2020, and the lease provides for an initial monthly rent of approximately $ 12,400 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 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.

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

3 unchanged sentences

Future minimum

payments under the facility operating lease, as of June 30, 2021, are listed in the table below.

payments under the facility operating lease, as of September 30, 2021, are listed in the table below.

Annual Fiscal Years

1 unchanged sentence

Present value of lease liabilities

paid for amounts included in the measurement of lease liabilities was $ 48,085 .

Rent expense was $ 26,884 and $ 26,885 for the three

months ended June 30, 2021 and 2020, respectively.

Cash paid for

amounts included in the measurement of lease liabilities was $ 76,716 for the six months ended September 30, 2021.

was $ 53,768 and $ 53,768 for the six months ended September 30, 2021 and 2020, respectively, and $ 26,884 and $ 26,844 for

the three months ended September 30, 2021 and 2020, respectively.

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

3 unchanged sentences

Small Business Administration

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

The full amount

of the PPP Note was due in April 2022 and interest accrued on the outstanding principal balance of the PPP Note at a fixed rate of 1.0%

per annum, which was deferred for 10 months after the covered period during which the Company used the proceeds.

The Company applied

to the Lender for forgiveness of the PPP Note in October 2020, and, in May 2021, the Company was notified by the Lender and the U.S.

Small Business Administration that the outstanding principal and accrued interest for the PPP Note was forgiven in full.

accounted for the forgiveness of the PPP Note in accordance with Accounting Standards Codification Topic 470:

Debt (ASC 470),

and the amount forgiven was recorded as a gain on extinguishment and recognized in the other income line of the condensed consolidated

statement of operations.

Paycheck Protection Program Note with the Lender evidencing the PPP Note.

The full amount of the PPP Note was due in April 2022

and interest accrued on the outstanding principal balance of the PPP Note at a fixed rate of 1.0% per annum, which was deferred

for 10 months after the covered period during which the Company used the proceeds.

applied to the Lender for forgiveness of the PPP Note in October 2020, and, in May 2021, the Company was notified by the Lender

Small Business Administration that the outstanding principal and accrued interest for the PPP Note was forgiven in

The Company accounted for the forgiveness of the PPP Note in accordance with Accounting Standards Codification Topic 470:

Debt (ASC 470), and the amount forgiven was recorded as a gain on extinguishment and recognized in the other income line of the

condensed consolidated statement of operations.

CONVERTIBLE PROMISSORY NOTES

February through April 2021, the Company sold $2,310,000 of convertible promissory notes (the Original 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.

April 30, 2021, pursuant to a revocation and replacement agreement between each holder of an Original Note and the Company (the Revocation

Agreement), the $2,310,000 of Original Notes and accrued interest thereon as of April 30, 2021 were replaced with $2,360,550 aggregate

principal amount of Notes (as defined below).

The Company accounted for the replacement of the Original Notes in accordance with ASC

470 and recorded a loss on extinguishment of $ 1,321,450 and interest expense of $ 70,647 for unamortized debt issuance costs as of April 30, 2021.

In April and May

2021, pursuant to a Securities Purchase Agreement (the SPA), the Company sold to investors $ 4,250,000

aggregate principal amount of convertible promissory notes (the Notes) 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).

From February

through April 2021, the Company sold $2,310,000 of convertible promissory notes (each an Original Notes and, collectively, the

Original 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.

Effective April 30, 2021, pursuant to a revocation and replacement agreement between

each holder of an Original Note and the Company (the Revocation Agreement), the $2,310,000 of Original Notes and accrued interest

thereon as of April 30, 2021 were replaced with $2,360,550 aggregate principal amount of new Notes (as defined below).

accounted for the replacement of the Original Notes in accordance with ASC 470 and recorded a loss on extinguishment of $ 1,321,450

and interest expense of $ 70,647 for unamortized debt issuance costs as of April 30, 2021.

May 2021, pursuant to a Securities Purchase Agreement by and between the Company and each investor (the SPA), the Company sold

to investors $ 4,250,000 aggregate principal amount of convertible promissory notes (the Notes) 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 law.

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 outstanding principal and accrued

interest then outstanding.

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 law.

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 outstanding principal

and accrued interest then outstanding.

No Note may be prepaid in whole or in part after the Trigger Date.

Notes outstanding after the Trigger Date 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 are subject to adjustment

from time to time for subdivisions and consolidations of shares and other standard dilutive and corporate events, as provided in the Notes.

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

shares of its common stock or other securities to acquire shares of 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 conversion shares issuable upon conversion of the Notes

shall be increased, as provided in the Notes.

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.

Adjusted Note Amount equals the product of (i) the sum of all outstanding

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

Notes outstanding

after the Trigger Date may be converted into shares of the Company’s common stock at an initial conversion price of $2.87

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 are subject to adjustment from time to time for subdivisions and consolidations of shares and other

standard dilutive and corporate events, as provided in the Notes.

Subject to certain Exempt Issuances (as defined in the Notes),

if while a Note is outstanding, the Company sells, issues or grants any shares of its common stock or other securities to acquire

shares of 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 conversion shares issuable upon conversion of the Notes shall be increased, as provided in the

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, as defined in the Notes), each Note holder will be required to convert its Adjusted Note Amount (as defined below) into

the securities of such Qualified Capital Raise.

Adjusted Note Amount equals the product of (i) the sum of all outstanding principal

plus accrued 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 mergers 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 Note holder the sum of (i) the product of (a) all then outstanding principal amount and accrued interest thereon, multiplied by

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 mergers 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 Note holder the sum of (i) the product of (a) all then outstanding principal amount and accrued interest thereon,

multiplied by (b) 125%;

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

At the option of a Note holder, in

the event the Company receives cash proceeds as a result of certain events, including, but not limited to, payments 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 include covenants, representations,

warranties, other payment obligations and agreements by the Company including, without limitation, most-favored nation rights, rights

of participation and first refusal and exchange rights.

In connection with the issuance of the Notes, the Company issued Warrants

to purchase in the aggregate 2,303,348 shares of its common stock at an initial exercise price of $8.00 per share.

The Warrants may be

exercised for a period of five years from the Trigger Date, provided that, if 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 Warrants shall be cancelled.

The fair value of the Warrants was $3,700,632, of which $2,379,182 was recorded as a debt

discount, which is being amortized to interest expense over the term of the Warrants, and $1,321,450 was recorded as a loss on debt extinguishment.

At the option

of a Note holder, in the event the Company receives cash proceeds as a result of certain events, including, but not limited to,

payments 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 include

covenants, representations, warranties, other payment obligations and agreements by the Company including, without limitation,

most-favored nation rights, rights of participation and first refusal and exchange rights.

In connection

with the issuance of the Notes, the Company issued Warrants to purchase in the aggregate 2,303,348 shares of its common stock

at an initial exercise price of $8.00 per share.

The Warrants may be exercised for a period of five years from the Trigger Date,

provided that, if 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 Warrants shall

be cancelled.

The fair value of the Warrants was $3,700,632, of which $2,379,182 was recorded as a debt discount, which is being

amortized to interest expense over the term of the Warrants, and $1,321,450 was recorded as a loss on debt extinguishment.

The Company calculated the fair value of the

2 unchanged sentences

0.86 % , a term of 5.75 years and a dividend yield of zero .

In connection with

the April and May 2021 sales of the $4,250,000 aggregate principal amount of the Notes, the Company incurred debt issuance costs of $116,000,

which were recorded as a debt discount and are being amortized to interest expense over the term of the Notes using the effective interest

The interest expense attributable to the debt discount, comprising the debt issuance costs and Warrants, during the

three months ended June 30, 2021 was approximately $338,619.

The $6,610,550 aggregate principal amount of Notes are due and payable in full in the first quarter of fiscal 2023.

As of June 30, 2021, the Notes and accrued interest could

be converted into 2,354,653 shares of common stock at a conversion price of $2.87 per share.

5 – STOCKHOLDERS EQUITY (DEFICIT) & STOCK-BASED COMPENSATION

During the three months ended June

30, 2021, the Company issued 60,000 shares of common stock to a service provider.

2017 Equity Incentive Plan

In connection with the April and

May 2021 sales of the $4,250,000 aggregate principal amount of the Notes, the Company incurred debt issuance costs of $116,000,

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 attributable to the debt discount, comprising the debt issuance costs and Warrants,

during the three and six months ended September 30, 2021 was $485,820 and $824,439, respectively.

The $6,610,550

aggregate principal amount of Notes are due and payable in full in the first quarter of fiscal 2023.

Subsequent to the Trigger

Date, the Notes can be converted into 2,303,348 shares of common stock at a conversion price of $2.87 per share.

NOTE 5 – STOCKHOLDERS’

EQUITY (DEFICIT) & STOCK-BASED COMPENSATION

During the six months ended

September 30, 2021, the Company issued 60,000 shares of common stock to a service provider and issued 16,414 shares to its non-employee

directors under the Company’s outside director compensation plan.

Amended 2017 Equity Incentive

In October 2017,

the Board approved the 2017 Equity Incentive Plan (the Plan) with 3,000,000 shares of common stock reserved for issuance.

2020, the Board approved an increase in the number of shares reserved for issuance by 1,000,000 shares.

Under the 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 Plan is administered by the Board or, in the alternative,

a committee designated by the Board.

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

common stock reserved for issuance.

In January 2020 and August 2021, the Board approved increases in the number of shares reserved

for issuance under the Plan by 1,000,000 and 4,000,000 shares, respectively.

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

Stock-Based Compensation

1 unchanged sentence

based on the grant date fair value.

As of June 30, 2021, the unamortized compensation cost was $ 2,288,683 related to stock options

and is expected to be recognized as expense over a weighted-average period of approximately 1.94 years .

the three months ended June 30, 2021, the Company granted 5,508 shares to members of its board of directors (the Board) in accordance

with its Board compensation plan for non-employee directors.

During the three months ended June 30, 2021, the Company granted

options to purchase 182,321 shares of its common stock to employees, directors and consultants.

The options had 10-year terms,

and 47,320 options granted on June 30, 2020, in accordance with its Board compensation plan for non-employee directors, vested immediately.

During the three months ended June 30, 2021, the fair value of the options granted was $ 698,093 , and $ 300,918 was recorded as

stock-based compensation expense in the condensed consolidated statement of operations.

The unamortized compensation cost, as of September 30, 2021, was $ 5,988,541 related to stock

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

the six months ended September 30, 2021, the Company granted options to purchase 1,371,471 shares of its common stock to employees,

directors and consultants.

The options had 10-year terms, and 129,117 options vested immediately when granted.

The fair value

of the options was determined to be $ 5,464,619 of which $ 845,979 was recorded as stock-based compensation expense and included

in the condensed consolidated statement of operations for the six months ended September 30, 2021.

The following assumptions were used

in the fair value calculations:

in the fair value method calculations:

Schedule of Fair Value Assumptions

September 30,

interest rates

Expected life (years)

The fair values

of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified methods to

establish the fair term of options, as well as average volatility.

The risk-free interest rate was derived from the Daily Treasury

Yield Curve Rates, as published by the U.S.

Department of the Treasury as of the grant date for terms equal to the expected terms

of the options.

A dividend yield of zero was applied because the Company has never paid dividends and has no intention to pay

dividends in the foreseeable future.

0.28 % - 0.37 %

Expected life

Dividend yield

fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified

methods to establish the fair term of options as well as average volatility of three comparable organizations.

The risk-free interest

rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S.

Department of the Treasury as of the grant

date for terms equal to the expected terms of the options.

A dividend yield of zero was applied because the Company has never

paid dividends and has no intention to pay dividends in the foreseeable future.

In accordance with ASU No.

2016-09, the Company accounts for forfeitures as they occur.

of stock option activity under the EIP is presented below:

2016-09, the Company

accounts for forfeitures as they occur.

of stock option activity under the Plan is presented below:

Schedule of Stock Option activity

4 unchanged sentences

Balance at June 30, 2021

Additional shares authorized under the Plan

Options granted

( 1,189,150 )

Options cancelled and returned to the Plan

Balance at September 30, 2021

There were no

stock options exercised during the three months ended June 30, 2021 and 2020.

stock options exercised during the six months ended September 30, 2021 and 2020.

The following

table summarizes the range of outstanding and exercisable options as of June 30, 2021:

table summarizes the range of outstanding and exercisable options as of September 30, 2021:

Outstanding and Exercisable Option, Range

5 unchanged sentences

calculated as the excess of the closing price of the common stock on the Company’s principal trading market over the exercise

price of the option.

price of the option at September 30, 2021.

is required to present the tax benefits resulting from tax deductions in excess of the compensation cost recognized from the exercise

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

For the three months ended June 30, 2021

For the six months ended September 30,

2021 and 2020, there were no such tax benefits associated with the exercise of stock options.

9 unchanged sentences

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

All tax returns

for fiscal 2016 to fiscal 2020 may be subject to examination by the U.S.

All tax returns for fiscal

2016 to fiscal 2020 may be subject to examination by the U.S.

federal and state tax authorities.

As of June 30,

2021, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.

As of September 30, 2021, the

Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.

NOTE 7 – RELATED

PARTY TRANSACTIONS

2021 Placement

2021, the Company’s chief executive officer and an existing investor, who is represented by a member of the Company’s board

of directors, purchased $100,000 and $1,000,000, aggregate principal amount of the Original Notes, respectively.

Effective April

30, 2021, the Related Party Holders entered into Revocation Agreements with the Company pursuant to which their collective $ 1,100,000

aggregate principal amount of Original Notes and accrued interest of $ 50,091

were replaced with Notes.

At June 30, 2021,

the investor and executive officer held Notes in an aggregate principal amount of $ 1,026,630

2021, the Company’s chairman of the Board and president and an existing investor, who is represented by a member of the

Company’s board of directors, purchased $100,000 and $1,000,000, aggregate principal amount of the Original Notes, respectively.

Effective April 30, 2021, the related party holders entered into revocation agreements with the Company pursuant to which their

collective $ 1,100,000 aggregate principal amount of Original Notes and accrued interest of $ 50,091 were replaced with Notes.

September 30, 2021, the investor and executive officer held Notes in an aggregate principal amount of $ 1,026,630

and $ 102,663 ,

1 unchanged sentence

of interest payable thereon.

In May 2021, a member

of the Board purchased $ 200,000

aggregate principal amount of Notes.

June 30, 2021, approximately $ 4,000

of interest was payable by the Company thereon.

COMMITMENTS & CONTINGENCIES

For the three months ended September 30, 2021, the Company

incurred interest expense of approximately $ 31,105 and $ 3,100 , respectively, and for the six months ended September 30, 2021,

the Company incurred interest expense of approximately $ 51,600 and $ 5,160 , respectively, on the related party holder Notes.

In May 2021, a

member of the Board purchased $ 200,000 aggregate

principal amount of Notes (the Director Note).

For the three and six months ended September 30, 2021, the Company incurred expense

of approximately $ 4,000 and $ 10,060 , respectively, on the Director Note.

At September 30, 2021, approximately $ 10,060 of

interest was payable by the Company on the Director Note.

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

1 unchanged sentence

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 and losses arising

from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims

relating to past performance.

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

and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising

from litigation or claims relating to past performance.

Such indemnification clauses may not be subject to maximum loss clauses.

The Company has also entered into

indemnification agreements with its officers and directors.

No amounts were reflected in the Company’s consolidated financial statements

for the three months ended June 30, 2021 and 2020 related to these indemnifications.

The Company has not estimated the maximum potential

amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and circumstances

applicable to each particular agreement.

To date, the Company has not made any payments related to these indemnification agreements,

and no claims for payment have been made under such agreements.

9 – SUBSEQUENT EVENT

August 11, 2021, the Board approved an increase in the number of shares reserved for issuance under the Plan by 4,000,000 shares, bringing

the total shares reserved for issuance to 8,000,000 shares.

The Company has also entered into indemnification agreements with its officers and directors.

No amounts were reflected in the

Company’s consolidated financial statements for the six months ended September 30, 2021 and 2020 related to these indemnifications.

The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited

history of prior claims and the unique facts and circumstances applicable to each particular agreement.

To date, the Company has

not made any payments related to these indemnification agreements, and no claims for payment have been made under such agreements.

9 – SUBSEQUENT EVENTS

Stock Purchases

October 28, 2021, the Company entered into purchase agreements with two of its executive officers, providing for the sale and

issuance by the Company of 92,592 shares of the Company’s common stock at the closing market price on October 28, 2021 of

$2.70 per share.

The Company received proceeds of approximately $ 250,000 from the sale of the shares.

Facility and Security Agreement

October 28, 2021, the Company issued a secured promissory note (the Bridge Note) to Manchester Explorer, L.P.

(Manchester) that

provides the Company with a $ 3,000,000 revolving credit facility with all amounts being drawn down by the Company thereunder being

due and payable, subject to acceleration in the event of a default, on March 15, 2022 (the Maturity Date).

Interest at the rate

of 12% is payable on each drawn down without regard to the draw down date or the date when interest is paid.

principal amount of the Bridge Note and interest due thereon is payable to Manchester no later than the earlier of:

(i) the Maturity

Date and (ii) the date on which the Company has received proceeds in excess of $12,000,000 from a transaction or series of related

transactions occurring prior to the Maturity Date, which such transactions constitute equity financings or other issuances of

the Company's equity securities.

Provided that no Event of Default (as such term is defined in the Bridge Note) has occurred,

on any date prior to the Maturity Date, upon no less than three days written notice by the Company specifying the draw amount,

Manchester will advance the draw amount to the Company.

No draw amount can be in an amount less than $100,000 or exceed an amount

equal to $3,000,000 minus the aggregate principal amount outstanding under the Note at the time of such draw request.

of Default occurs and is continuing, Manchester may declare all of the Bridge Note, including any interest and other amounts due,

to be due and payable immediately.

connection with the issuance of the Bridge Note, on October 28, 2021, the Company entered into a security agreement with Manchester

under which the Company granted Manchester a continuing and unconditional first priority security interest in and to any and all

of the Company’s property of any kind or description, tangible or intangible, wheresoever located and whether now existing

or hereafter arising or acquired.

November 9, 2021, the Company made an initial draw of $ 500,000 on the Bridge Note.

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-Q

Item 1. Financial Statements