What changed in this filing

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Item 1. Financial Statements

2023-02-13 compared with 2022-11-14 · 371 added, 343 removed, 208 unchanged (77% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

September 30,

and cash equivalents

expenses and other

CURRENT ASSETS

Cash and cash equivalents

Prepaid expenses and other

TOTAL CURRENT ASSETS

Property and equipment, net

Right of use asset, net

Security deposit

TOTAL NON-CURRENT ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

and equipment, net

of use asset, net

NON-CURRENT ASSETS

AND STOCKHOLDERS’ EQUITY

lease liability

CURRENT LIABILITIES

Accounts payable

Accrued expenses

Short-term lease liability

TOTAL CURRENT LIABILITIES

LONG-TERM LIABILITIES’

Long-term lease liability

TOTAL LIABILITIES

Commitments and Contingencies (Note 8)

STOCKHOLDERS’ EQUITY

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

lease liability

and Contingencies (Note 8)

STOCKHOLDERS’

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

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

10,925,723 and 10,461,898 shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively

Additional paid-in capital

Accumulated deficit

10,932,098 and 10,461,898 shares issued and outstanding as of December 31, 2022 and March 31, 2022, respectively

paid-in capital

( 44,887,453 )

( 34,579,771 )

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

accompanying notes are an integral part of these condensed consolidated financial statements.

Medical, Inc.

Condensed Consolidated Statements of Operations

Three Months Ended

September 30,

Six Months Ended

September 30,

Consolidated Statements of Operations

and development

and administrative

operating expenses

Research and development

General and administrative

Total operating expenses

Loss from operations

from operations

( 3,357,897 )

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( 10,899,063 )

Interest expense

income (expense)

( 1,010,247 )

Loss on debt extinguishment

( 2,204,917 )

Loss before income taxes

on debt extinguishment

( 1,321,450 )

before income taxes

( 3,358,484 )

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( 10,306,082 )

Provision for income taxes

( 14,056,554 )

for income taxes

$ ( 3,358,484 )

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$ ( 10,307,682 )

Net loss per share

Basic and diluted

Shares used in computing net loss per share

Basic and diluted

The accompanying

notes are an integral part of these condensed consolidated financial statements.

$ ( 14,058,154 )

loss per share

used in computing net loss per share

accompanying notes are an integral part of these condensed consolidated financial statements.

Medical, Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Stockholders’ Equity (Deficit)

Stockholders’

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$ ( 41,528,969 )

of common stock under equity incentive plan

( 3,358,484 )

as of December 31, 2022

$ ( 44,887,453 )

Stockholders’

Balance as of March 31, 2021

as of March 31, 2021

$ ( 15,947,010 )

$ ( 1,275,149 )

Shares issued for service

Warrants issued with convertible notes

Issuance of common stock under equity incentive plan

Stock-based compensation

issued for services

issued with convertible notes

of common stock under equity incentive plan

( 4,835,091 )

Balance as of June 30, 2021

as of June 30, 2021

$ ( 20,782,101 )

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( 4,381,757 )

Balance as of September 30, 2021

as of September 30, 2021

$ ( 25,163,858 )

$ ( 5,100,814 )

The accompanying

notes are an integral part of these condensed consolidated financial statements.

Modular Medical,

Condensed Consolidated Statements of Cash Flows

Six Months Ended

September 30,

placement of common stock

issued for services

issuable for services

issued for reverse stock split

( 4,841,307 )

as of December 31, 2021

$ ( 30,005,165 )

$ ( 8,246,635 )

accompanying notes are an integral part of these condensed consolidated financial statements.

Medical, Inc.

Consolidated Statements of Cash Flows

Cash Flows from operating activities

1 unchanged sentence

$ ( 14,058,154 )

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

Gain on PPP note forgiveness

Loss on debt extinguishment

Stock-based compensation expense

Depreciation and amortization

Shares for services

Amortization of lease right-of-use asset

Change in lease liability

Amortization of debt discount

Changes in assets and liabilities:

Other assets and prepaid expenses

Accounts payable and accrued expenses

Net cash used in operating activities

to reconcile net loss to net cash used in operating activities:

on PPP note forgiveness

on debt extinguishment

compensation expense

and amortization

issued for services

issuable for services

of lease right-of-use asset

in lease liability

of debt discount

in assets and liabilities:

assets and prepaid expenses

payable and accrued expenses

cash used in operating activities

( 8,184,696 )

( 7,128,787 )

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock and warrants, net

Proceeds from issuance of convertible notes, net

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosure:

Noncash investing and financing activities:

Fair value of detachable warrants issued with convertible notes

FLOWS FROM INVESTING ACTIVITIES

of property and equipment

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

from issuance of common stock and warrants, net

from private placement, net of issuance costs

from issuance of convertible notes, net

from issuance of promissory note

cash provided by financing activities

decrease in cash and cash equivalents

( 1,385,415 )

( 1,264,367 )

and cash equivalents at beginning of period

and cash equivalents at end of period

investing and financing activities:

value of detachable warrants issued with convertible notes

The accompanying

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MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Modular Medical,

Medical, Inc.

(the Company) was incorporated in Nevada in October 1998 under the name Bear Lake Recreation, Inc.

The Company had no material

business operations from 2002 until approximately 2017 when it acquired all of the issued and outstanding shares of Quasuras,

Inc., a Delaware corporation (Quasuras).

As the major shareholder of Quasuras retained control of both the Company and Quasuras,

the share exchange was accounted for as a reverse merger.

As such, the Company recognized the assets and liabilities of Quasuras,

acquired in the merger, at their historical carrying amounts.

Prior to the acquisition of Quasuras and, since at least 2002, the

Company was a shell company, as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the Exchange Act).

The Company had

no material business operations from 2002 until approximately 2017 when it acquired all of the issued and outstanding shares of

Quasuras, Inc., a Delaware corporation (Quasuras).

As the major shareholder of Quasuras retained control of both the Company and

Quasuras, the share exchange was accounted for as a reverse merger.

As such, the Company recognized the assets and liabilities

of Quasuras acquired in the merger at their historical carrying amounts.

Prior to the acquisition of Quasuras and, since at least

2002, the Company was a shell company, as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the Exchange

In June 2017, the Company changed its name from Bear Lake Recreation, Inc.

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.

Company 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

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

2022, the Company completed a public offering of its equity securities, and its common stock was approved to list on the Nasdaq

Capital Market under the symbol “MODD” and began trading there on February 10, 2022.

February 2022, the Company completed a public offering of its equity securities, and its common stock was approved to list on

the Nasdaq Capital Market under the symbol “MODD” and began trading there on February 10, 2022.

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.

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

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 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

revenue to achieve profitability.

The Company’s expected operating losses and cash burn 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.

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.

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

as a going concern.

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 revenue to achieve profitability.

The Company’s expected operating losses and cash burn raise substantial

doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements

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

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

The Company’s

operating needs include the planned costs to operate its business, 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.

of Presentation

The Company’s

fiscal year ends on March 31 of each calendar year.

Each reference to a fiscal year in these notes to the condensed consolidated

financial statements refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2023 refers

to the fiscal year ending March 31, 2023).

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

condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting

principles in the United States (GAAP) and with the rules and regulations of the United States Security and Exchange Commission

(SEC) regarding interim financial reporting.

The condensed consolidated balance sheet as of March 31, 2022 has been derived from

the audited consolidated financial statements at that date.

Certain information and disclosures normally included in financial

statements prepared in accordance with GAAP have been condensed or omitted in accordance with these rules and regulations of the

The information in this report should be read in conjunction with the Company’s consolidated financial statements and

notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting

Company’s operating needs include the planned costs to operate its business, 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

Company’s fiscal year ends on March 31 of each calendar year.

Each reference to a fiscal year in these notes to the condensed

consolidated financial statements refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal

2023 refers to the fiscal year ending March 31, 2023).

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.

accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted

accounting principles in the United States (GAAP) and with the rules and regulations of the United States Security and Exchange

Commission (SEC) regarding interim financial reporting.

The condensed consolidated balance sheet as of March 31, 2022 has been

derived from the audited consolidated financial statements at that date.

Certain information and disclosures normally included

in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with these rules and regulations

The information in this report should be read in conjunction with the Company’s consolidated financial statements

and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting

only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations

and cash flows for the interim periods presented.

The operating results for the three months ended September 30, 2022 are not

necessarily indicative of the results that may be expected for the year ending March 31, 2023 or for any other future period.

Reverse Stock Split

24, 2021, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary

of State of the State of Nevada to effect a 1-for-3 reverse stock split of the Company’s shares of common stock.

Such amendment

and ratio were previously approved by a majority of the Company’s stockholders and the board of directors.

As a result of

the reverse stock split, which was effective November 29, 2021, every three shares of the Company’s pre-reverse split outstanding

common stock were combined and reclassified into one share of common stock.

Proportionate voting rights and other rights of common

stock holders were not affected by the reverse stock split.

Any fractional shares of common stock resulting from the reverse split

were rounded up to the nearest whole share.

All stock options outstanding and common stock reserved for issuance under the Company’s

equity incentive plans and warrants outstanding immediately prior to the reverse stock split were adjusted by dividing the number

of affected shares of common stock by three and, as applicable, multiplying the exercise price by three, as a result of the reverse

All share numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis

to reflect this 1-for-3 reverse stock split.

The preparation

of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates

and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

The operating results for the three months ended December 31, 2022 are not necessarily

indicative of the results that may be expected for the year ending March 31, 2023 or for any other future period.

Reverse Stock

November 24, 2021, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with

the Secretary of State of the State of Nevada to effect a 1-for-3 reverse stock split of the Company’s shares of common

Such amendment and ratio were previously approved by a majority of the Company’s stockholders and the board of directors.

As a result of the reverse stock split, which was effective November 29, 2021, every three shares of the Company’s pre-reverse

split outstanding common stock were combined and reclassified into one share of common stock.

Proportionate voting rights and

other rights of common stock holders were not affected by the reverse stock split.

Any fractional shares of common stock resulting

from the reverse split were rounded up to the nearest whole share.

All stock options outstanding and common stock reserved for

issuance under the Company’s equity incentive plans and warrants outstanding immediately prior to the reverse stock split

were adjusted by dividing the number of affected shares of common stock by three and, as applicable, multiplying the exercise

price by three, as a result of the reverse stock split.

All share numbers, share prices, exercise prices and per share amounts

have been adjusted, on a retroactive basis to reflect this 1-for-3 reverse stock split.

Use of Estimates

preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting

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from those estimates.

operates in one business segment and uses one measurement of profitability for its business.

and Development

expenses research and development expenditures as incurred.

and Administrative

Reportable Segment

The Company operates in

one business segment and uses one measurement of profitability for its business.

The Company expenses research

and development expenditures as incurred.

General and Administrative

and administrative expenses consist primarily of payroll and benefit costs, rent, stock-based compensation, legal and accounting

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institution failure.

and Uncertainties

is subject to risks from, among other things, competition associated with the industry in general, other risks associated with

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

Risks and Uncertainties

Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated

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

public markets.

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

emergency by the U.S.

government in March 2020.

This has negatively affected the U.S.

and global economy, disrupted global supply chains,

significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place”

and global economy, disrupted global supply

chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in- place”

and created significant disruption of the financial markets.

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control, and cannot be predicted.

and Cash Equivalents

Cash and Cash Equivalents

and cash equivalents include cash on hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments

with original maturities of three months or less.

and Equipment

Property and Equipment

and equipment are recorded at historical cost.

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

Value of Financial Instruments

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:

Construction-in-process includes machinery and equipment and is stated at cost and not depreciated.

Depreciation on construction-in-process commences when the assets are ready for their intended use.

assets comprised:

of Fixed Assets

and equipment

Construction-in-process

property and equipment

accumulated depreciation and amortization

property and equipment, net

Fair Value of Financial

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

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

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

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

Company’s right-of-use assets consist of leased assets recognized in accordance with FASB Accounting Standards Codification

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The Company determines

the lease term by agreement with lessor.

In cases where the lease does not provide an implicit interest rate, the Company uses

the Company’s incremental borrowing rate based on the information available at commencement date in determining the present

value of future payments.

the lease term by agreement with the lessor.

In cases where the lease does not provide an implicit interest rate, the Company

uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the

present value of future payments.

Stock-Based Compensation

recognizes stock-based compensation for stock options granted to employees and non-employees on a straight-line basis over the

requisite service period, usually the vesting period, based on the grant-date fair value.

The Company estimates the value of stock

options on the date of grant using the Black-Scholes pricing model.

The determination of fair value of share-based payment awards

on the date of grant using an option-pricing model is affected by the option price, as well as assumptions regarding a number

of highly complex and subjective variables.

Company recognizes stock-based compensation for stock options granted to employees and non-employees on a straight-line basis

over the requisite service period, usually the vesting period, based on the grant-date fair value.

The Company estimates the value

of stock options on the date of grant using the Black-Scholes pricing model.

The determination of fair value of share-based payment

awards on the date of grant using an option-pricing model is affected by the option price, as well as assumptions regarding a

number of highly complex and subjective variables.

These variables include, but are not limited to, the expected stock price volatility

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

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.

Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock options and

exercise of warrants.

the six months ended September 30, 2022 and 2021, the following table sets forth securities outstanding which were excluded from the

computation of diluted net loss per share as their inclusion would be anti-dilutive.

Per-Share Amounts

net loss per share is computed by dividing the net 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

Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock

options and warrants.

the nine months ended December 31, 2022 and 2021, the following table sets forth securities outstanding which were excluded from

the computation of diluted net loss per share as their inclusion would be anti-dilutive.

Schedule of Anti-Dilutive Shares

Six Months Ended

September 30,

Options to purchase common stock

Common stock warrants

Reclassification

purchase common stock

stock warrants

Reclassifications

prior year amounts have been reclassified for consistency with the current period presentation.

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

For the three and six months ended September

30, 2022 and 2021, the Company’s comprehensive loss was the same as its net loss.

For the three and nine months ended

December 31, 2022 and 2021, the Company’s comprehensive loss was the same as its net loss.

Issued Accounting Pronouncement

In June 2016,

the FASB issued ASU No.

June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses .

This ASU added a new impairment model (known

as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses.

Under the new

guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade

receivables, lease receivables, financial guarantee contracts, and other loan commitments.

The CECL model does not have a minimum

threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a

low risk of loss.

This update is effective for fiscal years beginning after December 15, 2022, including interim periods within

those fiscal years for smaller reporting companies.

The Company is still evaluating the impact of this accounting guidance on

its results of operations and financial position.

accounts for the lease of its corporate facility in San Diego, California in accordance with ASC No.

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.

obtained a right-of-use asset of $270,950 in exchange for its 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

This ASU added a new impairment

model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses.

the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments,

trade receivables, lease receivables, financial guarantee contracts, and other loan commitments.

The CECL model does not have

a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that

have a low risk of loss.

This update is effective for fiscal years beginning after December 15, 2022, including interim periods

within those fiscal years for smaller reporting companies.

The adoption of this ASU is not expected to have a material impact

on the Company’s results of operations and financial position.

Company accounts for the lease of its corporate facility in San Diego, California in accordance with ASC No.

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

Company obtained a right-of-use asset of $270,950 in exchange for its 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.

In addition, the Company paid a $100,000 security deposit.

minimum payments under the facility operating lease, as of September 30, 2022, are listed in the table below.

minimum payments under the facility operating lease, as of December 31, 2022, are listed in the table below.

Schedule of Future

minimum Lease Payment

Annual Fiscal Years

Imputed interest

Present value of lease liabilities

paid for amounts included in the measurement of lease liabilities was $ 79,014 for the six months ended September 30, 2022.

expense was $ 53,842 and $ 53,768 for the six months ended September 30, 2022 and 2021, respectively and $ 26,921 and $ 26,844 for

the three months ended September 30, 2022 and 2021, respectively.

24, 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.

value of lease liabilities

paid for amounts included in the measurement of lease liabilities was $ 118,521 for the nine months ended December 31, 2022.

Rent expense was $ 80,698 for each of the nine-month periods ended December 31, 2022 and 2021 and $ 26,930 for each of the three-month periods ended December 31, 2022 and 2021.

April 24, 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).

Note 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 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.

2021, the Lender and the U.S.

Small Business Administration notified the Company that the outstanding principal and accrued interest

for the PPP Note was forgiven in full.

The Company accounted for the forgiveness of the PPP Note in accordance with ASC Topic

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

line of the consolidated statement of operations.

PPP Note 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 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.

May 2021, the Lender and the U.S.

Small Business Administration notified the Company that the outstanding principal and accrued

interest for the PPP Note was forgiven in full.

The Company accounted for the forgiveness of the PPP Note in accordance with ASC

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

income line of the consolidated statement of operations.

4 – CONVERTIBLE PROMISSORY NOTES

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

and May 2021, pursuant to a securities purchase agreement by and between the Company and each investor (the SPA), the Company

April and 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

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

In connection

with the issuance of the Notes, the Company issued the 2021 Warrants to purchase in the aggregate 767,796 shares of its common

stock at an initial exercise price of $24.00 per share.

The fair value of the 2021 Warrants was $3,700,632, of which $2,379,182

was recorded as a debt discount and amortized to interest expense, and $1,321,450 was recorded as a loss on debt extinguishment.

The Company calculated the fair value of the Warrants utilizing the Black-Scholes valuation model with the following assumptions:

volatility of 88.98 % , risk-free interest rate of 0.86 % , a term of 5.75 years and a dividend yield of zero .

connection with the issuance of the Notes, the Company issued the 2021 Warrants to purchase in the aggregate 767,796 shares

of its common stock at an initial exercise price of $24.00 per share.

The fair value of the 2021 Warrants was $3,700,632, of

which $2,379,182 was recorded as a debt discount and amortized to interest expense, and $1,321,450 was recorded as a loss on

debt extinguishment.

The Company calculated the fair value of the Warrants utilizing the Black-Scholes valuation model with

the following assumptions:

volatility of 88.98 % , risk-free interest rate of 0.86 % , a term of 5.75 years and a dividend yield

the closing of a public offering in February 2022, which was a Qualified Capital Raise, in accordance with their terms, the Notes

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5 – STOCKHOLDERS’ EQUITY (DEFICIT)

Placements of Common Stock

of Common Stock and Warrants

May 2, 2022, the Company entered into a securities purchase agreement (the Purchase Agreement) with an institutional investor,

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expire on the five-year anniversary of the Initial Exercise Date.

September 30, 2022, the Company had the following warrants outstanding:

As of December 31, 2022,

the Company had the following warrants outstanding:

Schedule of Warrant Outstanding

April 2027 - May 2027

- February 2027

November 2027

the six months ended September 30, 2022 and 2021, the Company issued 348 and 20,000 shares of common stock, respectively, with

a fair value of approximately $ 1,576 and $ 172,200 , respectively, to service providers.

the nine months ended December 31, 2022 and 2021, the Company issued 348 and 28,334 shares of common stock, respectively, with a fair

value of approximately $ 1,576 and $ 245,956 , respectively, to service providers.

6 – STOCK-BASED COMPENSATION

2017 Equity Incentive Plan

In October 2017, the Board approved the 2017 Equity Incentive Plan (the Plan), as amended, with 1,000,000 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 333,334 and 1,333,334 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 Board.

Compensation Expense

relating to stock options is recognized on a straight-line basis over the requisite service period, usually the vesting period,

based on the grant date fair value.

As of September 30, 2022, the unamortized compensation cost was $ 3,847,696 related to stock

options and is expected to be recognized as expense over a weighted-average period of approximately 2.17 years.

the six months ended September 30, 2022, the Company granted 14,039 shares to members of the Board in accordance with the compensation plan for non-employee directors.

During the six months ended September 30, 2022, the Company granted options with 10-year terms to purchase 506,657 shares of its

common stock to employees, directors and consultants.

During the six months ended September 30, 2022, the fair value of awards

granted was $ 2,174,367 , and $ 1,481,009 was recorded as stock-based compensation expense in the condensed consolidated

statement of operations.

The following assumptions were used in the fair value calculations:

The following

assumptions were used in the fair value calculations:

September 30,

Amended 2017 Equity

Incentive Plan

October 2017, the Company’s board of directors (the Board) approved the 2017 Equity Incentive Plan (the Plan), as amended,

with 1,000,000 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 333,334 and 1,333,334 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 Board.

Stock-Based Compensation

expense relating to stock options is recognized on a straight-line basis over the requisite service period, usually the vesting

period, based on the grant date fair value.

As of December 31, 2022, the unamortized compensation cost was $3,443,902 related

to stock options and is expected to be recognized as expense over a weighted-average period of approximately 2.07 years.

the three and nine months ended December 31, 2022, the Company awarded 6,375 and 20,414 shares, respectively, to members of the Board

in accordance with the compensation plan for non-employee directors.

During the nine months ended December 31, 2022, the Company granted

options with 10-year terms to purchase 677,199 shares of its common stock to employees, directors and consultants.

The fair value of

the options granted and shares awarded was $2,503,979.

The following assumptions were used in the fair value calculations of the

options granted:

of Fair value Assumptions of Options

interest rates

Expected life (years)

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.

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.

The Company accounts for forfeitures as they occur.

of stock option activity under the EIP is presented below:

A summary of stock

option activity under the Plan is presented below:

Schedule of Stock Option activity

Options Outstanding

Balance at March 31, 2022

Options granted

Options cancelled and returned to the Plan

Balance at June 30, 2022

Options granted

Options cancelled and returned to the Plan

Balance at September 30, 2022

were no stock options exercised during the six months ended September 30, 2022 and 2021.

The following

table summarizes the range of outstanding and exercisable options as of September 30, 2022:

at March 31, 2022

cancelled and returned to the Plan

at June 30, 2022

cancelled and returned to the Plan

at September 30, 2022

cancelled and returned to the Plan

at December 31, 2022

There were no stock options

exercised during the nine months ended December 31, 2022 and 2021.

The following table

summarizes the range of outstanding and exercisable options as of December 31, 2022:

Outstanding and Exercisable Option, Range

Options Outstanding

Options Exercisable

Range of Exercise Price

of Exercise Price

Life (in Years)

$ 1.98 - $ 17.70

The intrinsic

value per share is 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.

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 six months ended September 30,

2022 and 2021, there were no such tax benefits associated with the exercise of stock options, as no stock options were exercised.

intrinsic value per share is 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.

Company 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 nine months ended

December 31, 2022 and 2021, there were no such tax benefits associated with the exercise of stock options, as no stock options

were exercised.

7 – INCOME TAXES

determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the

Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to

affect taxable income.

A valuation allowance is established for any deferred tax assets for which it is more likely than not that

all or a portion of the deferred tax assets will not be realized.

Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases

of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences

to affect taxable income.

A valuation allowance is established for any deferred tax assets for which it is more likely than not

that all or a portion of the deferred tax assets will not be realized.

Based on the available information and other factors, management

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has recorded a full valuation allowance.

Company files U.S.

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

All tax returns for fiscal

2016 to fiscal 2022 may be subject to examination by the U.S.

All tax returns

for fiscal 2016 to fiscal 2022 may be subject to examination by the U.S.

federal and state tax authorities.

As of September 30, 2022, the

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

As of December 31,

2022, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.

8 – COMMITMENTS & CONTINGENCIES

Claims and Assessments

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

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

Litigations, Claims

and Assessments

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

course of business.

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

and estimable settlements.

Indemnification

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

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

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No amounts were reflected in the

Company’s consolidated financial statements for the six months ended September 30, 2022 and 2021 related to these indemnifications.

Company’s consolidated financial statements for the nine months ended December 31, 2022 and 2021 related to these indemnifications.

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

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

Purchase Obligations

Company's primary purchase obligations include purchase orders for machinery and equipment.

At December 31, 2022, the Company

had outstanding purchase orders for machinery and equipment and related expenditures of approximately $735,000.

9 – SUBSEQUENT EVENTS

Lease Agreement

January 5, 2023, the Company entered into a lease agreement (the Thornhill Lease) with Michael Summers (the Lessor) for a new

headquarters facility pursuant to which the Company will lease approximately 24,000 square feet of a building located in San Diego,

California, commencing on or about February 1, 2023.

The monthly base rent is $36,000 for the first 12 months of the lease and

will increase by 4% of the prior year’s base rent at the beginning of each 12-month period thereafter.

The lease term is

the Thornhill Lease, the Company will pay the Lessor a monthly fee for its pro-rated share of specified common area charges, including

maintenance costs, property taxes and insurance, in addition to base rent.

The monthly fee for the common area charges is approximately

$10,700 and will be adjusted based on actual costs incurred by the Lessor.

2017 Equity Incentive Plan

January 2023, the Company’s stockholders approved an increase in the number of shares

reserved for issuance under the Plan by 2,000,000 shares.

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