What changed in this filing

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Item 1. Financial Statements

2023-08-14 compared with 2023-02-13 · 460 added, 541 removed, 38 unchanged (96% of the section changed)

Financial Statements

Medical, Inc.

Modular Medical, Inc.

Condensed Consolidated Balance Sheets

and cash equivalents

expenses and other

(In thousands, except par value)

CURRENT ASSETS

and equipment, net

of use asset, net

NON-CURRENT ASSETS

AND STOCKHOLDERS’ EQUITY

lease liability

Cash and cash equivalents

Prepaid expenses and other

Security deposit

TOTAL CURRENT ASSETS

Property and equipment, net

Right of use asset, net

TOTAL NON-CURRENT ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

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;

10,932,098 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 )

Accounts payable

Accrued expenses

Short-term lease liabilities

TOTAL CURRENT LIABILITIES

LONG-TERM LIABILITIES

Long-term lease liabilities

TOTAL LIABILITIES

Commitments and Contingencies (Note 7)

STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

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

Medical, Inc.

Consolidated Statements of Operations

and development

and administrative

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

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

21,095 and 10,949 shares issued and outstanding as of June 30, 2023 and March 31, 2023, respectively

Additional paid-in capital

Accumulated deficit

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

The accompanying notes are an integral

part of these condensed consolidated financial statements.

Modular Medical, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

Three Months Ended

Operating expenses

from operations

( 3,357,897 )

( 3,831,064 )

( 10,306,098 )

( 10,899,063 )

income (expense)

( 1,010,247 )

( 2,204,917 )

on debt extinguishment

( 1,321,450 )

before income taxes

( 3,358,484 )

( 4,841,307 )

( 10,306,082 )

( 14,056,554 )

for income taxes

$ ( 3,358,484 )

$ ( 4,841,307 )

$ ( 10,307,682 )

$ ( 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.

Consolidated Statements of Stockholders’ Equity (Deficit)

Research and development

General and administrative

Total operating expenses

Loss from operations

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.

Modular Medical, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

Stockholders’

Balance as of March 31, 2023

$ ( 34,579,771 )

Shares issued for services

Issuance of common stock and warrants in equity offering, net

1 unchanged sentence

Stock-based compensation

( 3,498,791 )

Balance as of June 30, 2023

$ ( 38,078,562 )

Stockholders’

Balance as of March 31, 2022

Shares issued for services

Issuance of common stock and warrants in equity offering, net

Issuance of common stock under equity incentive plan

Stock-based compensation

( 3,450,407 )

Balance as of September 30, 2022

$ ( 41,528,969 )

of common stock under equity incentive plan

( 3,358,484 )

as of December 31, 2022

$ ( 44,887,453 )

Stockholders’

as of March 31, 2021

$ ( 15,947,010 )

$ ( 1,275,149 )

issued for services

issued with convertible notes

of common stock under equity incentive plan

( 4,835,091 )

as of June 30, 2021

$ ( 20,782,101 )

$ ( 1,581,488 )

( 4,381,757 )

as of September 30, 2021

$ ( 25,163,858 )

$ ( 5,100,814 )

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

Balance as of June 30, 2022

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Modular Medical, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

$ ( 10,307,682 )

$ ( 14,058,154 )

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 )

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

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

MEDICAL, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Stock-based compensation expense

Depreciation and amortization

Shares for services

Changes in assets and liabilities:

Other assets and prepaid expenses

Lease right-of-use asset

Accounts payable and accrued expenses

Lease liabilities

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock and warrants, 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

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

MODULAR MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Modular 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.

Company recognized the assets and liabilities of Quasuras, acquired in the merger, at their historical carrying amounts.

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).

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

to Modular Medical, Inc.

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

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.

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.

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

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.

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.

to Modular Medical,

The Company is a development stage medical device

company focused on the design, development and eventual 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, our MODD1 product candidate,

or MODD1, 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, we seek to expand the wearable insulin delivery device market beyond the highly motivated “super users”

and expand the category into the mass market.

The product candidate seeks to serve both the type 1 and the rapidly growing, especially

in terms of device adoption, type 2 diabetes markets.

In 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.

and 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.

These consolidated financial statements

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

Implementation of the Company’s plans and its ability to

continue as a going concern will depend upon the Company’s ability to raise additional capital, through the sale of additional equity

or debt securities, to support its future operations.

There can be no assurance that such additional capital, whether in the form of debt

or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable

to the Company.

As discussed in Note 4, in May 2023, the Company completed an offering of its common stock and warrants.

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.

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 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.

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 2024 refers to the fiscal year ending March 31, 2024).

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, 2023 has been derived from the audited consolidated financial statements at that

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 SEC.

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

In 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.

operating results for the three months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the

year ending March 31, 2024 or for any other future period.

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

Estimates may include those pertaining to accruals, stock-based compensation and income taxes.

Actual results could differ

from those estimates.

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 at the date of the condensed consolidated financial

statements and the reported amount of revenues and expenses during the reporting period.

Estimates may include those pertaining to accruals,

stock-based compensation and income taxes.

Actual results could differ from those estimates.

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.

The Company operates in one business segment and

uses one measurement of profitability for its business.

Research and Development

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

fees, and office and other administrative expenses.

Concentration

of Credit Risk

instruments that potentially subject the Company to concentration of credit risk consist primarily of cash.

The Company maintains

its cash at high-quality financial institutions within the United States, which are insured by the Federal Deposit Insurance Corporation

up to limits of approximately $250,000.

No reserve has been made in the financial statements for any possible loss due to financial

institution failure.

General and administrative expenses consist primarily

of payroll and benefit costs, rent, stock-based compensation, legal and accounting fees, and office and other administrative expenses.

Concentration of Credit Risk

Financial instruments that potentially subject

the Company to concentration of credit risk consist primarily of cash.

The Company maintains its cash at a high-credit quality financial

institution within the United States, which is insured by the Federal Deposit Insurance Corporation (FDIC) up to limits of approximately

No reserve has been made in the financial statements for any possible loss due to financial institution failure.

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.

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.

Economic Disruptions

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

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 created significant disruption of the financial markets.

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

and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions

taken by U.S.

and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s

control, and cannot be predicted.

This 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 created significant

disruption of the financial markets.

While the U.S.

national emergency expired in May 2023 and substantially all closures and “shelter-in-place”

orders have ended, there can be no assurance that the COVID-19 pandemic will not impact the Company’s operational and financial

performance in the future, as the duration and spread of the pandemic and related actions taken by U.S.

and foreign government agencies

to prevent disease spread are uncertain, out of our control, and cannot be predicted.

The continued

spread of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in February

2022 has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the

global economy.

Since mid-2022, the U.S.

Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains

While the Company was recently able to access the capital markets, in the future, the Company may be unable to access the capital

markets, and additional capital may only be available to the Company on terms that could be significantly detrimental to its existing

stockholders and to its business.

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.

Cash 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

Property and Equipment

and equipment are recorded at historical cost.

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

lives of the assets, generally three to five years.

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

of the assets, generally three to five years.

Depreciation is recorded in operating expenses in the consolidated statements

of operations.

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

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

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

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.

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

in active markets.

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

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

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

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

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

842, Leases which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all

lease contracts.

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and the

lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized

based on the present value of the future minimum lease payments over the lease term at the commencement date.

Leases with a lease

term of 12 months or less at inception are not recorded on the condensed consolidated balance sheets and are expensed on a straight-line

basis over the lease term in the condensed consolidated statement of operations and comprehensive loss.

The Company determines

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.

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 and placed into service.

Fair Value of Financial Instruments

The Company measures the fair value of financial

instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad

● Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active

● 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.

Due to their short-term nature, the carrying values

of cash equivalents, accounts payable and accrued expenses, approximate fair value.

The Company’s right-of-use assets consist

of leased assets recognized in accordance with FASB ASC No.

842, Leases , which requires lessees to recognize a lease liability

and a corresponding lease asset for virtually all lease contracts.

Right-of-use assets represent the Company’s right to use an underlying

asset for the lease term and the lease liability represents the Company’s obligation to make lease payments arising from the lease,

both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheets and are expensed on a straight-line

basis over the lease term in the consolidated statement of operations and comprehensive loss.

The Company determines 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

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.

The Company recognizes stock-based compensation

for equity awards 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.

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

purchase common stock

stock warrants

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

(WASO) during the period.

In addition, the Company includes the number of shares of common stock issuable under pre-funded warrants as

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

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

Prior to April 1, 2023, the Company excluded pre-funded

warrants from the computation of WASO.

The pre-funded warrants are now included in the computation of WASO.

Prior period amounts have

been conformed to the current-period presentation.

The impact of the change reduced the previously reported loss per share by $ 0.03 and

increased WASO by approximately 844,000 shares for the three months ended June 30, 2022.

The reclassification had no impact on the Company's

net loss or cash flows for the three months ended June 30, 2022.

For the three months ended June 30, 2023 and 2022,

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 (in thousands).

Three Months Ended

Options to purchase common stock

Common stock purchase warrants

Reclassifications

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

These reclassifications had no

effect on the reported results of operations or cash flows.

Comprehensive

loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions.

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

June 2016, the FASB issued ASU No.

Certain prior year amounts have been reclassified

for consistency with the current period presentation.

These reclassifications had no effect on the reported results of operations or cash

Comprehensive Loss

Comprehensive loss represents the changes in equity

of an enterprise, other than those resulting from stockholder transactions.

Accordingly, comprehensive loss may include certain changes

in equity that are excluded from net loss.

For the three months ended June 30, 2023 and 2022, the Company’s comprehensive loss was

the same as its net loss.

Recently Issued Accounting Pronouncement

In June 2016, the FASB issued Accounting Standards

Update (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.

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 December 31, 2022, are listed in the table below.

Schedule of Future

minimum Lease Payment

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).

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

February through April 2021, the Company sold $ 2,310,000 of convertible promissory notes (each an Original Note 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 $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 and 2021 Warrants (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.

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

of its common stock (the 2021 Warrants).

The Notes were unsecured obligations of the Company with each Note having a stated maturity

date of 12 months from its issue date and accrued interest at a rate of 12% per annum, payable on maturity.

If the Company completed

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 would 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.

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

converted into 1,511,276 shares of common stock and the holders of the Notes received an additional 1,511,276 common stock purchase

warrants with an exercise price of $6.60 per share.

In addition, as a result of the February 2022 equity offering, the exercise

price of the 767,796 outstanding 2021 Warrants was reduced to $6.00 per share.

5 – STOCKHOLDERS’ EQUITY (DEFICIT)

of Common Stock and Warrants

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

pursuant to which the Company sold, in a registered direct offering (the Registered Offering), which closed on May 5, 2022, an

aggregate of 449,438 shares (the Shares) of the Company’s common stock, par value $0.001 per share, at a purchase price

per Share of $4.45 and pre-funded warrants (the Pre-Funded Warrants) to purchase an aggregate of 1,348,314 shares of common stock

at a purchase price per Pre-Funded Warrant of $4.44.

The Pre-Funded Warrants will be exercisable immediately on the date of issuance

at an exercise price of $0.01 per share and may be exercised at any time until all of the Pre-Funded Warrants are exercised in

a concurrent private placement under the Purchase Agreement, the Company issued to the Investor warrants (the Private Placement

Warrants) to purchase an aggregate of 1,438,202 shares of common stock at an exercise price of $6.60 per share.

The Private Placement

Warrants will be exercisable beginning on the six-month anniversary of the date of issuance (the Initial Exercise Date) and will

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

As of December 31, 2022,

the Company had the following warrants outstanding:

Schedule of Warrant Outstanding

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 adopted

2016-13 effective April 1, 2023, and the adoption had no impact on the Company’s results of operations and financial position.

NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL

(in thousands)

Property and equipment, net

Machinery and equipment

Computer equipment and software

Construction-in-process

Leasehold improvements

Office equipment

accumulated depreciation and amortization

Total property and equipment, net

(in thousands)

Accrued expenses

Accrued wages and employee benefits

NOTE 3 – LEASES

Bernardo Drive, San Diego, CA

The 39 -month lease term expired on June 30, 2023,

and, upon expiration, the Company had a $ 100,000 security deposit receivable from the landlord.

Thornmint Road, San Diego, CA

The 48 -month lease term commenced February 1,

2023, and the lease provides for an initial base monthly rent of $ 36,000 with annual rent increases of approximately 4 %.

In addition to

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

A discount rate

of 8 %, which approximated the Company’s incremental borrowing rate, was used to measure the lease asset and liability.

obtained a right-of-use asset of approximately $ 1,560,000 in exchange for its obligations under the operating lease.

Future minimum payments under the facility operating

lease, as of June 30, 2023, are listed in the table below (in thousands).

Annual Fiscal Years

Operating Lease

Total future lease payments

Imputed interest

Present value of lease liability

Cash paid for amounts included in the measurement

of lease liabilities was approximately $ 149,000 and $ 40,000 for the three months ended June 30, 2023 and 2022, respectively.

was approximately $ 112,000 and $ 27,000 for the three months ended June 30, 2023 and 2022, respectively.

NOTE 4– STOCKHOLDERS’ EQUITY

May 2023 Public Offering

On May 15, 2023, the Company entered into an underwriting

agreement (the Underwriting Agreement) with Newbridge Securities Corporation (the Underwriter), with respect to the issuance and sale

in a firm commitment underwritten offering (the 2023 Offering) by the Company of units of its securities for aggregate gross proceeds

of approximately $ 9,390,000 , before deducting underwriting discounts and commissions and other offering expenses.

The Company sold 8,816,900 shares

of its common stock and warrants to purchase 4,408,450 shares of its common stock.

The securities were sold as a unit, with

each unit consisting of two shares of common stock of the Company and one warrant (the 2023 Warrant) to purchase one share

of common stock, at a public offering price of $ 2.13 per unit.

The 2023 Warrants were immediately separable and exercisable,

had a per share exercise price of $ 1.22 and expire five years from the date of issuance.

The 2023 Offering closed on May

Pursuant to the Underwriting Agreement, the Company

granted the Underwriter a 30-day option to purchase up to an additional 1,322,534 shares of common stock and an additional 661,267 of

the 2023 Warrants to cover over-allotments, if any.

On May 25, 2023, the Underwriter exercised in full this option and purchased the additional

securities for aggregate gross proceeds to the Company of approximately $ 1,408,000 , before deducting underwriting discounts and commissions

and other offering expenses.

The Underwriter was paid a cash fee of 7.0 %

of the aggregate gross proceeds of the 2023 Offering (including the over-allotment option) and reimbursed certain out-of-pocket expenses

of approximately $ 125,000 .

In addition, pursuant to the Underwriting Agreement, the Company issued to the Underwriter common stock purchase

warrants (the UW Warrants) for 617,183 and 92,577 shares dated May 15, 2023 and May, 25, 2023, respectively.

The UW warrants are exercisable

six months from the respective issuance date and have a four-year term and a per share exercise price of $ 1.32 .

The Underwriting Agreement contains customary

representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company

and the Underwriter, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination

In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, the Company,

each director and executive officer of the Company, and certain stockholders have agreed with the Underwriter not to offer for sale, issue,

sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period

of 90 days after May 17, 2023.

As of June 30, 2023, the Company

had the following warrants outstanding (share amounts in thousands):

Number of Shares

Exercise Price

January 2027 - February 2027

February 2027

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

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

November 2027

The 1,348,000 pre-funded warrants

were included in the weighted average shares outstanding calculation for the three and six months ended June 30, 2023 and 2022, respectively.

As of March 31, 2023, the Company

had the following warrants outstanding (share amounts in thousands):

Number of Shares

Exercise Price

January 2027 - February 2027

February 2027

November 2027

During the three months ended June 30, 2022, the

Company issued 348 shares of common stock with a fair value of approximately $ 1,000 to a service provider.

NOTE 5 – STOCK-BASED COMPENSATION

Amended 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 an increase in the number of shares reserved for issuance by 333,334 and 1,333,334 shares, respectively.

In January 2023,

the Company’s stockholders approved an increase in the number of shares reserved for issuance under the plan by an additional 2,000,000

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

The 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.

30, 2023, the unamortized compensation cost was approximately $ 3,084,000 related to stock options and is expected to be recognized as

expense over a weighted-average period of approximately 1.90 years.

During the three months ended June 30, 2023, the

Company granted 6,375 shares to members of the Board in accordance with the OD Plan and recorded

approximately $ 6,000 of stock-based compensation expense for these grants .

During the three months ended June 30, 2023, the

Company granted options with 10 -year terms to purchase 373,375 shares of its common stock to employees, directors and consultants.

The weighted-average grant date fair value of

options granted was $ 1.00 and $ 4.26 per share for the three months ended June 30, 2023 and 2022, respectively.

The following assumptions

were used in the fair-value method calculations:

Months Ended, June 30,

Risk-free interest rates

3.51 %- 4.13 %

2.82 % - 3.25 %

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

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.

A summary of stock option activity under the Plan

is presented below:

Options Outstanding

Balance at March 31, 2023

Options granted

of Fair value Assumptions of Options

interest rates

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.

A summary of stock

option activity under the Plan is presented below:

Schedule of Stock Option activity

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

of Exercise Price

Life (in Years)

Options cancelled and returned to the Plan

Balance at June 30, 2023

There were no stock options exercised during the

three months ended June 30, 2023 and 2022.

The following table summarizes the range of outstanding

and exercisable options as of June 30, 2023:

Options Outstanding

Options Exercisable

Range of Exercise Price

$0.93 - $2.00

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

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

believes it is more likely than not that its federal and state net deferred tax assets will not be fully realized, and the Company

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.

$3.95 - $7.51

$8.61 - $17.70

$0.93 - $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.

NOTE 6 – INCOME TAXES

The 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 believes it is more likely than not that its federal and state net deferred

tax assets will not be fully realized, and the Company has recorded a full valuation allowance.

The 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 2023 may be subject to examination

federal and state tax authorities.

As of December 31,

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

8 – COMMITMENTS & CONTINGENCIES

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.

As of June 30, 2023, the Company has not recorded any liability for unrecognized tax benefits

related to uncertain tax positions.

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Litigations, Claims and Assessments

In 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

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.

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.

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 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

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.

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, 2023 and 2022 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.

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.

The Company’s primary purchase obligations

include purchase orders for machinery and equipment.

At June 30, 2023, the Company had outstanding purchase orders for machinery and equipment

and related expenditures of approximately $ 566,000 .

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