Modular Medical, Inc. 10-Q

Item 1. Financial Statements Modular Medical, Inc. Condensed Consolidated Balance Sheets (In thousands, except par value) June 30, 2023 (Unaudited) March 31, 2023 ASSETS CURRENT ASSETS Cash and cash equivalents $ 9,952 $ 3,799 Prepaid expenses and other 183 147 Security deposit 100 100 TOTAL CURRENT ASSETS 10,235 4,046 Property and equipment, net 2,036 1,721 Right of use asset, net 1,395 1,478 TOTAL NON-CURRENT ASSETS 3,431 3,199 TOTAL ASSETS $ 13,666 $ 7,245 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 473 $ 285 Accrued expenses 198 339 Short-term lease liabilities 339 355 TOTAL CURRENT LIABILITIES 1,010 979 LONG-TERM LIABILITIES Long-term lease liabilities 1,100 1,190 TOTAL LIABILITIES 2,110 2,169 Commitments and Contingencies (Note 7) STOCKHOLDERS’ EQUITY 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 21 11 Additional paid-in capital 63,731 53,524 Accumulated deficit ( 52,196 ) ( 48,459 ) TOTAL STOCKHOLDERS’ EQUITY 11,556 5,076 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 13,666 $ 7,245 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Modular Medical, Inc. Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) Three Months Ended June 30, 2023 2022 Operating expenses Research and development 2,604 2,222 General and administrative 1,147 1,277 Total operating expenses 3,751 3,499 Loss from operations ( 3,751 ) ( 3,499 ) Other income 14 — Net loss $ ( 3,737 ) $ ( 3,499 ) Net loss per share Basic and diluted $ ( 0.22 ) $ ( 0.30 ) Shares used in computing net loss per share Basic and diluted 17,099 11,588 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Modular Medical, Inc. Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands) Additional Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance as of March 31, 2023 10,949 $ 11 $ 53,524 $ ( 48,459 ) $ 5,076 Issuance of common stock and warrants in equity offering, net 10,139 10 9,723 — 9,733 Issuance of common stock under equity incentive plan 7 — 6 — 6 Stock-based compensation — — 478 — 478 Net loss — — — ( 3,737 ) ( 3,737 ) Balance as of June 30, 2023 21,095 $ 21 $ 63,731 $ ( 52,196 ) $ 11,556 Additional Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance as of March 31, 2022 10,462 $ 11 $ 43,406 $ ( 34,580 ) $ 8,837 Shares issued for services — — 1 — 1 Issuance of common stock and warrants in equity offering, net 449 — 7,372 — 7,372 Issuance of common stock under equity incentive plan 3 — 14 — 14 Stock-based compensation — — 725 — 725 Net loss — — — ( 3,499 ) ( 3,499 ) Balance as of June 30, 2022 10,914 $ 11 $ 51,518 $ ( 38,079 ) $ 13,450 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Modular Medical, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Three Months Ended June 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 3,737 ) $ ( 3,499 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 484 739 Depreciation and amortization 58 29 Shares for services 5 51 Changes in assets and liabilities: Other assets and prepaid expenses ( 40 ) 2 Lease right-of-use asset 83 22 Accounts payable and accrued expenses 46 16 Lease liabilities ( 106 ) ( 35 ) Net cash used in operating activities ( 3,207 ) ( 2,675 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ( 373 ) ( 76 ) Net cash used in investing activities ( 373 ) ( 76 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants, net. 9,733 7,372 Net cash provided by financing activities 9,733 7,372 Net increase in cash and cash equivalents 6,153 4,621 Cash and cash equivalents at beginning of period 3,799 9,076 Cash and cash equivalents at end of period $ 9,952 $ 13,697 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 MODULAR MEDICAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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. 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). In June 2017, the Company changed its name from Bear Lake Recreation, Inc. to Modular Medical, Inc. 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. Liquidity and Going Concern The Company expects to continue to incur operating losses for the foreseeable future and incur cash outflows from operations as it continues to invest in the development and subsequent commercialization of its product. The Company expects that its research and development and general and administrative expenses will continue to increase, and, as a result, it will eventually need to generate significant 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. 5 Basis 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 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 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 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 the SEC. 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. The 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 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. Research and Development The Company expenses research and development expenditures as incurred. General and Administrative 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 $ 250,000 . No reserve has been made in the financial statements for any possible loss due to financial institution failure. 6 Risks and Uncertainties The 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. Recent Economic Disruptions The 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 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 elevated. 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 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 less. Property and Equipment Property 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 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 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 levels: ● Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. ● Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. ● Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Due to their short-term nature, the carrying values of cash equivalents, accounts payable and accrued expenses, approximate fair value. Leases 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. 7 Stock-Based Compensation 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 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 outstanding. 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. 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 June 30, 2023 2022 Options to purchase common stock 2,824 1,820 Common stock purchase warrants 11,997 6,217 Total 14,821 8,037 Reclassifications 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 flows. 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. 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 ASU No. 2016-13 effective April 1, 2023, and the adoption had no impact on the Company’s results of operations and financial position. 8 NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL June 30, 2023 March 31, 2023 (in thousands) Property and equipment, net Machinery and equipment $ 1,171 $ 820 Computer equipment and software 66 66 Construction-in-process 1,018 1,003 Leasehold improvements 33 25 Office equipment 63 63 2,351 1,977 Less: accumulated depreciation and amortization ( 315 ) ( 256 ) Total property and equipment, net $ 2,036 $ 1,721 June 30, 2023 March 31, 2023 (in thousands) Accrued expenses Accrued wages and employee benefits $ 198 $ 267 Other — 72 $ 198 $ 339 NOTE 3 – LEASES W. 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. The Company 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 2024 $ 327 2025 452 2026 470 2027 405 Total future lease payments $ 1,654 Less: Imputed interest ( 215 ) Present value of lease liability $ 1,439 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. Rent expense was approximately $ 112,000 and $ 27,000 for the three months ended June 30, 2023 and 2022, respectively. 9 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 18, 2023. 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 provisions. 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. Warrants As of June 30, 2023, the Company had the following warrants outstanding (share amounts in thousands): Type Number of Shares Exercise Price Expiration Common stock 1,348 $ 0.01 — Common stock 768 6.00 January 2027 - February 2027 Common stock 4,011 6.60 February 2027 Common stock 1,438 6.60 November 2027 Common stock 710 1.32 May 2027 Common stock 5,070 1.22 May 2028 Total 13,345 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): Type Number of Shares Exercise Price Expiration Common stock 1,348 $ 0.01 — Common stock 768 6.00 January 2027 - February 2027 Common stock 4,011 6.60 February 2027 Common stock 1,438 6.60 November 2027 Total 7,565 Other 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. 10 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 shares. Under the Plan, eligible employees, directors and consultants may be granted a broad range of awards, including stock options, stock appreciation rights, restricted stock, performance-based awards and restricted stock units. The Plan is administered by the Board or, in the alternative, a committee designated by the Board. 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. As of June 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: Three Months Ended, June 30, 2023 2022 Risk-free interest rates 3.51 %- 4.13 % 2.82 % - 3.25 % Volatility 83 % - 152 % 159 % - 223 % Expected life (years) 5.0 - 6.1 5.0 - 6.0 The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified methods to establish the fair term of options, as well as average volatility. The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. A dividend yield of zero was applied because the Company has never paid dividends and has no intention to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur. A summary of stock option activity under the Plan is presented below: Options Outstanding Weighted Shares Average Available Number of Exercise for Grant Shares Prices Balance at March 31, 2023 2,132,292 2,481,090 $ 5.19 Options granted ( 373,375 ) 373,375 1.27 Share awards ( 6,375 ) — — Options cancelled and returned to the Plan 30,272 ( 30,272 ) 4.29 Balance at June 30, 2023 1,782,814 2,824,193 $ 4.67 11 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 Number Outstanding Weighted Average Remaining Contractual Life (in Years) Weighted Average Exercise Price Number Exercisable Weighted Average Exercise Price Aggregate Intrinsic value $0.93 - $2.00 1,285,475 8.14 $ 1.75 540,308 $ 1.86 — $3.95 - $7.51 1,017,087 7.85 $ 5.39 677,372 $ 5.97 — $8.61 - $17.70 521,631 7.99 $ 10.53 411,005 $ 11.21 — $0.93 - $17.70 2,824,193 8.01 $ 4.67 1,628,685 $ 5.78 — 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 by the U.S. federal and state tax authorities. 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 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 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 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 . 12