What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-06-21 compared with 2023-06-26 · 458 added, 536 removed, 276 unchanged (78% of the section changed)

2 unchanged sentences

of Independent Registered Accounting Firm – Farber Hass Hurley LLP

Balance Sheets

Statements of Operations

Statements of Stockholders’ Equity (Deficit)

Statements of Cash Flows

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Audit Committee and

Consolidated Balance

Consolidated Statements

of Operations

Consolidated Statements

of Stockholders’ Equity

Consolidated Statements

of Cash Flows

Notes to Consolidated

Financial Statements

OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - OPEN

Committee and

Stockholders of Modular Medical, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of Modular Medical, Inc.

(the “Company”) as of March 31, 2023 and 2022, and the related consolidated statements

of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred

to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all

material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash

flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company's Ability

to Continue as a Going Concern

The accompanying consolidated financial statements

have been prepared to assume the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements,

the Company has incurred losses from operations and needs to raise additional funds to meet its obligations and sustain its future operations

until profitability is achieved.

These circumstances raise substantial doubt about its ability to continue as a going concern.

plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that

might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and

the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding

of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

on the Financial Statements

have audited the accompanying consolidated balance sheets of Modular Medical, Inc.

(the “Company”) as of March 31, 2024 and

2023, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and

the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and 2023, and

the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted

in the United States of America.

Doubt about the Company’s Ability to Continue as a Going Concern

accompanying consolidated financial statements have been prepared to assume the Company will continue as a going concern.

in Note 1 to the consolidated financial statements, the Company has incurred losses from operations and needs to raise additional funds

to meet its obligations and sustain its future operations until profitability is achieved.

These circumstances raise substantial doubt

about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

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

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion

on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public

Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters

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

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

financial statements and (ii) involved especially challenging, subjective, or complex judgments.

The communication of critical audit matters

does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the

critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they

Going Concern

As described further in Note 1, the Company has

incurred losses since inception, and expects to continue to incur operating losses for the foreseeable future and incur cash outflows

from operations as it continues to invest in the development and subsequent commercialization of its product.

The Company expects that

its research and development and general and administrative expenses will continue to increase, and, as a result, the Company will need

to generate significant product revenues to achieve profitability.

These circumstances raise substantial doubt about the Company’s

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

We identified management’s assessment of

the Company’s ability to continue as a going concern as a critical audit matter due to the inherent complexities and uncertainties

related to the Company’s projections of operations.

The primary procedures we performed to address

this critical audit matter included:

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

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

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

- We evaluated the impact of the Company’s existing financing arrangements and future capital needs

over the next 12 months on its ability to continue as a going concern.

Stock-Based Compensation

As discussed in Note 8, during the year ended

March 31, 2023, the Company granted options to purchase shares of its common stock to employees, directors and consultants.

is required to analyze the fair value of each option granted and amortize it over its vesting period.

We identified the recognition of stock options

as a critical audit matter due to the significant judgments made by management when developing underlying assumptions regarding the fair

value of the options.

The primary procedures we performed to address

this critical audit matter included:

- We gained an understanding of Company’s processes and controls in place for determining the fair

value of each granted option.

- We evaluated the option price model management selected to determine the fair value, and analyzed the

underlying data used in the calculations.

- We also recalculated the fair value of each option granted.

/s/ Farber Hass Hurley LLP

We have served as the Company’s auditor

Chatsworth, California

audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

Audit Matters

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

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

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

The communication

of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are

not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts

or disclosures to which they relate.

described further in Note 1, the Company has incurred losses since inception, and expects to continue to incur operating losses for the

foreseeable future and incur cash outflows from operations as it continues to invest in the development and subsequent commercialization

of its product.

The Company expects that its research and development and general and administrative expenses will continue to increase,

and, as a result, the Company will need to generate significant product revenues to achieve profitability.

These circumstances raise

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

financial statements are issued.

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

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

primary procedures we performed to address this critical audit matter included:

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

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

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

evaluated the impact of the Company’s existing financing arrangements and future capital

needs over the next 12 months on its ability to continue as a going concern.

discussed in Note 5, during the year ended March 31, 2024, the Company granted options to purchase shares of its common stock to employees,

directors and consultants.

Management is required to analyze the fair value of each option granted and amortize it over its vesting period.

We identified the valuation of stock-based compensation as a critical

audit matter due to the significant judgments made by management when developing underlying assumptions regarding the fair value of the

primary procedures we performed to address this critical audit matter included:

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

the fair value of each granted option.

- We evaluated the option price model management selected to determine

the fair value, and analyzed the underlying data and assumptions used in the calculations.

also recalculated the fair value of each option granted.

Farber Hass Hurley LLP

have served as the Company’s auditor since 2018.

June 21, 2024

1 unchanged sentence

Balance Sheets

and cash equivalents

expenses and other

thousands, except par value)

CURRENT ASSETS

and equipment, net

of use assets, net

cash equivalents

Prepaid expenses and

Security deposit

CURRENT ASSETS

Property and equipment,

Right of use assets,

NON-CURRENT ASSETS

AND STOCKHOLDERS’ EQUITY

lease liabilities

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES

lease liabilities

Accounts payable

Accrued expenses

Short-term lease liabilities

CURRENT LIABILITIES

Long-term lease liabilities

and Contingencies (Note 8)

STOCKHOLDERS’

STOCKHOLDERS’ EQUITY

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

Common Stock, $ 0.001 par value, 50,000,000 shares authorized, 10,949,389 shares and

10,461,898 shares issued and outstanding as of March 31, 2023 and 2022, respectively

paid-in capital

( 48,458,707 )

( 34,579,771 )

Common Stock, $ 0.001 par value, 100,000 and 50,000 shares authorized

as of March 31, 2024 and 2023, respectively;

32,464 and 10,949 shares issued and outstanding as of March 31, 2024 and 2023, respectively

Additional paid-in capital

Accumulated deficit

STOCKHOLDERS’ EQUITY

3 unchanged sentences

Statements of Operations

thousands, except per-share data)

Operating expenses

Research and development

and development

General and administrative

Total operating expenses

operating expenses

Loss from operations

( 13,878,311 )

( 14,926,402 )

Interest expense

( 2,752,229 )

Loss on debt extinguishment

( 1,321,450 )

Loss before income taxes

( 13,877,336 )

( 18,631,161 )

Provision for income taxes

$ ( 13,878,936 )

$ ( 18,632,761 )

Net loss per share

4 unchanged sentences

Medical, Inc.

Statements of Stockholders’ Equity (Deficit)

Statements of Stockholders’ Equity

Stockholders’

as of March 31, 2021

$ ( 15,947,010 )

$ ( 1,275,149 )

of common stock upon public offering, net of issuance costs

of common stock in settlement of convertible notes and accrued interest

of common stock

issued with convertible notes

issued for services

issued for reverse stock split

of common stock under equity incentive plan

( 18,632,761 )

as of March 31, 2022

$ ( 34,579,771 )

of common stock and warrants in equity offering, net

issued for services

of common stock under equity incentive plan

( 13,878,936 )

as of March 31, 2023

$ ( 48,458,707 )

Balance as of March 31, 2022

of common stock in registered direct offering, net of fees and issuance costs

Shares issued for services

Issuances under equity incentive plan

Stock-based compensation

Balance as of March 31, 2023

of common stock in public offerings, net of fees and issuance costs

At-the-market sales of stock, net

Exercise of warrants

Shares issued for services

Issuances under equity incentive plan

Stock-based compensation

Balance as of March 31, 2024

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

1 unchanged sentence

Statements of Cash Flows

Year ended March 31,

ended March 31,

Cash Flows from operating activities

$ ( 13,878,936 )

$ ( 18,632,761 )

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

Gain on PPP note forgiveness

Loss on debt extinguishment

Stock-based compensation expense

Adjustments to reconcile net loss to net cash

used in operating activities:

Stock-based compensation

Loss on asset disposal

Depreciation and amortization

Accrued interest

Shares issued for services

Amortization of debt issuance costs

Changes in assets and liabilities:

Prepaid expenses and other assets

Prepaid expenses and

Lease right-of-use assets

Accounts payable and accrued expenses

Accounts payable and

accrued expenses

Change in lease liabilities

Net cash used in operating activities

( 11,011,644 )

( 10,259,528 )

Cash flows from investing activities

Purchases of property and equipment

( 1,637,751 )

Net cash used in investing activities

( 1,637,751 )

Cash flows from financing activities

Proceeds from private placement, net

Proceeds from issuance of convertible notes, net

Proceeds from issuance of promissory note

Repayment of promissory note

( 2,100,000 )

Proceeds from issuance of common stock and warrants, net

Net cash provided by financing activities

Net cash used in operating

Cash flows from investing

Purchases of property

and equipment

Net cash used in investing

Cash flows from financing

Proceeds from at-the-market

sales of common stock, net

Proceeds from exercise

of common stock warrants

Proceeds from public

and registered direct offerings, net

Net cash provided by financing

Net increase (decrease) in cash and cash equivalents

( 5,277,048 )

Cash and cash equivalents, at beginning of year

Cash and cash equivalents, at end of year

Cash and cash equivalents, at beginning of

Cash and cash equivalents,

at end of year

Supplemental disclosure:

Noncash investing and financing activities:

Right of use asset obtained in exchange for lease liabilities

Fair value of detachable warrants issued with convertible notes

Conversion of convertible notes and accrued interest into common stock

Right-of-use asset obtained

in exchange for lease liability

Receivable from transfer

agent for warrant exercise proceeds

Cash paid for:

Interest paid

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

16 unchanged sentences

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 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.

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.

Company is a pre-revenue, medical device company focused on the design, development and eventual commercialization of innovative insulin

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

Through the creation of an innovative two-part

patch pump, its initial product, the MODD1, the Company seeks to fundamentally alter the trade-offs between cost and complexity and access

to the higher standards of care requiring considerable motivation that presently available insulin pumps provide.

By simplifying and

streamlining the user experience from introduction, prescription, reimbursement, training and day-to-day use, the Company seeks to expand

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

The product seeks to serve both the type 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets.

In January 2024, the Company submitted a 510(k) premarket notification to the United States Food and Drug Administration (FDA) for the

In March 2024, the Company received comments from the FDA on its submission, and the Company is in the process of responding to

those comments.

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.

In May 2022 and May

2023, the Company completed offerings of its common stock and warrants.

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.

In addition, the Company’s

independent registered public accounting firm, in its report on these consolidated financial statements for the year ended March 31,

2024, expressed substantial doubt about the Company’s ability to continue as a going concern.

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.

In, May 2023 and February 2024, the Company completed public offerings of its common stock and warrants.

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

16 unchanged sentences

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

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 stock.

Such amendment

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

As a result of the reverse

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

were combined and reclassified into one share of common stock.

Proportionate voting rights and other rights of common stockholders 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.

numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis to reflect this 1-for-3 reverse

preparation of the accompanying consolidated financial statements in conformity with U.S.

6 unchanged sentences

differ from those estimates.

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

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

and Development

Company expenses research and development expenditures as incurred.

expenses research and development expenditures as incurred.

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.

General and administrative expenses consist primarily of payroll and

benefit costs, rent, stock-based compensation, legal and accounting fees, and facility 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 a high credit quality financial institution within the United States, which is insured by the Federal Deposit Insurance Corporation

Financial instruments that potentially subject

the Company to concentration of credit risk consist primarily of cash held in demand deposit accounts.

The Company maintains its cash

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

(FDIC) up to limits of approximately $ 250,000 .

4 unchanged sentences

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

Economic Disruptions

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

10 unchanged sentences

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

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.

and acts of terrorism have 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 our business.

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.

Since mid-2022, at times, 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 Equivalents

Cash and cash equivalents include cash held in

demand deposit and money market accounts, certificates of deposit and all highly liquid debt instruments with original maturities of

three months or less.

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 .

Property and equipment are recorded at historical

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

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.

Value of Financial Instruments

Leasehold improvements and assets

acquired through finance 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.

of Financial Instruments

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 measurement.

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.

Modifications and Extinguishments

the Company modifies or extinguishes debt, it does so in accordance with Financial Accounting Standards Board (FASB) Accounting Standards

Codification (ASC) Topic 470-50, Debt— Modifications and Extinguishments, which requires modification to debt instruments

to be evaluated to assess whether the modifications are considered “substantial modifications.” A substantial modification

of terms shall be accounted for like an extinguishment.

Based on the guidance relied upon and the analysis performed, if the Company

believes the embedded conversion feature has no fair value on the date of issuance (measurement date) and the embedded conversion feature

has no beneficial conversion feature, the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25 and

the issuance of the convertible note payable is considered a modification, and not an extinguishment that would require the recognition

of a gain or loss.

If the Company determines the change in terms meet the criteria for substantial modification under ASC 470 it will

treat the modification as extinguishment and recognize a loss from debt extinguishment.

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

Company’s right-of-use assets consist of leased assets recognized in accordance with Financial Accounting Standards Board (FASB)

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

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.

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

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

The Company estimates the value of stock options

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

The determination of fair value of share-based payment awards on the date

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

subjective variables.

These variables include, but are not limited to, the expected stock price volatility over the term of the awards,

and projected stock option exercise behaviors.

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

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.

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.

Company periodically issues stock options, restricted stock units and stock awards to employees and non-employees.

We account for such

awards based on Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, whereby the value of the award

is measured on the date of grant and recognized as compensation expense on a straight-line basis over the requisite service period, usually

the vesting period.

With respect to performance-based awards, the Company assesses the probability of achieving the requisite performance

criteria before recognizing compensation expense.

The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton

Option Pricing (Black Scholes) model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected

life of the options, and future dividends.

Compensation expense is recorded based upon the value derived from the Black-Scholes model.

The assumptions used in the Black-Scholes model could materially affect compensation expense recorded in future periods.

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

for purposes of the WASO calculation.

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 exercise of warrants.

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 $ 0.13 and increased WASO by approximately 1,223,000 shares for the year ended March 31, 2023.

The reclassification had no impact on the Company’s net loss or cash flows for the year ended March 31, 2023.

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:

would be anti-dilutive (in thousands):

Options to purchase common stock

Common stock warrants

Unvested restricted stock units

Common stock purchase warrants

Reclassifications

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

The Company’s historical net operating

loss and credit carryforwards may be adjusted by the federal and state tax authorities until the statute closes on the year in which

such tax attributes are utilized.

The Company’s historical

net operating loss and credit carryforwards may be adjusted by the federal and state tax authorities until the statute closes on the

year in which such tax attributes are utilized.

Comprehensive

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comprehensive loss was the same as its net loss.

Issued Accounting Pronouncement

June 2016, the FASB issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments—Credit Losses .

added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred

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 adoption of this ASU is not expected to have a material impact on the Company’s

results of operations and financial position.

Issued Accounting Pronouncements

November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ,

which requires disclosure of incremental segment information on an annual and interim basis.

2023-07 is effective for fiscal

years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and it requires retrospective

application to all prior periods presented in the financial statements.

The Company is currently evaluating the impact that this ASU

will have on the presentation of its consolidated financial statements.

December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which

expands disclosures in an entity’s income tax rate reconciliation table and disclosures regarding cash taxes paid both in the U.S.

and foreign jurisdictions.

The update will be effective for annual periods beginning after December 15, 2024.

The Company is currently

evaluating the impact that this ASU will have on the presentation of its consolidated financial statements.

2 – CONSOLIDATED BALANCE SHEET DETAIL

Property and equipment,

(in thousands)

Prepaid and other current assets:

Prepaid expenses

Receivable from transfer agent for warrant exercise proceeds

Other receivables

(in thousands)

Property and equipment, net:

Machinery and equipment

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Office equipment

accumulated depreciation and amortization

Total property and equipment,

accumulated depreciation

and amortization

(in thousands)

Accrued Expenses

Accrued wages and bonus

Accrued wages

Bernardo Drive, San Diego, CA

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

increases of approximately 3 %.

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

certain other operating costs.

A discount rate of 11 %, 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 $ 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.

39 -month lease term expired on June 30, 2023 , and, subsequent to expiration, the landlord refunded the Company’s security deposit.

Road, San Diego, CA

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asset and liability.

The Company obtained a right-of-use asset of $ 1,560,101 in exchange for its obligations under the operating lease.

minimum payments under the facility operating leases, as of March 31, 2023, are listed in the table below.

Fiscal year ending March 31,

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 March 31, 2024, are listed in the table below (in thousands).

ending March 31,

Total future lease payments

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Present value of lease liabilities

Cash paid for amounts included in the measurement

of lease liabilities was $ 230,028 and $ 153,432 for the years ended March 31, 2023 and 2022, respectively.

Rent expense was $ 237,425 and

$ 107,820 for the years ended March 31, 2023 and 2022, respectively.

April 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).

The 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 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 Topic 470, and

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

5 – 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 Revocation Agreement), the $ 2,310,000 of Original Notes and accrued interest thereon as of April

30, 2021 were replaced with $ 2,360,550 aggregate principal amount of Notes 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.

During the three months ended June 30, 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 of zero .

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.

6 – PROMISSORY NOTE

In October 2021, the Company issued a secured promissory

note (the Bridge Note) to Manchester Explorer, L.P.

(Explorer) that provided the Company with a $ 3,000,000 revolving credit facility with

all amounts being drawn down by the Company thereunder being due and payable, subject to acceleration in the event of a default, on March

15, 2022 (the Maturity Date).

Interest at the rate of 12 % was payable on each drawn down without regard to the draw down date or the date

when interest is paid.

During fiscal 2022, the Company made draws on the Bridge Note of $ 2,100,000 and incurred interest charges of $ 252,000 .

In February 2022, subsequent to the completion of the 2022 Offering (see Note 7), the Bridge Note and accrued interest was paid in full.

paid for amounts included in the measurement of lease liabilities was approximately $ 476,000 and $ 230,000 for the years ended March 31,

2024 and 2023, respectively.

Rent expense was approximately $ 449,000 and $ 237,000 for the years ended March 31, 2024 and 2023, respectively.

4 – STOCKHOLDERS’ EQUITY

February 2022 Public Offering

On February 9, 2022, the Company entered into an underwriting agreement

with Oppenheimer & Co.

Inc., who acted as the representative of the several underwriters (the Underwriters), in a firm commitment

underwritten public offering (the 2022 Offering) pursuant to which, on February 14, 2022, the Company sold to the Underwriters an aggregate

of 2,500,000 shares of the Company’s common stock and 2,500,000 warrants (the Offering Warrants and, collectively with the shares

of common stock, the Units), each to purchase one share of common stock.

The price to the public in the 2022 Offering was $ 6.00 per Unit,

before underwriting discounts and commissions.

The common stock and the Offering Warrants comprising the Units were immediately separable

upon issuance and were issued separately.

The Offering Warrants were exercisable immediately, have an exercise price of $ 6.60 per share

and expire on February 14, 2027 .

The gross proceeds from the 2022 Offering were $ 15,000,000 , before deducting approximately $ 1,465,000

of underwriting discounts and commissions and other offering expenses.

of Common Stock and Warrants

in Authorized Shares

February 2024, the Company’s stockholders approved an amendment to the Company’s Articles of Incorporation (the Amendment)

to increase the number of authorized shares of common stock from 50,000,000 shares, to 100,000,000 shares.

The Amendment was filed with

the state of Nevada and became effective on February 15, 2024.

2024 Public Offering

On February 15, 2024, the Company entered into

an underwriting agreement (the 2024 Underwriting Agreement) with Titan Partners Group LLC, a division of American Capital Partners, LLC

(Titan), with respect to the issuance and sale 9,090,910 shares of its common stock at a price of $ 1.10 per share in a firm commitment

underwritten offering (the 2024 Offering) by the Company.

Upon the closing of the 2024 Offering, the Company received aggregate proceeds

of approximately $ 10,000,000 , before deducting underwiring discounts and commissions and other offering expenses.

Pursuant to the 2024 Underwriting Agreement,

the Company granted Titan a 30-day option to purchase up to an additional 1,321,989 shares of common stock to cover over allotments,

On March 13, 2024, Titan exercised this option in full and purchased the additional securities for aggregate proceeds to the

Company of approximately $ 1,454,000 before deducting underwriting discounts and commissions and other offering expenses.

was paid a cash fee of 7.0 % of the aggregate gross proceeds of the 2024 Offering (including the over-allotment option) and reimbursed

certain out-of-pocket expenses of approximately $ 75,000 .

November 22, 2023, the Company entered into a Sales Agreement (the ATM Agreement) with Leerink Partners LLC (Leerink) under which the

Company may offer and sell, from time to time at its sole discretion, shares of its common stock, for aggregate gross proceeds of up

to $ 6,500,000 through an “at the market offering” program under which Leerink will act as sales agent or principal.

Agreement provides that Leerink will be entitled to compensation for its services equal to 3.0 % of the gross proceeds from sales of any

shares of common stock under the ATM Agreement.

The Company has no obligation to sell any shares under the ATM Agreement and may, at

any time, suspend solicitation and offers under the ATM Agreement.

In January 2024, under the ATM Agreement, the Company sold 153,879

shares of common stock for net proceeds of approximately $ 278,000 .

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.

Upon the closing of the 2023

Offering, the Company sold 8,816,900 shares of its common stock and warrants to purchase 4,408,450 shares of its common stock for aggregate

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

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 Warrants) 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,

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

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

this option in full 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.

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

initially issued to the Underwriter common stock purchase warrants (the UW Warrants) for a total of 709,760 shares.

Subsequently, the

UW Warrants were reissued to the Underwriter and its agents for a total of 604,623 shares.

The UW warrants were exercisable six months

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

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

1 unchanged sentence

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 full.

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.

October 2021, the Company sold 30,864 shares of common stock to two officers, its i) chief executive officer and ii) the chairman of

the Company’s board of directors (the Board), president, chief financial officer and treasurer, at a purchase price of $ 8.10

per share, for gross proceeds of approximately $ 250,000 .

Pre-Funded Warrants) to purchase an aggregate of approximately 1,348,000 shares of common stock at a purchase price per Pre-Funded Warrant

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 full.

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 were 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

of Common Stock and Warrants

1 unchanged sentence

with fair values of approximately $ 1,400 and $ 22,000 , respectively.

of March 31, 2023, the Company had the following warrants outstanding:

January - February 2027

February 2027

November 2027

of March 31, 2022, the Company had the following warrants outstanding:

January - February 2027

February 2027

of March 31, 2024, the Company had the following warrants outstanding (share amounts in thousands):

Type Number of Shares Exercise Prices Expiration

Balance as of March 31, 2023 7,565

Issuance of common stock warrants 605 $ 1.32 May 2027

Issuance of common stock warrants 5,070 $ 1.22 May 2028

Common stock warrants exercised ( 70 ) $ 1.32

Common stock warrants exercised ( 649 ) $ 1.22

Balance as of March 31, 2024 12,521

March 31, 2024, the Company had a receivable from its transfer agent for approximately $ 142,000 for the proceeds from warrants exercised

prior to March 31, 2024.

The receivable was recorded in the prepaid and other line in the consolidated balance sheet at March 31, 2024.

of March 31, 2023, the Company had the following warrants outstanding (share amounts in thousands):

Type Number of Shares Exercise Prices Expiration

Common stock 1,348 $ 0.01 —

Common stock 768 $ 6.00 January - February 2027

Common stock 4,011 $ 6.60 February 2027

Common stock 1,438 $ 6.60 November 2027

– STOCK-BASED COMPENSATION

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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.

In January 2023 and February 2024, the Company’s stockholders approved increases

in the number of shares reserved for issuance under the Plan by an additional 2,000,000 and 3,000,000 shares, respectively.

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 (RSUs).

The Plan is administered by the Board or, in the

alternative, a committee designated by the Board.

Compensation Expense

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.

The unamortized compensation cost, as of March 31, 2023, was $ 3,268,600 related to stock options

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

During the year ended March 31, 2023, the Company granted options to

purchase 1,006,074 shares of its common stock to employees, directors and consultants.

The options had 10 -year terms and 123,407 options

vested immediately when granted.

The weighted-average grant date fair value of stock options granted

during the years ended March 31, 2023 and 2022 was $ 2.85 and $ 10.28 , respectively.

The following assumptions were used in the fair-value

method calculations:

options granted by the Company generally vest over 36 months and have a 10-year term.

As of March 31, 2024, the unamortized compensation

cost related to stock options was approximately $ 2,035,000 and is expected to be recognized as expense over a weighted-average period

of approximately 1.3 years.

October 2023, under its Two-Part FDA Submission and Clearance Milestone Bonus Program (the Bonus Program), the Company granted stock

options for 909,533 shares, which are subject to vesting based upon the achievement of certain performance milestones by the

Company and continued service by the optionees.

In January 2024, options to purchase 625,326 shares (net of forfeitures), which were

granted under part one of the Bonus Program, vested upon the Company’s submission to the FDA.

As of March 31, 2024, the Company

had not commenced expense recognition of 242,307 (net of forfeitures) of the options, which were granted under part two of

the Bonus Program, based on its assessment of the probability of achievement of the applicable performance requirements.

the year ended March 31, 2024, the Company granted options to purchase 127,500 shares that vested immediately when granted.

weighted-average grant date fair values of stock options granted during the years ended March 31, 2024 and 2023 was $ 0.99 and $ 2.85 ,

respectively.

The following assumptions were used in the fair-value method calculations:

Ended March 31,

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Dividend yield

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.

volatility is based on the historical volatility of the Company’s stock price.

The risk-free interest rate was derived from the

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

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

terms of the options.

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

in the foreseeable future.

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

to establish the fair term of options.

The expected volatility is based on the historical volatility of the Company’s stock price.

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.

summary of stock option activity under the Plan is presented below:

Options Outstanding

following table summarizes the activity in the shares available for grant under the Plan during the year ended March 31, 2024:

Balance at March 31, 2022

Additional shares authorized under the Plan

Additional shares authorized

under the Plan

Options granted

Options cancelled and returned to the Plan

( 1,006,074 )

Options cancelled and

returned to the Plan

Balance at March 31, 2023

Additional shares authorized under the Plan

Additional shares authorized

under the Plan

Options granted

( 1,448,533 )

Options cancelled and returned to the Plan

Options cancelled and

returned to the Plan

Balance at March 31, 2024

were no stock options exercised during the years ended March 31, 2023 and 2022.

The Company issued 26,789 shares to its non-employee

directors under the Company’s outside director compensation plan and approximately $ 86,048 was recorded as stock-based compensation

expense for these share awards during the year ended March 31, 2023.

stock options were exercised during the years ended March 31, 2024 and 2023.

During the years ended March 31, 2024 and 2023, the Company

issued 25,390 and 26,789 shares, respectively, to its non-employee directors under the Company’s outside director compensation

For the years ended March 31, 2024 and 2023, the Company recorded stock-based compensation expense for these share awards of approximately

$ 37,000 and $ 86,000 , respectively.

summary of RSU activity under the Plan is presented below.

Balance at March 31, 2023

Balance at March 31, 2024

total intrinsic value of RSUs outstanding as of March 31, 2024 was approximately $ 347,000 .

The unamortized compensation cost at March

31, 2024 was approximately $ 171,000 related to RSUs and is expected to be recognized as expense over a period of approximately 2.25 years.

following table summarizes the range of outstanding and exercisable options as of March 31, 2024:

Options Outstanding

Options Exercisable

Range of Exercise Price

Options Outstanding Options Exercisable

Remaining Weighted Weighted

Contractual Average Average Aggregate

Number Life Exercise Number Exercise Intrinsic

Range of Exercise Price Outstanding (in Years) Price Exercisable Price Value

$ 0.93 - $ 2.00 2,237,066 8.31 $ 1.48 1,409,750 $ 1.52 $ 538,006

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$ 8.61 - $ 17.70 509,130 7.23 10.53 470,442 10.53 —

$ 0.93 - $ 17.70 3,689,341 7.88 $ 3.70 2,651,670 $ 4.28 $ 538,006

intrinsic value per share is calculated as the excess of the closing price of the common stock on the Company’s principal trading

1 unchanged sentence

– INCOME TAXES

income tax provision consisted of the following:

tax provision consisted of the following:

Year Ended March 31,

(in thousands)

Current portion:

Deferred portion:

( 2,933,000 )

( 4,109,000 )

( 1,467,000 )

( 1,300,000 )

( 4,400,000 )

( 5,409,000 )

Change in valuation allowance

Provision for income taxes

March 31, 2023, the Company had net operating loss carryforwards (NOLs) of approximately $ 29,500,000 for federal income tax purposes

and $ 36,600,000 for state income tax purposes.

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

from 2037 through 2043, except federal NOLs from fiscal 2018 and later, which will never expire.

Company also had federal research and development tax credit carryforwards of approximately $ 1,300,000 , which will begin expiring at

various times from 2038 through 2042, and state research and development credits of approximately $ 400,000 , which do not have an expiration

At March 31, 2024, the Company had net operating

loss carryforwards (NOLs) of approximately $ 35,000,000 for federal income tax purposes and $ 50,400,000 for state income tax purposes.

These NOLs are available to reduce future taxable income and will expire at various times from 2037 through 2045, except federal NOLs

from fiscal 2018 and later, which will never expire.

The Company also had federal research and development

tax credit carryforwards of approximately $ 2,100,000 , which will begin expiring at various times from 2038 through 2044, and state research

and development credits of approximately $ 500,000 , which do not have an expiration date.

reconciliation of income taxes provided at the federal statutory rate to the actual income tax provision is as follows:

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losses before income tax provision for the years ended March 31, 2024 and 2023 were solely attributable to US operations.

components of the Company’s deferred tax assets and liabilities were:

components of the Company’s deferred tax assets and liabilities were (in thousands):

Net operating loss carryforwards

Capitalized research and development expense

Stock-based compensation expense

Research and development tax credits

Property and equipment

Reserves, accruals & other

Research and development

Total deferred tax assets

Section 179 assets

Reserves, accruals and other

Total deferred tax liabilities

valuation allowance

( 14,822,000 )

( 10,422,000 )

Deferred tax assets,

Deferred tax assets, net

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

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outstanding purchase orders for machinery and equipment and related expenditures of approximately $ 1,100,000 .

In December 2023, the Company signed a device integration agreement

with a provider of connected-care and remote monitoring diabetes technology solutions.

As of March 31, 2024, the Company had a remaining

obligation under the device integration agreement of approximately $ 400,000 over three years for technology license fees.

– RELATED PARTY TRANSACTIONS

Manchester Management Company, LLC (MMC), as the general

partner of Explorer, combined with the holdings of its affiliates, JEB Partners LP, James Besser and Morgan Frank, owned approximately

25 % of the Company’s outstanding shares of common stock as of March 31, 2023.

Besser is the Company’s chief executive

officer and a managing member of MMC.

Frank is one of our directors and serves as the portfolio manager of Explorer and as a managing

member of MMC.

Management Company, LLC (MMC), as the general partner of Manchester Explorer, LP (Explorer), combined with the holdings of its affiliates,

JEB Partners LP, James Besser and Morgan Frank, owned approximately 11 % of the Company’s outstanding shares of common stock as

of March 31, 2024.

Besser is the Company’s chief executive officer and a managing member of MMC.

Frank is one of our directors

and serves as the portfolio manager of Explorer and as a managing member of MMC.

February 2024, Explorer purchased 900,000 shares of common stock in the 2024 Offering at the public offering price per share of $ 1.10

for aggregate gross proceeds to the Company of $ 990,000 .

daughter of the Founder is an employee of the Company.

During the years ended March 31, 2023 and 2022, the Company paid her $ 201,275

and $ 169,589 , respectively, which includes the aggregate grant date fair value, as determined pursuant to FASB ASC Topic 718, of stock

options granted to her.

In May 2021, a member of the Board purchased $ 200,000

aggregate principal amount of Notes (the Director Note).

On February 14, 2022, in connection with the Offering, the Director Note and

$ 18,805 of accrued interest thereon were converted into 45,586 shares of common stock and 45,586 Offering Warrants.

February 2021, Explorer, which is represented by Mr.

Frank, and the Founder (the Related Party Holders) purchased $ 1,000,000 and $ 100,000 , aggregate principal amount of the Original Notes, respectively.

Effective April 30, 2021, the Related Party Holders

entered into revocation agreements with the Company pursuant to which their aggregate principal amount of Original Notes and accrued

interest were replaced with Notes.

On February 14, 2022, the Related Party Holders held Notes in an aggregate principal amount of

$ 1,026,630 and $ 102,663 , respectively, with $ 97,881 and $ 9,788 of interest payable thereon.

In connection with the

Offering, the Related Party Holders received 234,274 and 23,429 shares of common stock, respectively,

and 234,274 and 23,429 Offering Warrants, respectively.

13 – SUBSEQUENT EVENT

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 $ 9,400,000 , 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

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.

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

$ 1,400,000 , before deducting underwriting discounts and commissions and other offering expenses.

Underwriter was paid a cash fee of 7.0 % of the aggregate gross proceeds of the Offering and reimbursed certain out-of-pocket expenses

of $ 125,000 .

Pursuant to the Underwriting Agreement, the Company issued to the Underwriter a five-year warrant to purchase 709,760 shares

of common stock a per share exercise price of $ 1.22 .

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.

During the years ended March 31, 2024 and 2023, the Company paid her approximately

$ 137,000 and $ 201,000 , respectively, which includes the aggregate grant date fair values, as determined pursuant to FASB ASC Topic 718,

of stock options granted to her during each year.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data