Modular Medical, Inc. 10-Q

Item 1. Financial Statements Modular Medical, Inc. Condensed Consolidated Balance Sheets (In thousands, except par value) June 30, 2024 (Unaudited) March 31, 2024 ASSETS CURRENT ASSETS Cash and cash equivalents $ 5,052 $ 9,232 Prepaid expenses and other 355 465 TOTAL CURRENT ASSETS 5,407 9,697 Property and equipment, net 3,619 2,975 Right of use asset, net 1,046 1,135 TOTAL ASSETS $ 10,072 $ 13,807 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 461 $ 802 Accrued expenses 495 280 Short-term lease liabilities 386 373 TOTAL CURRENT LIABILITIES 1,342 1,455 Long-term lease liabilities 714 817 TOTAL LIABILITIES 2,056 2,272 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, 100,000 shares authorized; 32,561 and 32,464 shares issued and outstanding as of June 30, 2024 and March 31, 2024, respectively 32 32 Additional paid-in capital 78,050 77,432 Accumulated deficit ( 70,066 ) ( 65,929 ) TOTAL STOCKHOLDERS’ EQUITY 8,016 11,535 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,072 $ 13,807 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, 2024 2023 Operating expenses Research and development $ 3,205 $ 2,768 General and administrative 1,015 983 Total operating expenses 4,220 3,751 Loss from operations ( 4,220 ) ( 3,751 ) Other income 83 14 Net loss $ ( 4,137 ) $ ( 3,737 ) Net loss per share Basic and diluted $ ( 0.12 ) $ ( 0.22 ) Shares used in computing net loss per share Basic and diluted 33,884 17,099 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, 2024 32,464 $ 32 $ 77,432 $ ( 65,929 ) $ 11,535 Shares issued for services 10 — 15 — 15 Exercise of warrants 55 — 68 — 68 Issuances under equity incentive plan 32 — 6 — 6 Stock-based compensation — — 529 — 529 Net loss — — — ( 4,137 ) ( 4,137 ) Balance as of June 30, 2024 32,561 $ 32 $ 78,050 $ ( 70,066 ) $ 8,016 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 Issuances 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 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, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 4,137 ) $ ( 3,737 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 535 484 Depreciation and amortization 196 58 Shares for services 5 5 Other 1 — Changes in assets and liabilities: Prepaid expenses and other assets ( 22 ) ( 40 ) Lease right-of-use asset 90 83 Accounts payable and accrued expenses ( 126 ) 46 Change in lease liability ( 90 ) ( 106 ) Net cash used in operating activities ( 3,548 ) ( 3,207 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment ( 842 ) ( 373 ) Net cash used in investing activities ( 842 ) ( 373 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from exercise of common stock purchase warrants 210 — Proceeds from issuance of common stock and warrants, net — 9,733 Net cash provided by financing activities 210 9,733 Net increase (decrease) in cash and cash equivalents ( 4,180 ) 6,153 Cash and cash equivalents at beginning of period 9,232 3,799 Cash and cash equivalents at end of period $ 5,052 $ 9,952 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), and changed its name from Bear Lake Recreation, Inc. to Modular Medical, Inc. The 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 market. 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 MODD1. In March 2024, the Company received comments from the FDA on its submission, and the Company responded to those comments in August 2024. 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 products. 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 the consolidated financial statements as of and for the year ended March 31, 2024, expressed substantial doubt about the Company’s ability to continue as a going concern. These condensed 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. 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 2025 refers to the fiscal year ending March 31, 2025). 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, 2024 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, 2024 are not necessarily indicative of the results that may be expected for the year ending March 31, 2025 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. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash held in demand deposit accounts. The Company maintains a portion of its cash in demand deposit accounts 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 . 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, pandemics, wars and acts of terrorism and the volatility of public markets. 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 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. 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 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. 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (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 periodically issues stock options, restricted stock units and stock awards to employees and non-employees. The Company accounts for such awards based on FASB 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. 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 for purposes of the WASO calculation. 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. For the three months ended June 30, 2024 and 2023, 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, 2024 2023 Options to purchase common stock 4,322 2,824 Unvested restricted stock units 167 — Common stock purchase warrants 11,173 11,997 Total 15,662 14,821 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, 2024 and 2023, the Company’s comprehensive loss was the same as its net loss. Recently Issued Accounting Pronouncements In 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. ASU No. 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. In 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. 8 NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL June 30, 2024 March 31, 2024 (in thousands) Property and equipment, net Machinery and equipment $ 4,082 $ 3,209 Computer equipment and software 66 66 Construction-in-process 250 283 Leasehold improvements 33 33 Office equipment 46 63 4,477 3,654 Less: accumulated depreciation and amortization ( 858 ) ( 679 ) Total $ 3,619 $ 2,975 June 30, 2024 March 31, 2024 (in thousands) Accrued expenses Accrued wages and employee benefits $ 296 $ 243 Other 199 37 Total $ 495 $ 280 NOTE 3 – LEASES 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 certain other 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, 2024, are listed in the table below (in thousands). Annual Fiscal Years 2025 $ 340 2026 470 2027 405 Total future lease payments $ 1,215 Less: Imputed interest ( 115 ) Present value of lease liability $ 1,100 Cash paid for amounts included in the measurement of lease liabilities was approximately $ 112,000 and $ 149,000 for the three months ended June 30, 2024 and 2023, respectively. Rent expense was approximately $ 112,000 for each of the three month periods ended June 30, 2024 and 2023, respectively. 9 NOTE 4 – STOCKHOLDERS’ EQUITY ATM Offering In November 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. The ATM 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. Warrants As of June 30, 2024, the Company had the following common stock purchase warrants outstanding (share amounts in thousands): Number of Shares Exercise Price Expiration Balance as of March 31, 2024 12,521 Warrants exercised ( 55 ) $ 1.22 May 2028 Balance as of June 30, 2024 12,466 As of March 31, 2024, 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 4,421 1.22 May 2028 Common stock 535 1.32 May 2027 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 12,521 The 1,348,000 pre-funded warrants with an exercise price of $ 0.01 per share were included in the weighted average shares outstanding calculation for each of the three-month periods ended June 30, 2024 and 2023. At 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 and was collected during the three months ended June 30, 2024. Other During the three months ended June 30, 2024, the Company issued 10,000 shares of common stock with a fair value of approximately $ 15,000 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 increases in the number of shares reserved for issuance by 333,334 and 1,333,334 shares, respectively. 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. 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 Stock options granted by the Company generally vest over 36 months and have a 10 -year term. As of June 30, 2024, the unamortized compensation cost related to stock options was approximately $ 2,262,000 and is expected to be recognized as expense over a weighted-average period of approximately 1.6 years. In 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 June 30, 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 weighted-average grant date fair value of options granted was $ 1.33 and $ 1.00 per share for the three months ended June 30, 2024 and 2023, respectively. The following assumptions were used in the fair-value method calculations: Three Months Ended June 30, 2024 2023 Risk-free interest rates 4.33 % - 4.43 % 3.51 % - 4.13 % V olatility 118 % - 123 % 83 % - 152 % Expected life (years) 5.0 - 5.7 5.0 - 6.1 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. The following table summarizes the activity in the shares available for grant under the Plan during the three months ended June 30, 2024: Options Outstanding Weighted Shares Average Available Number of Exercise for Grant Shares Prices Balance at March 31, 2024 3,648,651 3,689,341 $ 3.70 Share awards ( 3,875 ) — 1.56 Options granted ( 682,375 ) 682,375 1.52 Options exercised — ( 7,530 ) 1.08 Options cancelled and returned to the Plan 42,230 ( 42,230 ) 2.62 Balance at June 30, 2024 3,004,631 4,321,956 $ 3.36 11 A stock option was exercised on a cashless basis for 7,530 shares of common stock during the three months ended June 30, 2024. There were no stock options exercised during the three months ended June 30, 2023. During the three months ended June 30, 2024 and 2023, the Company awarded 3,875 and 6,375 shares, respectively, to its non-employee directors under the Company’s outside director compensation plan. For the three months ended June 30, 2024 and 2023, the Company recorded stock-based compensation expense for these share awards of approximately $ 6,000 and $ 5,900 , respectively. A summary of restricted stock unit (RSU) activity under the Plan is presented below. Weighted Average Number of Shares Grant-Date Fair Value Balance at March 31, 2024 187,499 $ 0.91 Vested ( 20,832 ) $ 0.91 Non-vested shares at June 30, 2024 166,667 $ 0.91 The total intrinsic value of RSUs outstanding as of June 30, 2024 was approximately $ 263,000 . The unamortized compensation cost at June 30, 2024 was approximately $ 153,000 related to RSUs and is expected to be recognized as expense over a period of approximately two years. The following table summarizes the range of outstanding and exercisable options as of June 30, 2024: 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 2,872,922 8.46 $ 1.49 1,564,467 $ 1.51 $ 369,936 $ 3.95 - $ 7.51 940,367 6.94 $ 5.29 807,756 $ 5.46 — $ 8.61 - $ 17.70 508,667 6.98 $ 10.53 485,934 $ 10.53 — $ 0.93 - $ 17.70 4,321,956 7.96 $ 3.38 2,858,157 $ 4.16 — 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, 2024, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions. 12 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, 2024 and 2023 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, 2024, the Company had outstanding purchase orders for machinery and equipment and related expenditures of approximately $ 768,000 . In December 2023, the Company signed a device integration agreement with a provider of connected-care and remote monitoring diabetes technology solutions. As of June 30, 2024, the Company had a remaining obligation under the device integration agreement of approximately $ 400,000 over three years for technology license fees. NOTE 8 – RELATED PARTY TRANSACTIONS A family member of one of the Company’s executive officers is an employee of the Company. During the three months ended June 30, 2024 and 2023, the Company paid the family member approximately $ 57,300 and $ 34,800 , respectively, which includes the aggregate grant date fair values, as determined pursuant to FASB ASC Topic 718, of stock options granted during each period. NOTE 9 – SUBSEQUENT EVENTS On August 2, 2024, 242,307 outstanding options, which were granted under part two of the Bonus Program, were cancelled, as the applicable performance requirements had not been achieved. 13