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Item 7. Management’s Discussion and Analysis

2025-06-20 compared with 2024-06-21 · 266 added, 257 removed, 10 unchanged (98% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

following discussion of our financial condition and results of operations should be read in conjunction with the financial statements

and related notes included in this Annual Report on Form 10-K, or the Report.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations may contain statements that are forward-looking.

These statements are based on current expectations

and assumptions that are subject to risk, uncertainties and other factors.

These statements are often identified by the use of words

such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”

“could,” “estimate,” or “continue,” and similar expressions or variations.

Actual results could differ

materially because of the factors discussed in Part I, Item 1A, These risks and uncertainties may cause actual results to differ

materially from those discussed in the forward-looking statements.

fiscal year ends on March 31 of each calendar year.

Each reference to a fiscal year in this Report, refers to the fiscal year ended March

31 of the calendar year indicated (for example, fiscal 2024 refers to the fiscal year ending March 31, 2024).

Unless the context requires

otherwise, references to “we,” “us,” “our,” and the “Company” refer to Modular Medical,

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial

condition and results of operations should be read in conjunction with the financial statements and related notes included in this Annual

Report on Form 10-K, or the Report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations may

contain statements that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk,

uncertainties and other factors.

These statements are often identified by the use of words such as “may,” “will,”

“expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,”

or “continue,” and similar expressions or variations.

Actual results could differ materially because of the factors discussed

in Part I, Item 1A, These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking

Our fiscal year ends on March 31 of each

calendar year.

Each reference to a fiscal year in this Report, 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).

Unless the context requires otherwise, references to “we,”

“us,” “our,” and the “Company” refer to Modular Medical, Inc.

and its consolidated subsidiary.

are a pre-revenue medical device company focused on the design, development and commercialization of innovative insulin pumps using modernized

technology to increase pump adoption in the diabetes marketplace.

Through the creation of a novel two-part patch pump, our initial product,

the MODD1, we seek 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 seeks to serve both the type 1 and the rapidly growing, especially in terms

of device adoption, type 2 diabetes markets.

In January 2024, we submitted a 510(k) premarket notification to the United States Food

and Drug Administration (“FDA”) for our MODD1 insulin pump.

In March 2024, we received comments from the FDA, and we are

in the process of responding to those comments.

In February 2024, we completed a firm commitment

underwritten offering and issued and sold to the underwriter 9,090,910 shares of our common stock at a price of $1.10 per share (the 2024

We received aggregate proceeds of approximately $10,000,000 before deducting underwriting discounts and commissions and other

offering expenses.

We also granted the underwriter a 30-day option to purchase up to an additional 1,321,989 shares of common stock to

cover over allotments, if any.

In March 2024, the underwriter exercised this option in full and purchased the additional securities for

additional aggregate proceeds to us of approximately $1,454,000, before deducting underwriting discounts and commissions and other offering

Historically,

we have financed our operations principally through private placements and public offerings of our common stock and sales of convertible

promissory notes.

Based on our current operating plan, substantial doubt about our ability to continue as a going concern for a period

of at least one year from the date that the financial statements included in Item 8 of this Report are issued exists.

Our ability to

continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities, to support

our future operations.

If we are unable to secure additional capital, we will be required to curtail our research and development initiatives

and take additional measures to reduce costs.

We have provided additional disclosure in Note 1 to the consolidated financial statements

in Item 1 of this Report and under Liquidity below.

Economic Disruptions

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

government in March 2020.

This negatively affected the U.S.

and global economy, disrupted global supply chains, significantly

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

disruption of the financial markets.

While the U.S.

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

orders have ended, there can be no assurance that the COVID-19 pandemic will not impact our operational and financial performance in

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

and foreign government agencies to prevent disease

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

and acts of terrorism have led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively

impacted the global economy.

Company Overview

We are a pre-revenue medical device company focused on the design,

development and commercialization of innovative insulin pumps using modernized technology to increase pump adoption in the diabetes marketplace.

Through the creation of a novel two-part patch pump, our initial product, the MODD1, we seek 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.

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

In January 2024,

we submitted a 510(k) premarket notification to the United States Food and Drug Administration (the “FDA”) for our MODD1 insulin

pump, and, in September 2024, we received FDA clearance to market and sell our MODD1 pump in the United States.

We are actively working

to i) commercialize our MODD1 product and commence initial shipments in the quarter ending September 30, 2025, ii) obtain regulatory clearance

to market and sell our Pivot Product in 2026, iii) obtain regulatory clearance to market and sell our pump products in foreign jurisdictions,

iv) improve the manufacturability and usability of our pump products and v) develop new pump products.

In March 2025, we completed a private placement (the “Private

Placement”) of 6,247,656 units (each a “Unit”), with each Unit consisting of (A) two shares of our common

stock and (B) one warrant to purchase one share of common stock, at an offering price of $1.92 per Unit.

The Private Placement provided

us with aggregate gross proceeds totaling approximately $12 million, before deducting placement agent fees and other expenses.

with the Private Placement, we entered into a subscription agreement with a foreign investor pursuant to which we completed a direct private

placement of 260,417 Units for additional aggregate gross proceeds of approximately $0.5 million on the same terms as the Private Placement.

Historically, we have financed our operations

principally through private placements and public offerings of our common stock and warrants and sales of convertible promissory notes.

Based on our current operating plan, substantial doubt about our ability to continue as a going concern for a period of at least one year

from the date that the financial statements included in Item 8 of this Report are issued exists.

Our ability to continue as a going concern

depends on our ability to raise additional capital, through the sale of equity or debt securities, to support our future operations.

we are unable to secure additional capital, we will be required to curtail our research and development initiatives and take additional

measures to reduce costs.

We have provided additional disclosure in Note 1 to the consolidated financial statements in Item 1 of this

Report and under Liquidity below.

World unrest due to wars and terrorist

attacks have led to economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global

Since mid-2022, at times, the U.S.

Federal Reserve has addressed elevated inflation by increasing interest

rates, as inflation remains elevated.

While we were recently able to access the capital markets, in the future, we may be unable to access

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

stockholders and to our business.

additional information on risks that could impact our future results, please refer to “Risk Factors” in Part I, Item 1A of

of Operations

following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in

and Development

Federal Reserve has addressed elevated inflation by increasing interest rates.

Market conditions

may prevent us from accessing the capital markets, and additional capital may only be available to us on terms that could be significantly

detrimental to our existing stockholders and to our business.

Results of Operations

The following discussion should be read

in conjunction with our consolidated financial statements and related notes included elsewhere in this Report.

Research and Development

Years ended March 31,

1 unchanged sentence

Research and development

Our research and development, or R&D, expenses

include personnel, consulting, testing, materials and supplies, depreciation and amortization and other operational costs associated with

the pre-FDA clearance production of our insulin pump product.

Our research and development, or R&D, expenses include personnel,

consulting, testing, materials and supplies, depreciation and amortization and other operational costs associated with the production

of our insulin pump products.

We expense R&D costs as they are incurred.

R&D expenses increased in fiscal 2024 compared

with fiscal 2023 primarily due to increases in engineering and operations personnel costs of $1.6 million, consulting costs of $0.8 million,

stock-based compensation expenses of $0.5 million and materials, supplies expenditures of $0.5 million and depreciation and amortization

of $0.4 million.

The increase in personnel costs was attributable to increased average headcount year over year, salary increases effected

during fiscal 2024, payment of a bonus implemented in fiscal 2024 related to our 510(k) submission and higher payroll taxes.

employee headcount increased to 36 at March 31, 2024 from 34 at March 31, 2023.

The increase in consulting costs was primarily driven

by the utilization of consultants and outside testing and other firms in support of our FDA submission in January 2024.

included stock-based compensation expenses of approximately $1.9 million and $1.4 million for fiscal 2024 and fiscal 2023, respectively.

The increase in stock-based compensation costs was primarily attributable to the granting of stock options under our bonus program for

our FDA submission;

these options were granted in October 2023 and expensed over an expected term of four months.

We expect R&D expenses

will increase in fiscal 2025, as we continue to engage third parties to support our responses to the FDA on our MODD1 510(k) submission,

hire additional engineering, quality assurance, and operations personnel, bring-up our manufacturing process at our medical device contract

manufacturer and commence the commercialization of our product in late fiscal 2025.

and Administrative

R&D expenses increased in fiscal 2025

compared with fiscal 2024 primarily due to increases in engineering and operations personnel costs of $1.6 million, depreciation and amortization

of $0.7 million and travel-related and other costs of approximately $0.3 million.

The increase in personnel costs was attributable to

increased average headcount year over year, salary increases effected during fiscal 2025, payment of bonuses in fiscal 2025 and higher

payroll taxes.

Our R&D employee headcount increased to 48 at March 31, 2025 from 36 at March 31, 2024.

The increase in depreciation

and amortization expenses was primarily due to an increase in machinery and equipment purchased and placed in service to further develop

and expand our manufacturing capabilities.

The increases in R&D expense were partially offset by decreases in consulting costs of

$0.6, materials and supplies expenditures of $0.1 million and stock-based compensation of $0.1 million.

The decrease in consulting expenditures

was primarily due to a reduction in utilization of consultants, as we increased our employee headcount, and a decrease in utilization

of outside testing and other third parties in support of our FDA submission in the fourth quarter of 2024.

R&D expenses included stock-based

compensation expenses of approximately $1.8 million and $1.9 million for fiscal 2025 and fiscal 2024, respectively.

We expect R&D expenses will increase in fiscal 2026, as we continue

to hire additional engineering, quality assurance, and operations personnel, bring-up our manufacturing process at our medical device

contract manufacturer and continue the development and prepare for the submission of our Pivot product, as we expect to transition our

MODD1 product to the new Pivot product in 2026.

General and Administrative

Year ended March 31,

1 unchanged sentence

General and administrative

General and administrative, or G&A, expenses

consist primarily of personnel and related overhead costs for marketing, finance, human resources, facilities and general management.

G&A expenses decreased in fiscal 2024 compared with fiscal 2023

primarily as a result of reductions in stock-based compensation expense of $0.5 million, consulting fees of $0.4 million and reduced personnel

costs of $0.2 million.

The decreases were partially offset by increased professional services expenses of $0.4 million, which was primarily

attributable to higher investor relations and financing-related costs, facilities-related expenses of $0.3 million due to our move to

a larger facility in the fourth quarter of fiscal 2023, marketing expense of $0.2 million for a participant study for our product and

costs incurred for initial trade show activities.

G&A expenses included stock-based compensation expenses of approximately $0.8 million

and $1.3 million for fiscal 2024 and fiscal 2023, respectively.

We expect G&A expenses to increase in fiscal 2025, as we expect to

increase headcount, as we expand our organization and implement systems to support our anticipated growth and prepare for the commercialization

of our product in late fiscal 2025.

and Capital Resources;

Changes in Financial Condition

As a development-stage enterprise, we do not

currently have revenues to generate cash flows to cover operating expenses.

Since our inception, we have incurred operating losses and

negative cash flows in each year due to costs incurred in connection with R&D activities and G&A expenses associated with our

For the years ended March 31, 2024 and 2023, we incurred net losses of approximately $17.5 million and $13.9 million, respectively.

At March 31, 2024, we had a cash balance of $9.2 million and an accumulated deficit of approximately $66 million.

When considered with

our current operating plan, these conditions raise substantial doubt about our ability to continue as a going concern for a period of

at least one year from the date that the financial statements included in Item 8 of this Report are issued.

Our financial statements

do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue

as a going concern.

Our operating needs include the planned costs to operate our business, including amounts required to fund continued

research and development activities, working capital and capital expenditures.

Our ability to continue as a going concern depends on

our ability to raise additional capital, through the sale of equity or debt securities to support our future operations.

Recently, during

the three months ended March 31 2024, we completed the 2024 Offering for net proceeds of approximately $10.3 million.

On November 22,

2023, we entered into a Sales Agreement (the “ATM Agreement”) with Leerink Partners LLC (“Leerink”) under which

we may offer and sell, from time to time at our sole discretion, shares of our common stock, for aggregate gross proceeds of up to $6.5

million (subject to availability on our shelf registration statement) through an “at the market offering” program under which

Leerink will act as sales agent or principal.

In January 2024, we sold 153,879 shares of common stock for net proceeds of approximately

$0.3 million under the ATM Agreement.

We suspended sales under the ATM Agreement due to the 2024 Offering, and we may resume sales under

the ATM during fiscal 2025.

In addition, from December 2023 to April 2024, we received a total of approximately $0.9 million of proceeds

from the exercise of common stock purchase warrants issued in a public offering we completed in May 2023.

Our future capital requirements

and the adequacy of our available funds will depend on many factors, including, without limitation, our ability to successfully commercialize

our 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 our product offerings.

If we are unable to secure additional capital timely,

we may be required to curtail R&D initiatives, reduce headcount and take additional measures to reduce costs in order to conserve

Our primary purchase obligations include purchase

orders for machinery and equipment.

At March 31, 2024, we had outstanding purchase orders for machinery and equipment and related expenditures

of approximately $1.1 million.

In December 2023, we signed a device integration agreement with a provider of connected-care and remote

monitoring diabetes technology solutions.

As of March 31, 2024, we had a remaining obligation under the device integration agreement of

approximately $400,000 over three years for technology license fees.

fiscal 2024, we used approximately $14.0 million in operating activities, which primarily resulted from our net loss of approximately

$17.5 million less changes to operating assets and liabilities of approximately $0.4 million, and as adjusted for non-cash charges and

gains, which included approximately $2.7 million of stock-based compensation expenses, depreciation and amortization expenses of approximately

$0.4 million, and other immaterial adjustments.

The changes in operating assets and liabilities primarily related to the timing of payments

In fiscal 2023, we used approximately $11.0 million in operating activities, which primarily resulted from our net loss of

approximately $13.9 million plus changes to operating assets and liabilities of approximately $0.2 million, as adjusted for non-cash

charges and gains, which included stock-based compensation expenses of approximately $2.7 million, approximately $0.2 million for issuance

of shares of our common stock in exchange for services, depreciation and amortization expense of approximately $0.2 million and other

immaterial adjustments.

General and administrative, or G&A,

expenses consist primarily of personnel and related overhead costs for facilities, finance, human resources, general management and marketing.

G&A expenses decreased in fiscal 2025

compared with fiscal 2024 primarily as a result of reductions in stock-based compensation expense of $0.2 million, marketing expense of

$0.1 million (due to a participant study for our product performed in fiscal 2024), travel-related expenses of $0.1 million and shipping

expenses of $0.1 million.

The decreases were partially offset by increased consulting fees of $0.1 million and personnel costs of $0.1

G&A expenses included stock-based compensation expenses of approximately $0.6 million and $0.8 million for fiscal 2025 and

fiscal 2024, respectively.

We expect G&A expenses to increase in fiscal 2026, as we expect to increase headcount, as we develop a

limited sales and marketing organization, add finance and administration personnel and implement systems to support our anticipated growth

and commercialization of our product during fiscal 2026.

Liquidity and Capital Resources;

Changes in Financial

Going Concern

We do not currently have revenues to generate

cash flows to cover operating expenses.

Since our inception, we have incurred operating losses and negative cash flows in each year due

to costs incurred associated with our operations.

For the years ended March 31, 2025 and 2024, we incurred net losses of approximately

$18.8 million and $17.5 million, respectively.

At March 31, 2025, we had a cash balance of $13.1 million and an accumulated deficit of

approximately $84.8 million.

When considered with our current operating plan, these conditions raise substantial doubt about our ability

to continue as a going concern for a period of at least one year from the date that the financial statements included in Item 8 of this

Report are issued.

Our financial statements do not include adjustments to the amounts and classification of assets and liabilities that

may be necessary should we be unable to continue as a going concern.

Our operating needs include the planned costs to operate our business,

including amounts required to fund continued research and development activities, working capital and capital expenditures.

to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities to support

our future operations.

Recently, in March 2025, we entered into securities purchase agreements

with investors, with respect to the issuance and sale in a firm commitment underwritten offering for the private placement (the “2025

Private Placement”) of 6,508,073 units of its securities.

Upon closing of the 2025 Placement, we sold 13,016,146 shares of common

stock and warrants to purchase 6,508,073 shares of its common stock for net proceeds of approximately $11.4 million.

The securities were

sold as a unit with each unit consisting of two shares of common stock and one warrant (the “2025 Private Placement Warrants”)

to purchase one share of common stock, at a public offering price of $1.92 per unit.

In November 2024, we completed a firm commitment

underwritten offering for net proceeds of $7.3 million.

In November 2023, we entered into a Sales Agreement (the “ATM Agreement”)

with Leerink Partners LLC (“Leerink”) under which we may offer and sell, from time to time at our sole discretion, shares

of our common stock (subject to and based on current availability on our shelf registration statement) through an “at the market

offering” program under which Leerink will act as sales agent or principal.

Currently, we have approximately $7.2 million available

for issuance under the ATM Agreement.

In fiscal 2025, we received gross proceeds of approximately $2.2 million from sales under the ATM

Further, in fiscal year 2025, we received a total of approximately $1.1 million of proceeds from the exercise of common stock

purchase warrants issued in a public offering we completed in May 2023.

Our future capital requirements and the adequacy of our available

funds will depend on many factors, including, without limitation, our ability to successfully commercialize our 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 our product offerings.

If we are unable to secure additional capital timely, we may be required to curtail R&D

initiatives, reduce headcount and take additional measures to reduce costs in order to conserve our cash.

Purchase Obligations

Our primary purchase obligations include

purchase orders for machinery and equipment.

At March 31, 2025, we had outstanding purchase orders for machinery and equipment and related

expenditures of approximately $1.5 million.

In December 2023, we signed a device integration agreement with a provider of connected-care

and remote monitoring diabetes technology solutions.

As of March 31, 2025, we had a remaining obligation under the device integration

agreement of approximately $400,000 over three years for technology license fees.

In fiscal 2025, we used approximately $15.7 million in operating activities,

which primarily resulted from our net loss of approximately $18.8 million, as increased by changes to operating assets and liabilities

of approximately $0.4 million, and as adjusted for non-cash charges and gains, which included approximately $2.4 million of stock-based

compensation expenses, depreciation and amortization expenses of approximately $1.1 million, and other immaterial adjustments.

in operating assets and liabilities primarily related to the timing of payments to vendors.

In fiscal 2024, we used approximately

$14.0 million in operating activities, which primarily resulted from our net loss of approximately $17.5 million, less changes to operating

assets and liabilities of approximately $0.4 million, as adjusted for non-cash charges and gains, which included stock-based compensation

expenses of approximately $2.7 million, depreciation and amortization of approximately $0.4 million and other immaterial adjustments.

The changes in operating assets and liabilities primarily related to the timing of payments to vendors.

fiscal 2024 and fiscal 2023, cash used in investing activities of approximately $1.7 million and $1.6 million, respectively, was for

the purchase of property and equipment.

provided by financing activities for fiscal 2024 totaled approximately $21.1 million and was primarily attributable to proceeds of approximately

$20.1 million from the sale of shares of common stock in a registered direct offering and issuance of warrants to purchase common stock

in private placements that closed in May 2023 and February 2024, net of underwriter fees and issuance

costs, proceeds of approximately $0.7 million for the exercise of common stock purchase warrants and proceeds of approximately $0.3 from

the sale of shares under the ATM agreement .

Cash provided by financing activities for fiscal 2023 totaled approximately $7.4 million

and was attributable to approximately $7.4 million of net proceeds from a registered direct offering of our common stock and common stock

purchase warrants in May 2022, net of placement agent fees and issuance costs .

Accounting Policies and Estimates

consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America

Note 1 to the consolidated financial statements in Item 8 of this Report describes the significant accounting policies and methods

used in the preparation of our consolidated financial statements.

We have identified the accounting policies below as some of the more

critical to our business and the understanding of our results of operations.

These policies may involve estimates and judgments that

affect the reported amounts of assets, liabilities, revenues and expenses.

Although we believe our judgments and estimates are appropriate,

actual future results may differ from our estimates, and if different assumptions or conditions were to prevail, the results could be

materially different from our reported results.

preparation of financial statements in conformity with GAAP requires us 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 financial statements and the reported

amounts of revenues and expenses during the reporting periods.

Estimates may include those pertaining to accruals, stock-based compensation

and income taxes.

Actual results could materially differ from those estimates.

periodically issue 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) 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

With respect to performance-based awards, we assess the probability of achieving the requisite performance criteria before recognizing

compensation expense.

We estimate the fair value of stock options on the date of grant 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.

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

and liabilities using tax rates in effect for the year in which we expect 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 our federal

and state net deferred tax assets will not be fully realized, and we have recorded a full valuation allowance.

account for uncertain tax positions in accordance with ASC Topic 740, Income Taxes .

When tax returns are filed, it is likely that

some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the

merits of the position taken or the amount of the position that would be ultimately sustained.

The benefit of a tax position is recognized

in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more

likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if

Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the more-likely-than-not recognition

threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with

the applicable taxing authority.

The portion of the benefits associated with tax positions taken that exceeds the amount measured as

described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with

any associated interest and penalties that would be payable to the taxing authorities upon examination.

Interest associated with unrecognized

tax benefits is classified as interest expense and penalties are classified in general and administrative expenses in the consolidated

statements of operations.

account for our leases under ASC 842, Leases (ASC 842), and related ASUs, which provide supplementary guidance and clarifications.

Under ASC 842, all significant lease arrangements are generally recognized at lease commencement.

Operating lease right-of-use (ROU)

assets and lease liabilities are recognized at the commencement date.

A ROU asset and corresponding lease liability are not recorded

for leases with an initial term of 12 months or less (short-term leases), and we recognize lease expense for these leases as incurred

over the lease term.

assets represent our right to use an underlying asset during the reasonably certain lease terms, and lease liabilities represent our

obligation to make lease payments arising from the lease.

Our lease terms may include options to extend or terminate the lease when it

is reasonably certain that we will exercise that option.

Operating lease ROU assets and liabilities are recognized at the lease commencement

date based on the present value of lease payments over the lease term.

We use our incremental borrowing rate, based on the information

available at commencement date in determining the present value of lease payments.

The operating lease ROU asset also includes any lease

payments related to initial direct cost and prepayments and excludes lease incentives.

Lease expense is recognized on a straight-line

basis over the lease term.

Sheet Arrangements

do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect

on our financial condition, results of operations, liquidity or capital resources.

a “smaller reporting company,” as defined by Item 10 of Regulation S-K, we are not required to provide the information requested

by paragraph (a)(5) of this Item.

Accounting Pronouncements

Note 1 to the consolidated financial statements in Item 8 of this Report for a full description of relevant recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For fiscal 2025 and fiscal 2024, cash

used in investing activities of approximately $2.5 million and $1.7 million, respectively, was for the purchase of property and equipment.

Cash provided by financing activities for fiscal 2025 totaled approximately

$22.1 million and was primarily attributable to net proceeds of approximately $11.4 million from a private placement of common stock and

warrants, which closed in March 2025, net proceeds of approximately $7.3 million from the issuance of common stock and warrants in a public

offering, which closed in November 2024, proceeds of approximately $1.3 million for the exercise of common stock purchase warrants and

proceeds of approximately $2.1 million from the sale of shares under the ATM Agreement.

Cash provided by financing activities for fiscal

2024 totaled approximately $21.1 million and was primarily attributable to proceeds of approximately $20.1 million from the sale of shares

of common stock in a registered direct offering and issuance of warrants to purchase common stock in private placements that closed in

May 2023 and February 2024, net of underwriter fees and issuance costs, proceeds of approximately $0.7 million for the exercise of common

stock purchase warrants and proceeds of approximately $0.3 from the sale of shares under the ATM Agreement.

Critical Accounting Policies and

Our consolidated financial statements are prepared in conformity with

accounting principles generally accepted in the United States of America (“GAAP”).

Note 1 to the consolidated financial statements

in Item 8 of this Report describes the significant accounting policies and methods used in the preparation of our consolidated financial

We have identified the accounting policies below as some of the more critical to our business and the understanding of our

results of operations.

These policies may involve estimates and judgments that affect the reported amounts of assets, liabilities, revenues

and expenses.

Although we believe our judgments and estimates are appropriate, actual future results may differ from our estimates, and

if different assumptions or conditions were to prevail, the results could be materially different from our reported results.

Use of estimates

The preparation of financial statements

in conformity with GAAP requires us 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 financial statements and the reported amounts of revenues and expenses during

the reporting periods.

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

Actual results could

materially differ from those estimates.

Stock-based compensation

We periodically issue 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”) 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, we assess the probability

of achieving the requisite performance criteria before recognizing compensation expense.

We estimate the fair value of stock options on

the date of grant 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.

We determine deferred tax assets and liabilities

based upon the differences between the financial statement and tax bases of our assets and liabilities using tax rates in effect for the

year in which we expect 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 our federal and state net deferred tax assets will not be fully

realized, and we have recorded a full valuation allowance.

We account for uncertain tax positions

in accordance with ASC Topic 740, Income Taxes .

When tax returns are filed, it is likely that some positions taken would be sustained

upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount

of the position that would be ultimately sustained.

The benefit of a tax position is recognized in the consolidated financial statements

in the period during which, based on all available evidence, management believes it is more likely than not that the position will be

sustained upon examination, including the resolution of appeals or litigation processes, if any.

Tax positions taken are not offset or

aggregated with other positions.

Tax positions that meet the more- likely-than-not recognition threshold are measured as the largest amount

of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority.

of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for

unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would

be payable to the taxing authorities upon examination.

Interest associated with unrecognized tax benefits is classified as interest expense

and penalties are classified in general and administrative expenses in the consolidated statements of operations.

We account for our leases under ASC 842, Leases (“ASC

842”), and related ASUs, which provide supplementary guidance and clarifications.

Under ASC 842, all significant lease arrangements

are generally recognized at lease commencement.

Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized

at the commencement date.

ROU assets and corresponding lease liabilities are not recorded for leases with an initial term of 12 months

or less (short-term leases), and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use

an underlying asset during the reasonably certain lease terms, and lease liabilities represent our obligation to make lease payments arising

from the lease.

Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise

Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease

payments over the lease term.

We use our incremental borrowing rate, based on the information available at commencement date in determining

the present value of lease payments.

The operating lease ROU asset also includes any lease payments related to initial direct cost and

prepayments and excludes lease incentives.

Lease expense is recognized on a straight-line basis over the lease term.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet

arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results

of operations, liquidity or capital resources.

Contractual Obligations

As a “smaller reporting company,”

as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by paragraph (a)(5) of this Item.

Recent Accounting Pronouncements

See Note 1 to the consolidated financial

statements in Item 8 of this Report for a full description of relevant recent accounting pronouncements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

Not applicable.

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What changed 10-K

Item 7. Management’s Discussion and Analysis