Modular Medical, Inc. 10-K

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Accounting Firm – Farber Hass Hurley LLP F-2 Consolidated Balance Sheets F-4 Consolidated Statements of Operations F-5 Consolidated Statements of Stockholders’ Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Audit 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, 2025 and 2024, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2025, 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 will need to raise additional funds to sustain its operations and meet future obligations 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. 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. 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 relate. F- 2 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 future 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 5, during the year ended March 31, 2025, 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 the expense over the vesting period. We identified the valuation recognition of stock-based compensation of granted stock options as a critical audit matter due to the significant judgments and assumptions required by management when developing the fair value of the options and the potential for material impact. The fair value includes subjective assumptions including the expected stock price volatility, expected term of the granted options, and the risk-free interest rate. 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 options granted. - We evaluated the option price model management selected to determine the fair value, and analyzed the underlying data and assumptions used in the calculations. - We performed independent recalculations of the fair value of granted stock options using our own assumptions and compared the results to the Company’s estimates. /s/ Farber Hass Hurley LLP PCAOB Firm ID 223 We have served as the Company’s auditor since 2018. Chatsworth, California June 20, 2025 F- 3 Modular Medical, Inc. Consolidated Balance Sheets (In thousands, except par value) March 31, 2025 2024 ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,095 $ 9,232 Prepaid expenses and other 422 465 TOTAL CURRENT ASSETS 13,517 9,697 Property and equipment, net 4,453 2,975 Right of use assets, net 765 1,135 TOTAL NON-CURRENT ASSETS 5,218 4,110 TOTAL ASSETS $ 18,735 $ 13,807 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 338 $ 802 Accrued expenses 504 280 Short-term lease liabilities 423 373 TOTAL CURRENT LIABILITIES 1,265 1,455 Long-term lease liabilities 393 817 TOTAL LIABILITIES 1,658 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 as of March 31, 2025 and 2024; 53,706 and 32,464 shares issued and outstanding as of March 31, 2025 and 2024, respectively 54 32 Additional paid-in capital 101,776 77,432 Accumulated deficit ( 84,753 ) ( 65,929 ) TOTAL STOCKHOLDERS’ EQUITY 17,077 11,535 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 18,735 $ 13,807 The accompanying notes are an integral part of these audited consolidated financial statements. F- 4 Modular Medical, Inc. Consolidated Statements of Operations (In thousands, except per-share data) Year Ended March 31, 2025 2024 Operating expenses Research and development $ 14,697 $ 12,880 General and administrative 4,351 4,649 Total operating expenses 19,048 17,529 Loss from operations ( 19,048 ) ( 17,529 ) Other income 226 61 Loss before income taxes ( 18,822 ) ( 17,468 ) Provision for income taxes 2 2 Net loss $ ( 18,824 ) $ ( 17,470 ) Net loss per share Basic and diluted $ ( 0.51 ) $ ( 0.78 ) Shares used in computing net loss per share Basic and diluted 37,007 22,377 The accompanying notes are an integral part of these audited consolidated financial statements. F- 5 Modular Medical, Inc. Consolidated Statements of Stockholders’ Equity (In thousands) Additional Common Stock Paid-In Accumulated Stockholders’ Shares Amount Capital Deficit Equity Balance as of March 31, 2023 10,949 $ 11 $ 53,524 $ ( 48,459 ) $ 5,076 Issuance of common stock in public offerings, net of fees and issuance costs 20,552 20 20,045 — 20,065 At-the-market sales of stock, net 154 — 278 — 278 Exercise of warrants 719 1 883 — 884 Shares issued for services 2 — 1 — 1 Issuances under equity incentive plan 88 — 37 — 37 Stock-based compensation — — 2,664 — 2,664 Net loss — — — ( 17,470 ) ( 17,470 ) Balance as of March 31, 2024 32,464 $ 32 $ 77,432 $ ( 65,929 ) $ 11,535 Issuance of common stock and warrants in private placements, net of fees and issuance costs 13,016 13 11,354 — 11,367 Issuance of common stock and warrants in public offering, net of fees and issuance costs 5,451 6 7,338 — 7,344 At-the-market sales of stock, net 920 1 2,113 — 2,114 Exercise of warrants 1,719 2 1,107 — 1,109 Shares issued for services 30 — 51 — 51 Issuances under equity incentive plan 106 — 24 — 24 Stock-based compensation — — 2,357 — 2,357 Net loss — — — ( 18,824 ) ( 18,824 ) Balance as of March 31, 2025 53,706 $ 54 $ 101,776 $ ( 84,753 ) $ 17,077 The accompanying notes are an integral part of these audited consolidated financial statements. F- 6 Modular Medical, Inc. Consolidated Statements of Cash Flows (In thousands) Year ended March 31, 2025 2024 Cash Flows from operating activities Net loss $ ( 18,824 ) $ ( 17,470 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 2,381 2,701 Loss on asset disposal — 21 Depreciation and amortization 1,063 426 Shares issued for services 51 19 Other 1 — Changes in assets and liabilities: Prepaid expenses and other assets ( 100 ) ( 94 ) Lease right-of-use assets 370 342 Accounts payable and accrued expenses ( 288 ) 458 Lease liabilities ( 374 ) ( 355 ) Net cash used in operating activities ( 15,720 ) ( 13,952 ) Cash flows from investing activities Purchases of property and equipment ( 2,493 ) ( 1,700 ) Net cash used in investing activities ( 2,493 ) ( 1,700 ) Cash flows from financing activities Proceeds from at-the-market sales of common stock, net 2,114 278 Proceeds from exercise of common stock warrants 1,251 742 Proceeds from public offering of common stock and warrants, net 7,344 20,065 Proceeds from private placements of common stock and warrants, net 11,367 — Net cash provided by financing activities 22,076 21,085 Net increase in cash and cash equivalents 3,863 5,433 Cash and cash equivalents, at beginning of year 9,232 3,799 Cash and cash equivalents, at end of year $ 13,095 $ 9,232 Supplemental disclosure: Noncash investing and financing activities: Receivable from transfer agent for warrant exercise proceeds $ — 142 Cash paid for: Income taxes $ 2 $ 2 The accompanying notes are an integral part of these audited consolidated financial statements. F- 7 MODULAR MEDICAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Modular Medical, Inc. (the “Company”) was incorporated in Nevada in October 1998 under the name Bear Lake Recreation, Inc. The Company had no material business operations 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 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, and, in September 2024, the Company received FDA clearance to market and sell its MODD1 pump in the United States. Liquidity and Going Concern The Company does not currently have revenues to generate cash flows to cover operating expenses. Since its inception, the Company has incurred operating losses and negative cash flows in each year due to costs incurred in connection with its operations. 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 commercialization of its products. The Company expects that its operating expenses will continue to increase, and, as a result, it will eventually need to generate significant revenue to achieve profitability. When considered with its current operating plan, these conditions 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, 2025, 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. 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 pump products, 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 product commercialization and research and development initiatives and take additional measures to reduce costs in order to conserve its cash. In November 2024, the Company completed a public offering of its common stock for net proceeds of approximately $ 7.3 million. In March 2025, the Company completed private placements of its common stock and warrants for net proceeds of approximately $ 11.4 million. Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company’s fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the 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 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. F- 8 Use of Estimates The preparation of the accompanying consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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 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. Research and Development The Company expenses research and development expenditures as incurred. General and Administrative General and administrative expenses consist primarily of payroll and benefit costs, rent, stock-based compensation, legal and accounting fees, and facility and other finance and administrative expenses. Risks and Uncertainties The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets. 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. F- 9 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”) ASC No. 842, Leases , which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and the lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term in the consolidated statement of operations and comprehensive loss. The Company determines the lease term by agreement with the lessor. In cases where the lease does not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Stock-Based Compensation The 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. F- 10 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. 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): March 31, 2025 2024 Options to purchase common stock 4,917 3,689 Unvested restricted stock units 104 187 Common stock purchase warrants 18,030 11,173 Total 23,051 15,049 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. 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 accounts for uncertain tax positions in accordance with FASB 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. 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. The Company files U.S. 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. 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 years ended March 31, 2025 and 2024, the Company’s comprehensive loss was the same as its net loss. F- 11 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 adoption of this standard did not have a material impact on the Company’s consolidated financial statements, but it has resulted in additional disclosures within the footnotes to the consolidated financial statements (see Note 8). 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 does not expect that the adoption of this ASU will have a material impact on the presentation of its consolidated financial statements. In November 2024, the FASB issued ASU No. 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . The new standard requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The standard is effective for the Company for annual periods beginning April 1, 2027 and interim periods beginning April 1, 2028, with early adoption permitted. The standard may be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact that this ASU will have on the presentation of its consolidated financial statements. NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL March 31, 2025 2024 (in thousands) Prepaid and other current assets: Prepaid expenses $ 352 $ 318 Receivable from transfer agent for warrant exercise proceeds — 142 Other receivables 70 5 $ 422 $ 465 March 31, 2025 2024 (in thousands) Property and equipment, net: Machinery and equipment $ 5,311 $ 3,209 Computer equipment and software 66 66 Construction-in-process 685 283 Leasehold improvements 33 33 Office equipment 45 63 6,140 3,654 Less: accumulated depreciation and amortization ( 1,687 ) ( 679 ) $ 4,453 $ 2,975 March 31, 2025 2024 (in thousands) Accrued expenses: Accrued wages $ 391 $ 243 Other 113 37 $ 50 4 $ 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 other certain operating costs. A discount rate of 8 %, which approximated the Company’s incremental borrowing rate, was used to measure the lease asset and liability. The Company obtained a right-of-use asset of approximately $ 1,560,000 in exchange for its obligations under the operating lease. F- 12 Future minimum payments under the facility operating lease, as of March 31, 2025, are listed in the table below (in thousands). Fiscal year ending March 31, 2026 470 2027 405 Total future lease payments 875 Less: Imputed interest ( 59 ) Present value of lease liabilities $ 816 Cash paid for amounts included in the measurement of lease liabilities was approximately $ 452,000 and $ 476,000 for the years ended March 31, 2025 and 2024, respectively. Rent expense was approximately $ 449,000 for each of the years ended March 31, 2025 and 2024. NOTE 4 – STOCKHOLDERS’ EQUITY Increase in Authorized Shares In 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. 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 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. During the twelve months ended March 31, 2025 and 2024, under the ATM Agreement, the Company sold 920,199 and 153,879 shares of common stock, respectively, for gross proceeds of $ 2,224,440 and $ 286,120 . During the twelve months ended March 31, 2025 and 2024, the Company incurred commissions and legal fees of $ 110,440 and $ 127,196 , respectively. March 2025 Private Placement On March 20, 2025, the Company entered into securities purchase agreements (the “Purchase Agreements”) with investors (the Investors) for the private placement (the “Private Placement”) of 6,247,656 units (each a Unit), with each Unit consisting of (A) two shares of the Company’s common stock and (B) one warrant (a “Warrant”) to purchase one share of common stock, at an offering price of $ 1.92 per Unit. Certain affiliates, officers and directors of the Company purchased a total of 374,478 Units in the Private Placement. The common stock and the Warrants included in the Units and the common stock underlying the Warrants are collectively referred to herein as the “Securities.” The Private Placement closed on March 26, 2025 with aggregate gross proceeds totaling approximately $ 12 million, before deducting placement agent fees and other expenses. Concurrently with the Private Placement, the Company entered into a subscription agreement with a foreign investor pursuant to which the Company 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. The Warrants have an exercise price of $ 1.12 per share. Each Warrant is exercisable immediately and will expire four years from the date of issuance. The exercise price and number of shares of common stock issuable upon exercise of the warrants is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting the common stock and the exercise price. Subject to limited exceptions, an Investor may not exercise any portion of its warrants to the extent that the Investor would beneficially own more than 4.99 % (or, at the election of the holder prior to the date of issuance, 9.99 %) of the Company’s outstanding common stock after exercise. In the event of certain fundamental transactions, the holder of the Warrants will have the right to receive the Black Scholes Value (as defined in the Warrants) of its Warrants calculated pursuant to a formula set forth in the Warrants, payable in cash. Newbridge Securities Corporation (the “Placement Agent”) acted as the Company’s placement agent in connection with the Private Placement, pursuant to that certain engagement letter, dated as of February 10, 2025, between the Company and the Placement Agent, pursuant to which the Company paid the Placement Agent (i) a cash fee equal to 7.25 % of the aggregate gross proceeds from the sale of the Securities in the Private Placement and (ii) reimbursement for certain of out-of-pocket expenses, including for reasonable expenses and legal fees of $ 50,000 . In addition, the Company issued to the Placement Agent or its designees warrants (the “Placement Agent Warrants”) to purchase up to an aggregate of 874,672 shares of common stock ( 7.0 % of the common stock sold in the Private Placement). The Placement Agent Warrants have substantially the same terms as the Warrants except the Placement Agent Warrants will have an exercise price equal to $ 1.40 per share ( 125 % of the exercise price of the Warrants). The Placement Agent Warrants will be exercisable six months from the date of issuance and expire on the fourth anniversary of the issuance date. F- 13 November 2024 Public Offering In November 2024, the Company entered into an underwriting agreement (the “Agreement”) with Titan Partners Group LLC, a division of American Capital Partners, LLC (“Titan”), relating to a firm commitment underwritten offering (the “November 2024 Offering”) of 5,450,573 shares (the “Shares”) of common stock of the Company, at a public offering price of $ 1.50 per share. The November 2024 Offering closed on November 25, 2024 (the “Closing Date”), resulting in gross proceeds to the Company of approximately $ 8.2 million, before deducting underwriting discounts, commissions and offering expenses. Pursuant to the Agreement, as partial compensation for its services, the Company issued to Titan on the Closing Date, warrants (the “Underwriter Warrants”) to purchase an aggregate of 381,540 shares of common stock. The Underwriter Warrants are exercisable, in whole or in part, commencing on May 21, 2025 and expire on November 25, 2029 , at an exercise price per share of $ 1.875 . February 2024 Public Offering On February 15, 2024, the Company entered into an underwriting agreement (the “2024 Underwriting Agreement”) with 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 “February 2024 Offering”) by the Company. Upon the closing of the February 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, if any. 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. Titan was paid a cash fee of 7.0 % of the aggregate gross proceeds of the February 2024 Offering (including the over-allotment option) and reimbursed certain out-of-pocket expenses of approximately $ 75,000 . May 2023 Public Offering On May 15, 2023, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Newbridge Securities Corporation (the “Underwriter”), with respect to the issuance and sale in a firm commitment underwritten offering (the “2023 Offering”) by the Company of units of its securities. 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. Pursuant to the Underwriting Agreement, the Company granted the Underwriter a 30 -day option to purchase up to an additional 1,322,534 shares of common stock and an additional 661,267 of the 2023 Warrants to cover over-allotments, if any. On May 25, 2023, the Underwriter exercised 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. The Underwriter was paid a cash fee of 7.0 % of the aggregate gross proceeds of the 2023 Offering (including the over-allotment option) and reimbursed certain out-of-pocket expenses of approximately $ 125,000 . In addition, pursuant to the Underwriting Agreement, the Company 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 . Issuances of Common Stock and Warrants During the years ended March 31, 2025 and 2024, the Company issued 30 ,000 and 1,429 shares of common stock to service providers, respectively, with fair values of approximately $ 50,500 and $ 1,400 , respectively. F- 14 As of March 31, 2025, the Company had the following warrants outstanding (share amounts in thousands): Type Number of Shares Exercise Prices Expiration Dates Balance as of March 31, 2024 12,521 Issuance of common stock warrants 381 $ 1.875 November 2027 Issuance of common stock warrants 6,508 $ 1.12 March 2029 Issuance of common stock warrants 875 $ 1.40 March 2029 Common stock warrants exercised ( 817 ) $ 0.01 — Common stock warrants exercised ( 51 ) $ 1.32 May 2027 Common stock warrants exercised ( 856 ) $ 1.22 May 2028 Balance as of March 31, 2025 18,561 As of March 31, 2024, the Company had the following warrants outstanding (share amounts in thousands): Type Number of Shares Exercise Prices Expiration Dates 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 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 collected during the three months ended June 30, 2024. NOTE 5 – STOCK-BASED COMPENSATION Amended 2017 Equity Incentive Plan In October 2017, the Company’s Board approved the 2017 Equity Incentive Plan (the “Plan”) with 1,000,000 shares of common stock reserved for issuance. In January 2020 and August 2021, the Board approved increases in the number of shares reserved for issuance under the Plan by 333,334 and 1,333,334 shares, respectively. In January 2023, February 2024 and February 2025, the Company’s stockholders approved increases in the number of shares reserved for issuance under the Plan by an additional 2,000,000 , 3,000,000 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 (“RSUs”). 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 March 31, 2025, the unamortized compensation cost related to stock options was approximately $ 1,369,000 and is expected to be recognized as expense over a weighted-average period of approximately 1.9 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. In August 2024, options to purchase 242,307 shares (net of forfeitures), which were granted under part two of the Bonus Program, were canceled, as the Company did not receive clearance from the FDA for its MODD1 product by August 1, 2024. In August 2024, the Company granted new options to purchase 339,298 shares (the “Clearance Options”), which were subject to vesting based upon the Company’s receipt of clearance from the FDA for its MODD1 product by December 31, 2024 and continued service by the optionees. The Clearance Options vested in full in September 2024 upon the Company’s receipt of clearance from the FDA for its MODD1 product. F- 15 During the year ended March 31, 2025, the Company granted options to purchase 157,500 shares that vested immediately when granted. The weighted-average grant date fair values of stock options granted during the years ended March 31, 2025 and 2024 was $ 1.31 and $ 0.99 , respectively. The following assumptions were used in the fair-value method calculations: Year Ended March 31, 2025 2024 Risk-free interest rates 3.45 % - 4.49 % 3.51 % - 4.72 % Volatility 107 % - 123 % 83 % - 152 % Expected life (years) 5.0 - 5.7 5.0 – 6.2 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. 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. The following table summarizes the activity in the shares available for grant under the Plan during the years ended March 31, 2025 and 2024: Options Outstanding Shares Available for Grant Number of Shares Weighted Average Exercise Price ($) Balance at March 31, 2023 2,132,292 2,481,090 5.19 Additional shares authorized under the Plan 3,000,000 — — Options granted ( 1,448,533 ) 1,448,533 0.99 Share awards ( 25,390 ) — — RSUs granted ( 250,000 ) — — Options cancelled and returned to the Plan 240,282 ( 240,282 ) 3.84 Balance at March 31, 2024 3,648,651 3,689,341 3.70 Additional shares authorized under the Plan 3,000,000 — — Options granted ( 1,579,798 ) 1,579,798 1.55 Options exercised — ( 7,530 ) 1.08 Share awards ( 15,500 ) — — Options cancelled and returned to the Plan 344,519 ( 344,519 ) 1.55 Balance at March 31, 2025 5,397,872 4,917,090 3.17 During the years ended March 31, 2025 and 2024, the Company issued 15,500 and 25,390 shares, respectively, to its non-employee directors under the Company’s outside director compensation plan. For the years ended March 31, 2025 and 2024, the Company recorded stock-based compensation expense for these share awards of approximately $ 24,000 and $ 37,000 , respectively. F- 16 A summary of RSU activity under the Plan is presented below. Number of Weighted Average Grant- Date Fair Value Shares ($) Balance at March 31, 2023 — — Granted 250,000 0.91 Vested ( 62,501 ) 0.91 Balance at March 31, 2024 187,499 0.91 Vested ( 83,331 ) 0.91 Balance at March 31, 2025 104,168 0.91 The total intrinsic value of RSUs outstanding as of March 31, 2025 was approximately $ 113,543 . The unamortized compensation cost at March 31, 2025 was approximately $ 96,000 related to RSUs and is expected to be recognized as expense over a period of approximately 1.25 years. The following table summarizes the range of outstanding and exercisable options as of March 31, 2025: Options Outstanding Options Exercisable Weighted Average Remaining Weighted Weighted Contractual Average Average Aggregate Number Life Exercise Number Exercise Intrinsic Range of Exercise Price Outstanding (in Years) Price ($) Exercisable Price ($) Value ($) $0.87 - $2.28 3,484,816 8.13 1.54 2,195,001 1.56 13,279 $3.95 - $7.51 9 33,145 6.19 5.30 906,631 5.33 — $8.61 - $17.70 499,129 6.23 10.56 499,129 10.56 — $0.87 - $17.70 4,917,090 7.57 3.17 3,600,761 3.76 13,279 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 at March 31, 2025. F- 17 NOTE 6 – INCOME TAXES The income tax provision consisted of the following: Year Ended March 31, 2025 2024 (in thousands) Current provision: Federal $ — $ — State 2 2 2 2 Deferred provision: Federal — — State — — — — Total income tax provision $ 2 $ 2 A reconciliation of income taxes provided at the federal statutory rate to the actual income tax provision is as follows: Year Ended March 31, 2025 2024 Federal statutory rate ( 21 )% ( 21 )% State tax rate, net of federal benefit ( 6 )% ( 6 )% Research and development tax credits ( 5 )% ( 7 )% Change in valuation allowance 30 % 32 % Other 2 % 2 % Effective income tax rate — — The losses before income tax provision for the years ended March 31, 2025 and 2024 were solely attributable to US operations. Significant components of the Company’s deferred tax assets and liabilities were (in thousands): March 31, 2025 2024 Net operating loss carryforwards $ 14,343 $ 10,860 Capitalized research and development expense 5,391 3,058 Stock-based compensation expense 1,267 2,818 Research and development tax credits 2,420 2,568 Lease liability 230 — Reserves, accruals and other 82 — Total gross deferred tax assets 23,733 19,304 Right-of-use asset ( 215 ) — Property and equipment ( 481 ) ( 46 ) Reserves, accruals and other — ( 49 ) Total deferred tax liabilities ( 696 ) ( 95 ) Less: valuation allowance ( 23,037 ) ( 19,209 ) Deferred tax assets, net $ — $ — Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at March 31, 2025 and 2024, will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at March 31, 2025 and 2024. The net change in the total valuation allowance for the year ended March 31, 2025 and 2024 was an increase of approximately $ 3,828,000 and $ 4,387,000 respectively. At March 31, 2025, the Company had net operating loss carryforwards (“NOLs”) of approximately $ 45,556,000 for federal income tax purposes and $ 68,499,000 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 $ 2,600,000 , which will begin expiring at various times from 2038 through 2045, and state research and development credits of approximately $ 1,074,000 , which do not have an expiration date. Internal Revenue Code Sections 382 and 383 place a limitation on the amount of net operating loss and income tax credit carryforwards that can offset taxable income after a change in control (generally a greater than 50 % change in ownership) of a loss corporation. Most states have similar rules. Due to these “change in ownership” provisions, utilization of the net operating loss carryforwards may be subject to an annual limitation regarding their utilization against taxable income. F- 18 The Company’s unrecognized tax benefits were as follows (in thousands): Year Ended March 31, 2025 2024 Beginning balance — — Additions based on tax positions related to the current year $ 405 — Additions for tax positions of prior years 699 — Ending balance $ 1,104 — There are no unrecognized tax benefits that, if recognized, would impact the Company's effective tax rate. The Company's policy is to include interest and penalties related to unrecognized tax benefits within the Company's provision for income taxes. As of March 31, 2025, the Company had no accrual for interest and penalties related to unrecognized tax benefits. The Company does not expect any unrecognized tax benefits to be recognized within the next 12 months. The Company files U.S. federal and various state income tax returns. The Company is not currently under audit by any taxing authorities. The federal and state income tax returns are generally subject to examination for tax years 2022 through 2024. The statute of limitations for U.S. net operating losses and research and development tax credit carryovers begin to toll in the year they are used; therefore, all carryovers are subject to examination. 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 years ended March 31, 2025 and 2024 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 March 31, 2025, the Company had outstanding purchase orders for machinery and equipment and related expenditures of approximately $ 1,500,000 . 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, 2025, the Company had a remaining obligation under the device integration agreement of approximately $ 400,000 over three years for technology license fees. NOTE 8 – BUSINESS SEGMENTS, CONCENTRATIONS OF CREDIT RISKS AND SIGNIFICANT CUSTOMER Segment Information The Company determines its reporting units in accordance with ASC No. 280, Segment Reporting (“ASC 280”), as amended by ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which the Company adopted effective March 31, 2025. Management evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company’s chief executive officer is the chief operating decision maker (the “CODM”), and the CODM evaluates financial performance and makes operating decisions about allocating resources based on financial data presented on a consolidated basis, including consolidated net income (loss). Because the CODM evaluates financial performance on a consolidated basis, the Company operates and manages its business as one reportable and operating segment as a medical device company focused on the design, development and eventual commercialization of innovative insulin pumps using modernized technology. The measure of segment assets is reported on the balance sheet as total consolidated assets. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments. F- 19 Significant segment expenses include research and development expenditures, salaries and benefits, and stock-based compensation. Operating expenses include all remaining costs necessary to operate the Company’s business, which primarily include facilities, external professional services and other administrative expenses. The following table presents the significant segment expenses and other segment items regularly reviewed by the CODM: March 31, 2025 2024 (in thousands) Research and development $ 4,090 $ 4,786 Compensation 8,108 6,431 Stock-based compensation 2,385 2,700 Other operating expenses 4,465 3,612 Other income and expense ( 224 ) ( 59 ) Net loss $ 18,824 $ 17,470 Concentrations 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 . No reserve has been made in the financial statements for any possible loss due to financial institution failure. The following table lists significant vendors that represented more than 10 % of the Company’s total accounts payable balance at each respective balance sheet date: March 31, 2025 2024 Vendor A 13 % 40 % Vendor B 12 % * Vendor C 10 % * * Represents less than 10 % NOTE 9 – RELATED PARTY TRANSACTIONS Manchester Management Company, LLC (“MMC”), as the general partner of Manchester Explorer, L.P. (“Explorer”), combined with the holdings of its affiliates, JEB Partners LP, James Besser and Morgan Frank, owned approximately 9 % of the Company’s outstanding shares of common stock at March 31, 2025. Mr. Besser is the Company’s chief executive officer and a managing member of MMC. Mr. Frank is a member of the Company’s Board, and he serves as the portfolio manager of Explorer and as a managing member of MMC. Explorer purchased 900,000 shares in the February 2024 Offering for aggregate gross proceeds to the Company of $ 990,000 . Explorer purchased 166,666 shares in the November 2024 Offering for aggregate gross proceeds to the Company of $ 250,000 . In March 2025, Explorer purchased 260,416 units in the 2025 Placement for aggregate gross proceeds to the Company of $ 500,000 . In addition, Mr. Besser purchased 78,125 units in the 2025 Placement for aggregate gross proceeds to us of approximately $ 150,000 . Two members of the Board purchased a total of 35,937 Units in the 2025 Placement for gross proceeds to the Company of $ 69,000 . In May 2023, a member of the Board purchased a total 117,300 shares of common stock in the 2023 Offering for gross proceeds to the Company of $ 249,210 . The daughter of an executive officer is an employee of the Company. During the years ended March 31, 2025 and 2024, the Company paid her approximately $ 169,000 and $ 137,000 , respectively, which includes the aggregate grant date fair values, as determined pursuant to FASB ASC Topic 718, of stock options granted during each year. F- 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.