UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended Quarterly Period Ended JuneSeptember 30, 2023

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition periodTransition Period from                                                                   to                                                              

 

Commission file number: 000-49671

 

MODULAR MEDICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada 87-0620495
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer
Identification No.)

 

10740 Thornmint Road, San Diego, CA 92127
(Address of Principal Executive Offices) (Zip Code)

10740 Thornmint Road, San Diego, CA 92127

(Address of Principal Executive Offices) (Zip Code)

 

(858) 800-3500
(Registrant’s telephone number, including area code)

(858) 800-3500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading symbol(s) Name of each exchange on
which registered
Common Stock Par Value $.001 per Share MODD The Nasdaq Stock Market, LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Yes ☒ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-acceleratednon- accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filerAccelerated filer
Non-accelerated FilerSmaller reporting company
Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 21,095,19821,123,726 as of August 10,November 3, 2023.

 

 

 

 

 

 

MODULAR MEDICAL, INC.

FORM 10-Q

JUNESEPTEMBER 30, 2023

 

TABLE OF CONTENTS

 

PART I —FINANCIAL INFORMATION1
Item 1.Financial Statements (Unaudited):1
Condensed Consolidated Balance Sheets as of JuneSeptember 30, 2023 and March 31, 20231
Condensed Consolidated Statements of Operations for the three and six months ended JuneSeptember 30, 2023 and June 30, 20222
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended JuneSeptember 30, 2023 and 20223
Condensed Consolidated Statements of Cash Flows for the threesix months ended JuneSeptember 30, 2023 and 20224
Notes to Condensed Consolidated Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations13
Item 4.Controls and Procedures16
PART II —OTHER INFORMATION17
Item 1.Legal Proceedings17
Item 1A.Risk Factors17
Item 2.Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities17
Item 3.Defaults Upon Senior Securities17
Item 4.Mine Safety Disclosures17
Item 4.5.Mine Safety DisclosuresOther Information17
Item 5.6.Other InformationExhibits1718
Item 6.Exhibits18
Signatures19

 

i

 

 

Part I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Modular Medical, Inc.

Condensed Consolidated Balance Sheets


(In thousands, except par value)

 

 September 30,   
 June 30,
2023
(Unaudited)
  March 31,
2023
  2023
(Unaudited)
  March 31,
2023
 
ASSETS           
CURRENT ASSETS          
Cash and cash equivalents $9,952  $3,799  $6,330  $3,799 
Prepaid expenses and other  183   147   133   147 
Security deposit  100   100      100 
TOTAL CURRENT ASSETS  10,235   4,046   6,463   4,046 
                
Property and equipment, net  2,036   1,721   2,286   1,721 
Right of use asset, net  1,395   1,478   1,310   1,478 
TOTAL NON-CURRENT ASSETS  3,431   3,199   3,596   3,199 
                
TOTAL ASSETS $13,666  $7,245  $10,059  $7,245 
                
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                
CURRENT LIABILITIES                
Accounts payable $473  $285  $546  $285 
Accrued expenses  198   339   216   339 
Short-term lease liabilities  339   355   350   355 
TOTAL CURRENT LIABILITIES  1,010   979   1,112   979 
                
LONG-TERM LIABILITIES                
Long-term lease liabilities  1,100   1,190   1,009   1,190 
TOTAL LIABILITIES  2,110   2,169   2,121   2,169 
                
Commitments and Contingencies (Note 7)                
                
STOCKHOLDERS’ EQUITY                
Preferred Stock, $0.001 par value, 5,000 shares authorized, none issued and outstanding            
Common Stock, $0.001 par value, 50,000 shares authorized; 21,095 and 10,949 shares issued and outstanding as of June 30, 2023 and March 31, 2023, respectively  21   11 
Common Stock, $0.001 par value, 50,000 shares authorized; 21,124 and 10,949 shares issued and outstanding as of September 30, 2023 and March 31, 2023, respectively  21   11 
Additional paid-in capital  63,731   53,524   64,296   53,524 
Accumulated deficit  (52,196)  (48,459)  (56,379)  (48,459)
TOTAL STOCKHOLDERS’ EQUITY  11,556   5,076   7,938   5,076 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $13,666  $7,245  $10,059  $7,245 

 

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

 


 

 

Modular Medical, Inc.

Condensed Consolidated Statements of Operations
(Unaudited)

(In thousands, except per share data)

 

  Three Months Ended
June 30,
 
  2023  2022 
Operating expenses      
Research and development  2,604   2,222 
General and administrative  1,147   1,277 
Total operating expenses  3,751   3,499 
Loss from operations  (3,751)  (3,499)
         
Other income  14    
         
Net loss $(3,737) $(3,499)
         
Net loss per share        
Basic and diluted $(0.22) $(0.30)
         
Shares used in computing net loss per share        
Basic and diluted  17,099   11,588 

  Three Months Ended  Six Months Ended 
  September 30,  September 30, 
  2023  2022  2023  2022 
Operating expenses            
Research and development $2,980  $2,385  $5,584  $4,607 
General and administrative  1,210   1,064   2,357   2,341 
Total operating expenses  4,190   3,449   7,941   6,948 
Loss from operations  (4,190)  (3,449)  (7,941)  (6,948)
Other income  9   1   23   1 
Loss before income taxes  (4,181)  (3,448)  (7,918)  (6,947)
Provision for income taxes  2   2   2   2 
Net loss $(4,183) $(3,450) $(7,920) $(6,949)
Net loss per share                
Basic and diluted $(0.19) $(0.28) $(0.40) $(0.58)
Shares used in computing net loss per share                
Basic and diluted  22,445   12,263   19,786   11,929 

 

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

 


 

 

Modular Medical, Inc.

Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)

(In thousands)

 

      Additional      
 Common Stock  Paid-In  Accumulated  Stockholders’  Common Stock  Additional
Paid-In
  Accumulated  Stockholders’ 
 Shares  Amount  Capital  Deficit  Equity  Shares  Amount  Capital  Deficit  Equity 
Balance as of March 31, 2023  10,949  $11  $53,524  $(48,459) $5,076   10,949  $11  $53,524  $(48,459) $5,076 
Issuance of common stock and warrants in equity offering, net  10,139   10   9,723      9,733   10,139   10   9,723      9,733 
Issuance of common stock under equity incentive plan  7      6      6   7      6      6 
Stock-based compensation        478      478         478      478 
Net loss           (3,737)  (3,737)           (3,737)  (3,737)
Balance as of June 30, 2023  21,095  $21  $63,731  $(52,196) $11,556   21,095   21   63,731   (52,196)  11,556 
Shares issued for services  2      1      1 
Issuance of common stock under equity incentive plan  27      7      7 
Stock-based compensation        557      557 
Net Loss           (4,183)  (4,183)
Balance as of September 30, 2023  21,124  $21  $64,296  $(56,379) $7,938 

 

      Additional      
 Common Stock  Paid-In  Accumulated  Stockholders’  Common Stock  Additional
Paid-In
  Accumulated  Stockholders’ 
 Shares  Amount  Capital  Deficit  Equity  Shares  Amount  Capital  Deficit  Equity 
Balance as of March 31, 2022  10,462  $11  $43,406  $(34,580) $8,837   10,462  $11  $43,406  $(34,580) $8,837 
Shares issued for services        1      1         1      1 
Issuance of common stock and warrants in equity offering, net  449      7,372      7,372   449      7,372      7,372 
Issuance of common stock under equity incentive plan  3      14      14   3      14      14 
Stock-based compensation        725      725         725      725 
Net loss           (3,499)  (3,499)           (3,499)  (3,499)
Balance as of June 30, 2022  10,914  $11  $51,518  $(38,079) $13,450   10,914  $11  $51,518  $(38,079) $13,450 
Issuance of common stock under equity Incentive plan  11      51      51 
Stock-based compensation        692      692 
Net loss           (3,450)  (3,450)
Balance as of September 30, 2022  10,925  $11  $52,261  $(41,529) $10,743 

 

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

 


 

 

Modular Medical, Inc.

Condensed Consolidated Statements of Cash Flows
(Unaudited)

(Unaudited)

(In thousands)

 

 Six Months Ended 
 Three Months Ended
June 30,
  September 30, 
 2023  2022  2023  2022 
CASH FLOWS FROM OPERATING ACTIVITIES           
Net loss $(3,737) $(3,499) $(7,920) $(6,949)
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-based compensation expense  484   739   1,048   1,481 
Depreciation and amortization  58   29   153   60 
Shares for services  5   51   11   101 
Changes in assets and liabilities:                
Other assets and prepaid expenses  (40)  2   105   50 
Lease right-of-use asset  83   22   168   45 
Accounts payable and accrued expenses  46   16   137   (244)
Lease liabilities  (106)  (35)  (186)  (70)
Net cash used in operating activities  (3,207)  (2,675)  (6,484)  (5,526)
                
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchases of property and equipment  (373)  (76)  (718)  (81)
Net cash used in investing activities  (373)  (76)  (718)  (81)
                
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from issuance of common stock and warrants, net.  9,733   7,372 
Proceeds from issuance of common stock and warrants, net  9,733   7,372 
Net cash provided by financing activities  9,733   7,372   9,733   7,372 
                
Net increase in cash and cash equivalents  6,153   4,621   2,531   1,765 
                
Cash and cash equivalents at beginning of period  3,799   9,076   3,799   9,076 
        
Cash and cash equivalents at end of period $9,952  $13,697  $6,330  $10,841 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


 

 

MODULAR MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

 

NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Modular Medical, Inc. (the Company) was incorporated in Nevada in October 1998 under the name Bear Lake Recreation, Inc. The Company had no material business operations from 2002 until approximately 2017 when it acquired all of the issued and outstanding shares of Quasuras, Inc., a Delaware corporation (Quasuras). As the major shareholder of Quasuras retained control of both the Company and Quasuras, the share exchange was accounted for as a reverse merger. As such, the Company recognized the assets and liabilities of Quasuras, acquired in the merger, at their historical carrying amounts. Prior to the acquisition of Quasuras and, since at least 2002, the Company was a shell company, as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the Exchange Act). In June 2017, the Company changed its name from Bear Lake Recreation, Inc. to Modular Medical, Inc.

 

The Company is a development stage medical device company focused on the design, development and eventual commercialization of an innovative insulin pump using modernized technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product, candidate, or MODD1, the Company seeks to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of care that presently available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription, reimbursement, training and day-to-dayday-to- day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated “super users” and expand the category into the mass market. The product candidate seeks to serve both the type 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets.

 

In February 2022, the Company completed a public offering of its equity securities, and its common stock was approved to list on the Nasdaq Capital Market under the symbol “MODD” and began trading there on February 10, 2022.

 

Liquidity and Going Concern

 

The Company expects to continue to incur operating losses for the foreseeable future and incur cash outflows from operations as it continues to invest in the development and subsequent commercialization of its product. The Company expects that its research and development and general and administrative expenses will continue to increase, and, as a result, it will eventually need to generate significant revenue to achieve profitability. The Company’s expected operating losses and cash burn raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. These consolidated financial statements do not include any adjustments that might result from this uncertainty. Implementation of the Company’s plans and its ability to continue as a going concern will depend upon the Company’s ability to raise additional capital, through the sale of additional equity or debt securities, to support its future operations. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to the Company. As discussed in Note 4, in May 2023, the Company completed an offering of its common stock and warrants.

 

The Company’s operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures. The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s ability to successfully commercialize its product, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement its product offering. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash.

 


 

 

Basis of Presentation

 

The Company’s fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2024 refers to the fiscal year ending March 31, 2024). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Quasuras. All significant intercompany transactions and balances have been eliminated in consolidation.

 

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and with the rules and regulations of the United States Security and Exchange Commission (SEC) regarding interim financial reporting. The condensed consolidated balance sheet as of March 31, 2023 has been derived from the audited consolidated financial statements at that date. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with these rules and regulations of the SEC. The information in this report should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the threesix months ended JuneSeptember 30, 2023 are not necessarily indicative of the results that may be expected for the year ending March 31, 2024 or for any other future period.

 

Use of Estimates

 

The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Estimates may include those pertaining to accruals, stock-based compensation, and income taxes. Actual results could differ from those estimates.

 

Reportable Segment

 

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

 

Research and Development

 

The Company expenses research and development expenditures as incurred.

 

General and Administrative

 

General and administrative expenses consist primarily of payroll and benefit costs, rent, stock-based compensation, legal and accounting fees, and office and other administrative expenses.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash. The Company maintains its cash at a high-credit quality financial institution within the United States, which is insured by the Federal Deposit Insurance Corporation (FDIC) up to limits of approximately $250,000. No reserve has been made in the financial statements for any possible loss due to financial institution failure.

 


 

 

Risks and Uncertainties

 

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

Recent Economic Disruptions

 

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel, and transportation, resulted in mandated closures and orders to “shelter-in- place” and created significant disruption of the financial markets. While the U.S. national emergency expired in May 2023 and substantially all closures and “shelter-in-place” orders have ended, there can be no assurance that the COVID-19 pandemic will not impact the Company’s operational and financial performance in the future, as the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread are uncertain, out of our control, and cannot be predicted.

 

The continued spreadWars and acts of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February 2022 hasterrorism have led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains elevated. While the Company was recently able to access the capital markets, in the future, the Company may be unable to access the capital markets, and additional capital may only be available to the Company on terms that could be significantly detrimental to its existing stockholders and to its business.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.

 

Property and Equipment

 

Property and equipment are recorded at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation is recorded in operating expenses in the consolidated statements of operations. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life or the lease term, and amortization is recorded in operating expenses in the consolidated statements of operations. Construction-in-process includes machinery and equipment and is stated at cost and not depreciated. Depreciation on construction-in-process commences when the assets are ready for their intended use and placed into service.

 

Fair Value of Financial Instruments

 

The Company measures the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

Due to their short-term nature, the carrying values of cash equivalents, accounts payable and accrued expenses, approximate fair value.

 

Leases

 

The Company’s right-of-use assets consist of leased assets recognized in accordance with FASB ASC No. 842, Leases, which requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and the lease liability represents the Company’s obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term in the consolidated statement of operations and comprehensive loss. The Company determines the lease term by agreement with the lessor. In cases where the lease does not provide an implicit interest rate, the Company uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

 


 

 

Stock-Based Compensation

 

The Company recognizes stock-based compensation for equity awards granted to employees and non-employees on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value. The Company estimates the value of stock options on the date of grant using the Black-Scholes pricing model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the option price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and projected stock option exercise behaviors.

 

Per-Share Amounts

 

Basic net loss per share is computed by dividing loss for the period by the weighted-average number of shares of common stock outstanding (WASO) during the period. In addition, the Company includes the number of shares of common stock issuable under pre-funded warrants as outstanding. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock options and exercise of warrants.

 

Prior to April 1, 2023, the Company excluded pre-funded warrants from the computation of WASO. The pre-fundedpre- funded warrants are now included in the computation of WASO. Prior period amounts have been conformed to the current-period presentation. The impact of the change reduced the previously reported loss per share by $0.03$0.04 and $0.06, respectively, and increased WASO by approximately 844,0001,348,000 and 1,098,000 shares, respectively, for the three and six months ended JuneSeptember 30, 2022. The reclassification had no impact on the Company'sCompany’s net loss or cash flows for the three or six months ended JuneSeptember 30, 2022.

 

For the threesix months ended JuneSeptember 30, 2023 and 2022, the following table sets forth securities outstanding which were excluded from the computation of diluted net loss per share as their inclusion would be anti-dilutiveanti- dilutive (in thousands).

 

 Three Months Ended
June 30,
  Six Months Ended
September 30,
 
 2023  2022  2023  2022 
Options to purchase common stock  2,824   1,820   2,913   2,030 
Unvested restricted stock units  229    
Common stock purchase warrants  11,997   6,217   11,892   6,217 
Total  14,821   8,037   15,034   8,247 

 

Reclassifications

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.

 

Comprehensive Loss

 

Comprehensive loss represents the changes in equity of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes in equity that are excluded from net loss. For the three and six months ended JuneSeptember 30, 2023 and 2022, the Company’s comprehensive loss was the same as its net loss.

 

Recently Issued Accounting Pronouncement

 

In June 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses. This ASU added a new impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted ASU No. 2016-13 effective April 1, 2023, and the adoption had no impact on the Company’s results of operations and financial position.

 


 

 

NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL

 

  

June 30,

2023

  

March 31,

2023 

 
  (in thousands) 
Property and equipment, net      
Machinery and equipment $1,171  $820 
Computer equipment and software  66   66 
Construction-in-process  1,018   1,003 
Leasehold improvements  33   25 
Office equipment  63   63 
   2,351   1,977 
Less:  accumulated depreciation and amortization  (315)  (256)
Total property and equipment, net $2,036  $1,721 

  September 30,
2023
  March 31,
2023
 
Property and equipment, net (in thousands) 
Machinery and equipment $2,372  $820 
Computer equipment and software  66   66 
Construction-in-process  161   1,003 
Leasehold improvements  33   25 
Office equipment  63   63 
   2,695   1,977 
Less: accumulated depreciation and amortization  (409)  (256)
Total property and equipment, net $2,286  $1,721 

 

 

June 30,

2023

 

March 31,

2023 

 
 (in thousands)  September 30,
2023
  March 31,
2023
 
Accrued expenses      (in thousands) 
Accrued wages and employee benefits $198  $267  $191  $267 
Other     72   25   72 
 $198  $339  $216  $339 

 

NOTE 3 – LEASES

W. Bernardo Drive, San Diego, CA

 

The 39-month lease term expired on June 30, 2023, and, upon expiration, the Company had a $100,000 security deposit receivable from the landlord.landlord, which was refunded to the Company during the three months ended September 30, 2023.

Thornmint Road, San Diego, CA

 

The 48-month lease term commenced February 1, 2023, and the lease provides for an initial base monthly rent of $36,000 with annual rent increases of approximately 4%. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance, and other certain operating costs. A discount rate of 8%, which approximated the Company’s incremental borrowing rate, was used to measure the lease asset and liability. The Company obtained a right-of-use asset of approximately $1,560,000 in exchange for its obligations under the operating lease.

 

Future minimum payments under the facility operating lease, as of JuneSeptember 30, 2023, are listed in the table below (in thousands).

 

Annual Fiscal Years Operating Lease  Operating Lease 
2024 $327  $      219 
2025  452   452 
2026  470   470 
2027  405   405 
Total future lease payments $1,654  $1,546 
Less: Imputed interest  (215)  (187)
Present value of lease liability $1,439  $1,359 

 

Cash paid for amounts included in the measurement of lease liabilities was approximately $149,000$257,000 and $40,000$79,000 for the threesix months ended JuneSeptember 30, 2023 and 2022, respectively. Rent expense was approximately $112,000$225,000 and $54,000 for the six months ended September 30, 2023 and 2022, respectively and $113,000 and $27,000 for the three months ended JuneSeptember 30, 2023 and 2022, respectively.

 


 

 

NOTE 4–4 – STOCKHOLDERS’ EQUITY

 

May 2023 Public Offering

 

On May 15, 2023, the Company entered into an underwriting agreement (the Underwriting Agreement) with Newbridge Securities Corporation (the Underwriter), with respect to the issuance and sale in a firm commitment underwritten offering (the 2023 Offering) by the Company of units of its securities for aggregate gross proceeds of approximately $9,390,000, before deducting underwriting discounts and commissions and other offering expenses. The Company sold 8,816,900 shares of its common stock and warrants to purchase 4,408,450 shares of its common stock. The securities were sold as a unit, with each unit consisting of two shares of common stock of the Company and one warrant (the 2023 Warrant) to purchase one share of common stock, at a public offering price of $2.13 per unit. The 2023 Warrants were immediately separable and exercisable, had a per share exercise price of $1.22 and expire five years from the date of issuance. The 2023 Offering closed on May 18, 2023.

 

Pursuant to the Underwriting Agreement, the Company granted the Underwriter a 30-day option to purchase up to an additional 1,322,534 shares of common stock and an additional 661,267 of the 2023 Warrants to cover over-allotments, if any. On May 25, 2023, the Underwriter exercised in full this option and purchased the additional securities for aggregate gross proceeds to the Company of approximately $1,408,000, before deducting underwriting discounts and commissions and other offering expenses.

 

The Underwriter was paid a cash fee of 7.0% of the aggregate gross proceeds of the 2023 Offering (including the over-allotment option) and reimbursed certain out-of-pocket expenses of approximately $125,000. In addition, pursuant to the Underwriting Agreement, the Company initially issued to the Underwriter common stock purchase warrants (the UW Warrants) for 617,183a total of 709,760 shares. Subsequently, the UW Warrants were reissued to the Underwriter and 92,577 shares dated May 15, 2023 and May, 25, 2023, respectively.its agents for a total of 604,623 shares. The UW warrants are exercisable six months from the respective issuance datedates and have a four-year term and a per share exercise price of $1.32.

 

The Underwriting Agreement contains customary representations, warranties and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriter, including for liabilities under the Securities Act of 1933, as amended, other obligations of the parties and termination provisions. In addition, pursuant to the terms of the Underwriting Agreement and related “lock-up” agreements, the Company, each director and executive officer of the Company, and certain stockholders have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 90 days after May 17, 2023.

 

Warrants

 

As of JuneSeptember 30, 2023, the Company had the following warrants outstanding (share amounts in thousands):

 

Type Number of Shares  Exercise Price  Expiration
Common stock  1,348  $0.01  
Common stock  768   6.00  January 2027 - February 2027
Common stock  4,011   6.60  February 2027
Common stock  1,438   6.60  November 2027
Common stock  

710

   

1.32

  

May 2027

Common stock  5,070   1.22  May 2028
Total  13,345       

The 1,348,000 pre-funded warrants were included in the weighted average shares outstanding calculation for the three and six months ended June 30, 2023 and 2022, respectively.

Type Number of Shares  Exercise Price  Expiration 
Common stock  1,348  $0.01    
Common stock  768  $6.00   January 2027 - February 2027 
Common stock  4,011  $6.60   February 2027 
Common stock  1,438  $6.60   November 2027 
Common stock  605  $1.32   May 2027 
Common stock  5,070  $1.22   May 2028 
Total  13,240         

 

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

 

Type Number of Shares  Exercise Price  Expiration
Common stock  1,348  $0.01  
Common stock  768   6.00  January 2027 - February 2027
Common stock  4,011   6.60  February 2027
Common stock  1,438   6.60  November 2027
Total  7,565       

Type Number of Shares  Exercise Price  Expiration 
Common stock  1,348  $0.01    
Common stock  768  $6.00   January 2027 - February 2027 
Common stock  4,011  $6.60   February 2027 
Common stock 1,438  $6.60   November 2027 
Total  7,565         

 

Other

 

During the threesix months ended JuneSeptember 30, 2023 and 2022, the Company issued 1,429 and 348 shares of common stock with a fair valuevalues of approximately $1,400 and $1,000, respectively, to a service provider.

 


 

 

NOTE 5 – STOCK-BASED COMPENSATION

 

Amended 2017 Equity Incentive Plan

 

In October 2017, the BoardCompany’s board of directors (the Board) approved the 2017 Equity Incentive Plan (the Plan), as amended, with 1,000,000 shares of common stock reserved for issuance. In January 2020 and August 2021, the Board approved an increase in the number of shares reserved for issuance by 333,334 and 1,333,334 shares, respectively. In January 2023, the Company’s stockholders approved an increase in the number of shares reserved for issuance under the plan by an additional 2,000,000 shares. Under the Plan, eligible employees, directors, and consultants may be granted a broad range of awards, including stock options, stock appreciation rights, restricted stock, performance-based awards, and restricted stock units.units (RSUs). The Plan is administered by the Board or, in the alternative, a committee designated by the Board.

 

Stock-Based Compensation Expense

 

The expense relating to stock options is recognized on a straight-line basis over the requisite service period, usually the vesting period, based on the grant date fair value. As of JuneSeptember 30, 2023, the unamortized compensation cost was approximately $3,084,000$2,645,000 related to stock options and is expected to be recognized as expense over a weighted-average period of approximately 1.901.7 years.

 

During the three months ended JuneSeptember 30, 2023, the Company granted 6,375issued 6,265 shares to members of the Board in accordance with the OD Planits outside director compensation plan and recorded approximately $6,000$7,000 of stock-based compensation expense for these grants. During the three months ended June 30, 2023, the Company granted options with 10-year terms to purchase 373,375 shares of its common stock to employees, directors and consultants.share awards.

 

The weighted-average grant date fair value of options granted was $1.00 and $4.26$4.17 per share for the six months ended September 30, 2023 and 2022, respectively, and $1.02 and $4.06 for the three months ended JuneSeptember 30, 2023 and 2022, respectively. The following assumptions were used in the fair-value method calculations:

 

  Three Months Ended, June 30,   

Three Months Ended
September 30,

   

Six Months Ended

September 30,

 
  2023   2022   2023   2022   2023   2022 
Risk-free interest rates  3.51 %-4.13%  2.82% - 3.25%  4.4% - 4.60%  3.0% - 4.1%  3.5% - 4.6%  2.8% - 4.1%
Volatility  83% -152%  159% - 223%  126.7% - 127.4%  156% - 159%  82.6% - 152.2%  156% - 223%
Expected life (years)  5.0 - 6.1   5.0 - 6.0   5.0 – 5.7   5.0 – 5.7   5.0 – 6.2   5.0 – 5.7 

 

The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified methods to establish the fair term of options, as well as average volatility. The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. A dividend yield of zero was applied because the Company has never paid dividends and has no intention to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur.

 

A summary of stock optionThe following table summarizes the activity in the shares available for grant under the Plan is presented below:during the six months ended September 30, 2023:

 

     Options Outstanding 
        Weighted 
  Shares     Average 
  Available  Number of  Exercise 
  for Grant  Shares  Prices 
Balance at March 31, 2023  2,132,292   2,481,090  $5.19 
Options granted  (373,375)  373,375   1.27 
Share awards  (6,375)      
Options cancelled and returned to the Plan  30,272   (30,272)  4.29 
Balance at June 30, 2023  1,782,814   2,824,193  $4.67 

     Options Outstanding 
  Shares     Weighted
Average
 
  Available
for Grant
  Number of
Shares
  Exercise
Prices
 
Balance at March 31, 2023  2,132,292   2,481,090  $5.19 
Options granted  (373,375)  373,375   1.27 
Share awards  (6,375)      
Options cancelled and returned to the Plan  30,272   (30,272)  4.29 
Balance at June 30, 2023  1,782,814   2,824,193   4.68 
Options granted  (101,875)  101,875   1.16 
Share awards  (6,265)      
RSUs granted  (250,000)      
Options cancelled and returned to the Plan  13,404   (13,404)  9.05 
Balance at September 30, 2023  1,438,078   2,912,664  $4.54 

 


 

 

There were no stock options exercised during the threesix months ended JuneSeptember 30, 2023 and 2022.

A summary of RSU activity under the Plan is presented below.

  Number
of Shares
  

Weighted
Average
Grant-Date

Fair Value

 
Balance at March 31, 2023    $ 
Granted  250,000  $0.91 
Vested  (20,834) $0.91 
Non-vested shares as of September 30, 2023  229,166  $0.91 

The total intrinsic value of the RSUs outstanding as of September 30, 2023 was approximately $266,000. The unamortized compensation cost at September 30, 2023 was approximately $209,000 related to RSUs and is expected to be recognized as expense over a period of approximately 2.75 years.

 

The following table summarizes the range of outstanding and exercisable options as of JuneSeptember 30, 2023:

  Options Outstanding  Options Exercisable 
Range of Exercise Price Number
Outstanding
  Weighted
Average
Remaining
Contractual
Life
(in Years)
  Weighted
Average
Exercise
Price
  Number
Exercisable
  Weighted
Average
Exercise
Price
  Aggregate
Intrinsic
value
 
$0.93 - $2.00  1,285,475   8.14  $1.75   540,308  $1.86    
$3.95 - $7.51  1,017,087   7.85  $5.39   677,372  $5.97    
$8.61 - $17.70  521,631   7.99  $10.53   411,005  $11.21    
$0.93 - $17.70  2,824,193   8.01  $4.67   1,628,685  $5.78    

  

Options Outstanding

  

Options Exercisable

 
Range of Exercise Price Number
Outstanding
  

Weighted

Average
Remaining
Contractual
Life
(in Years)

  Weighted
Average
Exercise
Price
  Number
Exercisable
  Weighted
Average
Exercise
Price
  Aggregate
Intrinsic
value
 
$0.93 - $2.00  1,387,350   8.04  $1.71   572,183  $1.82  $7,331 
$3.95 - $7.51  1,016,184   7.59  $5.39   769,831  $5.76    
$8.61 - $17.70  509,130   7.73  $10.53   424,320  $10.71    
$0.93 - $17.70  2,912,664   7.83  $4.54   1,766,334  $5.64  $

7,331

 

 

The intrinsic value per share is calculated as the excess of the closing price of the common stock on the Company’s principal trading market over the exercise price of the option.

 

NOTE 6 – INCOME TAXES

 

The Company determines deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized. Based on the available information and other factors, management believes it is more likely than not that its federal and state net deferred tax assets will not be fully realized, and the Company has recorded a full valuation allowance.

 

The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. All tax returns for fiscal 2016 to fiscal 2023 may be subject to examination by the U.S. federal and state tax authorities. As of JuneSeptember 30, 2023, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Litigations, Claims and Assessments

 

In the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.

Indemnification

 

In the ordinary course of business, the Company enters into contractual arrangements under which it may agree to indemnify the counterparties from any losses incurred relating to breach of representations and warranties, failure to perform certain covenants, or claims and losses arising from certain events as outlined within the particular contract, which may include, for example, losses arising from litigation or claims relating to past performance. Such indemnification clauses may not be subject to maximum loss clauses. The Company has also entered into indemnification agreements with its officers and directors. No amounts were reflected in the Company’s consolidated financial statements for the threesix months ended JuneSeptember 30, 2023 and 2022 related to these indemnifications. The Company has not estimated the maximum potential amount of indemnification liability under these agreements due to the limited history of prior claims and the unique facts and circumstances applicable to each particular agreement. To date, the Company has not made any payments related to these indemnification agreements.

Purchase Obligations

 

The Company’s primary purchase obligations include purchase orders for machinery and equipment. At JuneSeptember 30, 2023, the Company had outstanding purchase orders for machinery and equipment and related expenditures of approximately $566,000.$996,000.

 


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (this Report). This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising efforts, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on June 26, 2023 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2023. These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation, the direct and indirect effects of coronavirus disease 2019, or COVID-19, as well as inflationary risks, including the risk that the cost of certain of the Company’s components is increasing, and related issues that may arise therefrom. Many of those factors are outside of our control and could cause actual results to differ materially from those expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.

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 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, Inc. and its consolidated subsidiary.subsidiary.

 

Company Overview

We are a development-stage medical device company focused on the design, development and commercialization of an innovative insulin pump using modernized technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product, 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.

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, we believe we have adequate cashsubstantial doubt about our ability to continue as a going concern for a period of at least one year from the next 12 months.date that the financial statements included in this Report are issued exists. Our long-term ability to continue as a going concern depends on our ability to raise additional capital, likely 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.

 


 

 

Recent Economic Disruptions

 

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in- place” and created significant disruption of the financial markets. While the U.S. national emergency expired in May 2023 and substantially all closures and “shelter-in-place” orders have ended, there can be no assurance that the COVID-19 pandemic will not impact 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.

 

The continued spreadWars and acts of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February 2022 hasterrorism have led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains elevated. While we were able to access the capital markets in May 2023 and 2022, 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.

 

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

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2023. As of JuneSeptember 30, 2023, there have been no material changes to our significant accounting policies and estimates.

 

Results of Operations

Research and Development

 

  Three months ended
June 30,
  Change 
  (dollar amounts in thousands) 
  2023  2022  2022 to 2023 
Research and development $2,604  $2,222  $382   17.2%
  September 30,  Change 
  (dollar amounts in thousands) 
  2023  2022  2022 to 2023 
Research and development – Three months ended $2,980  $2,385  $595   24.9%
Research and development – Six months ended $5,584  $4,607   977   21.2%

 

Our research and development expenses include personnel, overhead and other costs associated with the development and initial production of our insulin pump product.products. We expense research and development costs as they are incurred.

 

Research and development, or R&D, expenses increased for fiscal 2024the three months ended September 30, 2023 compared with the same period of fiscal2022, primarily due to increased employee-related costs of approximately $377,000, increased material costs of approximately $165,000 and increased consulting expenses of approximately $41,000. The increases in material and consulting costs were primarily attributable to pre-submission activities, as we are producing units and incurring testing costs in anticipation of the 510(k) submission of our pump product to the U.S. Food and Drug Administration, or FDA.

R&D expenses increased for the six months ended September 30, 2023 compared with the same period of 2022, primarily due to increased employee-related costs of approximately of $410,000,$786,000, an increase of approximately $50,000$61,000 in stock-based compensation expense and inan increase in materials costs of $177,000.$342,000. These increases were partially offset by an approximately $255,000$213,000 decrease in consulting costs, as we have increased our employee headcount and completed development of our pump product. The increase in material costs were primarily attributable to pre-submission activities, as we are producing units and incurring testing costs in anticipation of our 510(k) submission to the FDA.

Our full-time R&D employee headcount increased to 3435 at JuneSeptember 30, 2023 from 2328 at JuneSeptember 30, 2022. R&D expenses included stock-based compensation expenses of approximately $366,000$373,000 and $316,000$362,000 for the three-months ended JuneSeptember 30, 2023 and June 30,2022, respectively, and $739,000 and $678,000 for the six months ended September 2023 and 2022, respectively. We expect research and development expenses to remain consistentincrease for the remainder of fiscal 2024.2024, as we expect to incur increased costs in connection with our pre-submission testing for submission of our MODD-1 insulin pump to the FDA.

 


 

 

General and Administrative

  Three months ended
June 30,
  Change 
  (dollar amounts in thousands) 
  2023  2022  2022 to 2023 
General and administrative $1,147  $1,277  $(130)  (10.2)%
  September 30,  Change 
  (dollar amounts in thousands) 
  2023  2022  2022 to 2023 
General and administrative – Three months ended $1,210  $1,064  $146   13.7%
General and administrative – Six months ended $2,357  $2,341  $16   0.7%

 

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

 

General and administrative, expenses, or G&A, decreasedexpenses increased for the three months ended JuneSeptember 30, 2023 compared with the same period of 2022,the prior year, primarily as a result of increases in facility-related expenses of approximately $120,000, marketing-related expenses of approximately $85,000, depreciation expense of approximately $72,000, and employee-related costs of approximately $70,000, as partially offset by a decrease in expenses for stock-based compensation of approximately $190,000 and consulting and professional services of approximately $90,000.

G&A expenses increased for the six months ended September 30, 2023 compared with the same period of the prior year, primarily as a result increases in facility-related costs of approximately $230,000, employee-related costs of approximately $150,000, depreciation expense of approximately $110,000, and marketing-related expenses of approximately $80,000, as partially offset by decreases in stock-based compensation expenses of approximately $305,000$495,000 and consulting and professional services expenses of approximately $70,000, partially offset by increases in facility-related costs of approximately $137,000, employee-related costs of $80,000 and other administrative expenses.$238,000.

Our G&A employee headcount increased to four at September 30, 2023 from two at September 30, 2022. G&A expenses included stock-based compensation expenses of approximately $117,000$191,000 and $422,000$381,000 for the quartersthree months ended JuneSeptember 30, 2023 and June2022, respectively, and $308,000 and $803,000 for the six months ended September 30, 2023 and 2022, respectively. We expect G&A expenses to remain consistent for the remainder of fiscal 2024.

 

Liquidity and Going Concern

 

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 from operations in each year due to costs incurred in connection with R&D activities and G&A expenses associated with our operations. For the threesix months ended JuneSeptember 30, 2023 and year ended March 31, 2023, we incurred net losses of $3.7$7.9 million and $13.9 million, respectively. At JuneSeptember 30, 2023, we had a cash balance of approximately $10.0$6.3 million and an accumulated deficit of $52.2$56.4 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 research and development activities, including clinical studies, 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. In May 2023, we completed a public offering of units, comprising shares of our common stock and warrants to purchase shares of our common stock, for net proceeds of $9.7 million. 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.

 

For the threesix months ended JuneSeptember 30, 2023, we used approximately $3,207,000$6,484,000 in operating activities, which primarily resulted from our net loss of approximately $3,737,000$7,920,000 and net changes in operating assets and liabilities of approximately $17,000,$224,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $484,000,$1,048,000, depreciation and amortization expenses of approximately $58,000$153,000 and other immaterial adjustments. For the threesix months ended JuneSeptember 30, 2022, we used $2,675,000$5,527,000 in operating activities, which primarily resulted from our net loss of $3,499,000,$6,949,000, as adjusted for changes to operating assets and liabilities of approximately $5,000,$194,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $739,000,$1,481,000, approximately $51,000$101,000 for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of approximately $29,000$60,000 and other immaterial adjustments.

 

For the threesix months ended JuneSeptember 30, 2023 and 2022, cash used in investing activities of approximately $373,000$718,000 and $76,000,$81,000, respectively, was for the purchase of property and equipment.

 


 

 

Cash provided by financing activities of $9.7 million for the threesix months ended JuneSeptember 30, 2023 was attributable to net proceeds from the issuance of common stock and warrants in a public offering, net of underwriting fees and issuance costs.which closed in May 2023. Cash provided by financing activities of $7.4 million for the threesix months ended JuneSeptember 30, 2022 was attributable to net proceeds from the issuance of common stock and warrants in a registered direct offering, net of placement agent fees and issuance costs.which closed in May 2022.

Purchase Obligations

 

Our primary purchase obligations include purchase orders for machinery and equipment. At JuneSeptember 30, 2023, we had outstanding purchase orders for machinery and equipment and related expenditures of approximately $566,000.$996,000.

 

Recently Issued Accounting Pronouncements

 

Recently Issued Accounting Pronouncements are detailed in Note 1 in the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Report.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 4. Controls and Procedures

Disclosure Controls and Procedures.

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that, as of JuneSeptember 30, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting.

 

During the three months ended JuneSeptember 30, 2023, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 


 

 

Part II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. To our knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of us or our subsidiary, threatened against or affecting us, our common stock, our subsidiary or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors

 

We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. There are no material changes to the risk factors set forth under Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2023, which we filed with the SEC on June 26, 2023.

 

Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Repurchases of Equity Securities

 

Recent Sales of Unregistered Securities

 

On June 30,September 29, 2023, we issued the following shares of unregistered common stock: i) a total of 6,3756,265 shares of our restricted common stock to four of our non-employee directors in accordance with our Outside Director Compensation Plan.Plan; and ii) 20,834 shares to one of our non-employee directors upon vesting of a restricted stock unit award. On August 14, 2023, we issued 1,428 shares of unregistered common stock to a service provider. The aforementioned issuances were made pursuant to exemptions from registration pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act.

 

Item 3. Defaults Upon Senior Securities

 

There has been no default in the payment of principal, interest, or a sinking or purchase fund installment, or any other material default, with respect to any indebtedness of ours.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 


 

 

Item 6. Exhibits

 

Exhibit   Reference   Filed or Furnished
Number Exhibit Description Form Exhibit Filing Date Herewith
1.1 Form of Underwriting Agreement dated May 15, 2023 S-1/A 1.1 05/12/2023  
4.8 Form of Warrant from the May 2023 Public Offering S-1/A 4.5 05/05/2023  
4.9 Form of Underwriter’s Warrant from the May 2023 Public Offering S-1/A 4.6 05/05/2023  
4.10 Form of Warrant Agency Agreement S-1/A 10.29 05/05/2023  
4.11 Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the Modular Medical, Inc. 2017 Equity Incentive Plan, as amended       X
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002       X
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002       X
101 The following financial information from Modular Medical, Inc.’s quarterly report on Form 10-Q for the period ended June 30, 2023, filed with the SEC on August 14, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and 2022, (ii) the Condensed Consolidated Balance Sheets as of June 30 2023 and March 31, 2023, (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three months ended June 30, 2023 and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2023 and 2022, and (v) Notes to Condensed Consolidated Financial Statements.       

X

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).       X
ExhibitReferenceFiled or
Furnished
NumberExhibit DescriptionFormExhibitFiling DateHerewith
31.1Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002X
31.2Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002X
32.1Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002X
101The following financial information from Modular Medical, Inc.’s quarterly report on Form 10-Q for the period ended September 30, 2023, filed with the SEC on November 13, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2023 and 2022, (ii) the Condensed Consolidated Balance Sheets as of September 30 2023 and March 31, 2023, (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended September 30, 2023 and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022, and (v) Notes to Condensed Consolidated Financial Statements.X
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).X

 


 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MODULAR MEDICAL, INC.
Date: August 14,November 13, 2023By:

/s/s/ James E. Besser

James E. Besser
Chief Executive Officer

(Principal Executive Officer)
By:

/s/s/ Paul DiPerna

Paul DiPerna
Chairman, President, Chief Financial Officer and Treasurer
(Principal Financial Officer)

 

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