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 June 30, 2023
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition 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) |
(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
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
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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 filer ☐ | Accelerated filer ☐ |
Non-accelerated Filer ☒ | Smaller 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 21,095,198 as of August 10, 2023.
MODULAR MEDICAL, INC.
FORM 10-Q
JUNE 30, 2023
TABLE OF CONTENTS
Part I – FINANCIAL INFORMATION
Item 1. Financial
Statements
Modular Medical, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value)
| |
June 30, 2023 (Unaudited) | | |
March 31, 2023 | |
ASSETS | |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash and cash equivalents | |
$ | 9,952 | | |
$ | 3,799 | |
Prepaid expenses and other | |
| 183 | | |
| 147 | |
Security deposit | |
| 100 | | |
| 100 | |
TOTAL CURRENT ASSETS | |
| 10,235 | | |
| 4,046 | |
| |
| | | |
| | |
Property and equipment, net | |
| 2,036 | | |
| 1,721 | |
Right of use asset, net | |
| 1,395 | | |
| 1,478 | |
TOTAL NON-CURRENT ASSETS | |
| 3,431 | | |
| 3,199 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 13,666 | | |
$ | 7,245 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 473 | | |
$ | 285 | |
Accrued expenses | |
| 198 | | |
| 339 | |
Short-term lease liabilities | |
| 339 | | |
| 355 | |
TOTAL CURRENT LIABILITIES | |
| 1,010 | | |
| 979 | |
| |
| | | |
| | |
LONG-TERM LIABILITIES | |
| | | |
| | |
Long-term lease liabilities | |
| 1,100 | | |
| 1,190 | |
TOTAL LIABILITIES | |
| 2,110 | | |
| 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 | |
Additional paid-in capital | |
| 63,731 | | |
| 53,524 | |
Accumulated deficit | |
| (52,196 | ) | |
| (48,459 | ) |
TOTAL STOCKHOLDERS’ EQUITY | |
| 11,556 | | |
| 5,076 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 13,666 | | |
$ | 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 | |
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’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance as of March 31, 2023 | |
| 10,949 | | |
$ | 11 | | |
$ | 53,524 | | |
$ | (48,459 | ) | |
$ | 5,076 | |
Issuance of common stock and warrants in equity offering, net | |
| 10,139 | | |
| 10 | | |
| 9,723 | | |
| — | | |
| 9,733 | |
Issuance of common stock under equity incentive plan | |
| 7 | | |
| — | | |
| 6 | | |
| — | | |
| 6 | |
Stock-based compensation | |
| — | | |
| — | | |
| 478 | | |
| — | | |
| 478 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (3,737 | ) | |
| (3,737 | ) |
Balance as of June 30, 2023 | |
| 21,095 | | |
$ | 21 | | |
$ | 63,731 | | |
$ | (52,196 | ) | |
$ | 11,556 | |
| |
| | |
| | |
Additional | | |
| | |
| |
| |
Common Stock | | |
Paid-In | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Equity | |
Balance as of March 31, 2022 | |
| 10,462 | | |
$ | 11 | | |
$ | 43,406 | | |
$ | (34,580 | ) | |
$ | 8,837 | |
Shares issued for services | |
| — | | |
| — | | |
| 1 | | |
| — | | |
| 1 | |
Issuance of common stock and warrants in equity offering, net | |
| 449 | | |
| — | | |
| 7,372 | | |
| — | | |
| 7,372 | |
Issuance of common stock under equity incentive plan | |
| 3 | | |
| — | | |
| 14 | | |
| — | | |
| 14 | |
Stock-based compensation | |
| — | | |
| — | | |
| 725 | | |
| — | | |
| 725 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| (3,499 | ) | |
| (3,499 | ) |
Balance as of June 30, 2022 | |
| 10,914 | | |
$ | 11 | | |
$ | 51,518 | | |
$ | (38,079 | ) | |
$ | 13,450 | |
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Modular Medical, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| |
Three Months Ended June 30, | |
| |
2023 | | |
2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net loss | |
$ | (3,737 | ) | |
$ | (3,499 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation expense | |
| 484 | | |
| 739 | |
Depreciation and amortization | |
| 58 | | |
| 29 | |
Shares for services | |
| 5 | | |
| 51 | |
Changes in assets and liabilities: | |
| | | |
| | |
Other assets and prepaid expenses | |
| (40 | ) | |
| 2 | |
Lease right-of-use asset | |
| 83 | | |
| 22 | |
Accounts payable and accrued expenses | |
| 46 | | |
| 16 | |
Lease liabilities | |
| (106 | ) | |
| (35 | ) |
Net cash used in operating activities | |
| (3,207 | ) | |
| (2,675 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchases of property and equipment | |
| (373 | ) | |
| (76 | ) |
Net cash used in investing activities | |
| (373 | ) | |
| (76 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from issuance of common stock and warrants, net. | |
| 9,733 | | |
| 7,372 | |
Net cash provided by financing activities | |
| 9,733 | | |
| 7,372 | |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 6,153 | | |
| 4,621 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of period | |
| 3,799 | | |
| 9,076 | |
| |
| | | |
| | |
Cash and cash equivalents at end of period | |
$ | 9,952 | | |
$ | 13,697 | |
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-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 three months ended June 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
spread of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February
2022 has led to further economic disruptions. 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-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 and
increased WASO by approximately 844,000 shares for the three months ended June 30, 2022. The reclassification had no impact on the Company's
net loss or cash flows for the three months ended June 30, 2022.
For the three months ended June 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-dilutive (in thousands).
| |
Three Months Ended June 30, | |
| |
2023 | | |
2022 | |
Options to purchase common stock | |
| 2,824 | | |
| 1,820 | |
Common stock purchase warrants | |
| 11,997 | | |
| 6,217 | |
Total | |
| 14,821 | | |
| 8,037 | |
Reclassifications
Certain prior year amounts have been reclassified
for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash
flows.
Comprehensive Loss
Comprehensive loss represents the changes in equity
of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes
in equity that are excluded from net loss. For the three months ended June 30, 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 | |
| |
June 30, 2023 | | |
March
31, 2023 | |
| |
(in thousands) | |
Accrued expenses | |
| | |
| |
Accrued wages and employee benefits | |
$ | 198 | | |
$ | 267 | |
Other | |
| — | | |
| 72 | |
| |
$ | 198 | | |
$ | 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.
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 June 30, 2023, are listed in the table below (in thousands).
Annual Fiscal Years | |
Operating Lease | |
2024 | |
$ | 327 | |
2025 | |
| 452 | |
2026 | |
| 470 | |
2027 | |
| 405 | |
Total future lease payments | |
$ | 1,654 | |
Less: Imputed interest | |
| (215 | ) |
Present value of lease liability | |
$ | 1,439 | |
Cash paid for amounts included in the measurement
of lease liabilities was approximately $149,000 and $40,000 for the three months ended June 30, 2023 and 2022, respectively. Rent expense
was approximately $112,000 and $27,000 for the three months ended June 30, 2023 and 2022, respectively.
NOTE 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 issued to the Underwriter common stock purchase
warrants (the UW Warrants) for 617,183 and 92,577 shares dated May 15, 2023 and May, 25, 2023, respectively. The UW warrants are exercisable
six months from the respective issuance date 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 June 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.
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 | | |
| | | |
|
Other
During the three months ended June 30, 2022, the
Company issued 348 shares of common stock with a fair value of approximately $1,000 to a service provider.
NOTE 5 – STOCK-BASED COMPENSATION
Amended 2017 Equity Incentive Plan
In October 2017, the Board approved the 2017 Equity
Incentive Plan (the Plan), as amended, with 1,000,000 shares of common stock reserved for issuance. In January 2020 and August 2021, the
Board approved 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. 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 June
30, 2023, the unamortized compensation cost was approximately $3,084,000 related to stock options and is expected to be recognized as
expense over a weighted-average period of approximately 1.90 years.
During the three months ended June 30, 2023, the
Company granted 6,375 shares to members of the Board in accordance with the OD Plan and recorded
approximately $6,000 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.
The weighted-average grant date fair value of
options granted was $1.00 and $4.26 per share for the three months ended June 30, 2023 and 2022, respectively. The following assumptions
were used in the fair-value method calculations:
| |
| Three
Months Ended, June 30, | |
| |
| 2023 | | |
| 2022 | |
Risk-free interest rates | |
| 3.51 %-4.13 | % | |
| 2.82% - 3.25 | % |
Volatility | |
| 83% -152 | % | |
| 159%
- 223 | % |
Expected life (years) | |
| 5.0 - 6.1 | | |
| 5.0 - 6.0 | |
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 option activity under the Plan
is presented below:
| |
| | |
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 | |
There were no stock options exercised during the
three months ended June 30, 2023 and 2022.
The following table summarizes the range of outstanding
and exercisable options as of June 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 | | |
| — | |
The intrinsic value per share is calculated as
the excess of the closing price of the common stock on the Company’s principal trading market over the exercise price of the option.
NOTE 6 – INCOME TAXES
The Company determines deferred tax assets and
liabilities based upon the differences between the financial statement and tax bases of the Company’s assets and liabilities using
tax rates in effect for the year in which the Company expects the differences to affect taxable income. A valuation allowance is established
for any deferred tax assets for which it is more likely than not that all or a portion of the deferred tax assets will not be realized.
Based on the available information and other factors, management believes it is more likely than not that its federal and state net deferred
tax assets will not be fully realized, and the Company has recorded a full valuation allowance.
The Company files U.S. federal and state income
tax returns in jurisdictions with varying statutes of limitations. All tax returns for fiscal 2016 to fiscal 2023 may be subject to examination
by the U.S. federal and state tax authorities. As of June 30, 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 three months
ended June 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 June 30, 2023, the Company had outstanding purchase orders for machinery and equipment
and related expenditures of approximately $566,000.
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.
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 cash for at least the next 12 months. Our long-term ability to continue as a going
concern depends on our ability to raise additional capital, through the sale of equity or debt securities, to support our future operations.
If we are unable to secure additional capital, we will be required to curtail our research and development initiatives and take additional
measures to reduce costs. We have provided additional disclosure in Note 1 to the consolidated financial statements in Item 1 of this
Report and under Liquidity below.
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 spread
of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February 2022
has led to further economic disruptions. 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
June 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 | % |
Our research and development expenses include
personnel, overhead and other costs associated with the development and initial production of our insulin pump product. We expense research
and development costs as they are incurred.
Research and development, or R&D, expenses
increased for fiscal 2024 compared with the same period of fiscal 2023, primarily due to increased employee-related costs of approximately
of $410,000, an increase of approximately $50,000 in stock-based compensation expense and in increase in materials costs of $177,000.
These increases were partially offset by an approximately $255,000 decrease in consulting costs, as we have increased our employee headcount
and completed development of our pump product. Our full-time R&D employee headcount increased to 34 at June 30, 2023 from 23 at June
30, 2022. R&D expenses included stock-based compensation expenses of approximately $366,000 and $316,000 for the three-months ended
June 30, 2023 and June 30, 2022, respectively. We expect research and development expenses to remain consistent for the remainder of fiscal
2024.
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 | )% |
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,
decreased for the three months ended June 30, 2023 compared with the same period of 2022, primarily as a result of a decrease in stock-based
compensation expenses of approximately $305,000 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.
G&A expenses included stock-based compensation expenses of approximately $117,000 and $422,000 for the quarters ended June 30, 2023
and June 30, 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 in each year due to costs incurred in connection with R&D activities and G&A expenses
associated with our operations. For the three months ended June 30, 2023 and year ended March 31, 2023, we incurred net losses of $3.7
million and $13.9 million, respectively. At June 30, 2023, we had a cash balance of approximately $10.0 million and an accumulated deficit
of $52.2 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 three months ended June 30, 2023, we used
approximately $3,207,000 in operating activities, which primarily resulted from our net loss of approximately $3,737,000 and net changes
in operating assets and liabilities of approximately $17,000, as adjusted for stock-based compensation
expenses of approximately $484,000, depreciation and amortization expenses of approximately $58,000 and other immaterial adjustments.
For the three months ended June 30, 2022, we used $2,675,000 in operating activities, which primarily resulted from our net loss of $3,499,000,
as adjusted for changes to operating assets and liabilities of approximately $5,000, stock-based
compensation expenses of approximately $739,000, approximately $51,000 for issuances of shares of common stock in exchange for
services, depreciation and amortization expenses of approximately $29,000 and other immaterial adjustments.
For the
three months ended June 30, 2023 and 2022, cash used in investing activities of approximately $373,000 and $76,000,
respectively, was for the purchase of property and equipment.
Cash provided by financing activities of $9.7
million for the three months ended June 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. Cash provided by financing activities of $7.4 million for the three months
ended June 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.
Purchase Obligations
Our primary purchase
obligations include purchase orders for machinery and equipment. At June 30, 2023, we had outstanding purchase orders for machinery and
equipment and related expenditures of approximately $566,000.
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.
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 June 30, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial
Reporting.
During the three months ended June 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
Recent Sales of Unregistered Securities
On June
30, 2023, we issued a total of 6,375 shares of our restricted common stock to four of our non-employee directors in accordance with our
Outside Director Compensation Plan. 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 |
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.
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MODULAR MEDICAL, INC. |
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Date: August 14, 2023 |
By: |
/s/ James E. Besser |
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James E. Besser |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Paul DiPerna |
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Paul DiPerna |
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Chairman, President, Chief Financial Officer and Treasurer |
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(Principal Financial Officer) |
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MODULAR MEDICAL, INC.
Modular Medical, Inc. (the
“Company”) hereby grants to the undersigned Participant, the following Restricted Stock Units (the “Restricted Stock
Units,” the “RSUs” or the “Award”) representing shares of the Company’s Common Stock set forth below.
The Award is subject to all of the terms and conditions as set forth in this Notice of Restricted Stock Unit Award, in the Restricted
Stock Unit Agreement and in the Company’s 2017 Equity Incentive Plan (as may be amended and restated from time to time, the “Plan”).
Capitalized terms not explicitly defined herein but defined in the Plan or the Restricted Stock Unit Agreement will have the same definitions
as in the Plan or the Restricted Stock Unit Agreement.
By your written signature
below (or your electronic acceptance) and the signature of the Company’s representative below, you and the Company agree that this
Award is granted under and governed by the term and conditions of the Plan and the Restricted Stock Unit Agreement (the “Agreement”),
both of which are attached to and made a part of this document.
By your written signature
below (or your electronic acceptance), you further agree that the Company may deliver by e-mail all documents relating to the Plan or
this Award (including without limitation, prospectuses required by the Securities and Exchange Commission) and all other documents that
the Company is required to deliver to its security holders (including without limitation, annual reports and proxy statements). You also
agree that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract
with the Company. If the Company posts these documents on a website, it will notify you by e-mail. Should you electronically accept this
Agreement, you agree to the following: “This electronic contract contains my electronic signature, which I have executed with the
intent to sign this Agreement.”
MODULAR MEDICAL, INC.
In connection with the receipt
of the above-listed Shares, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Shares. Participant is acquiring these Shares for investment for Participant’s
own account only and not with a view to, or for resale in connection with, any “distribution” thereof within the meaning of
the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Shares constitute “restricted securities” under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant understands that, in
the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Participant’s representation
was predicated solely upon a present intention to hold these Shares for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price of the Shares, or for a period of one (1) year or any other
fixed period in the future. Participant further understands that the Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available. Participant further acknowledges and understands that the
Company is under no obligation to register the Shares. Participant understands that the certificate evidencing the Shares shall be imprinted
with any legend required under applicable state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at
the time of the grant of the Award to Participant, the exercise shall be exempt from registration under the Securities Act. In the event
the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may require) the Shares exempt under Rule 701 may be resold,
subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates (1) the
availability of certain public information about the Company, (2) the amount of Shares being sold during any three (3) month period
not exceeding specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions
directly with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities
Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the Company
does not qualify under Rule 701 at the time of grant of the Award, then the Shares may be resold in certain limited circumstances
subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company;
(ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for
the Shares; and (iii) in the case of the sale of Shares by an affiliate, the satisfaction of the conditions set forth in sections (2),
(3) and (4) of the paragraph immediately above.
(d)
Participant further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144
or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales,
and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant understands
that no assurances can be given that any such other registration exemption shall be available in such event.
I, James E. Besser, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Modular Medical, Inc. for the three months ended June 30, 2023;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
I, Paul M. DiPerna, certify that:
6.
I have reviewed this Quarterly Report on Form 10-Q of Modular Medical, Inc. for the three months ended June 30, 2023;
7. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
8. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
9. The
registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
10. The
registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
In connection
with the Quarterly Report on Form 10-Q of Modular Medical, Inc. (the “Company”) for the three months ended June 30, 2023,
as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of James E. Besser, Chief Executive
Officer of the Company, and Paul M. DiPerna, Chairman, President, Chief Financial Officer and Treasurer, hereby certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
This certification accompanies this Report pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, or otherwise required,
be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.