MODD Modular Medical Inc

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 September 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)

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:

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.

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 21,123,726 as of November 3, 2023.

MODULAR MEDICAL, INC.

FORM 10-Q

SEPTEMBER 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)

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)

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)

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)

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

MODULAR MEDICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

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, 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 this Report are issued exists. Our 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.

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.

Wars and acts of terrorism 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 September 30, 2023, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

Research and Development

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

Research and development, or R&D, expenses increased for the three months ended September 30, 2023 compared with the same period of 2022, 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 $786,000, an increase of approximately $61,000 in stock-based compensation expense and an increase in materials costs of $342,000. These increases were partially offset by an approximately $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 R&D employee headcount increased to 35 at September 30, 2023 from 28 at September 30, 2022. R&D expenses included stock-based compensation expenses of approximately $373,000 and $362,000 for the three-months ended September 30, 2023 and 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 increase for the remainder of fiscal 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

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

General and administrative, or G&A, expenses increased for the three months ended September 30, 2023 compared with the same period of 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 $495,000 and consulting and professional services expenses of approximately $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 $191,000 and $381,000 for the three months ended September 30, 2023 and 2022, 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 six months ended September 30, 2023 and year ended March 31, 2023, we incurred net losses of $7.9 million and $13.9 million, respectively. At September 30, 2023, we had a cash balance of approximately $6.3 million and an accumulated deficit of $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 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 six months ended September 30, 2023, we used approximately $6,484,000 in operating activities, which primarily resulted from our net loss of approximately $7,920,000 and net changes in operating assets and liabilities of approximately $224,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $1,048,000, depreciation and amortization expenses of approximately $153,000 and other immaterial adjustments. For the six months ended September 30, 2022, we used $5,527,000 in operating activities, which primarily resulted from our net loss of $6,949,000, as adjusted for changes to operating assets and liabilities of approximately $194,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $1,481,000, approximately $101,000 for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of approximately $60,000 and other immaterial adjustments.

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

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

Purchase Obligations

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

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 September 30, 2023, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting.

During the three months ended September 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, Use of Proceeds, and Issuer Repurchases of Equity Securities

Recent Sales of Unregistered Securities

On September 29, 2023, we issued the following shares of unregistered common stock: i) a total of 6,265 shares to four of our non-employee directors in accordance with our Outside Director Compensation 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

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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