UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period
ended
or
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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The number of outstanding shares of the registrant’s common stock,
par value $0.001 per share, was
MODULAR MEDICAL, INC.
FORM 10-Q
JUNE 30, 2023
TABLE OF CONTENTS
i
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 | $ | $ | ||||||
| Prepaid expenses and other | ||||||||
| Security deposit | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset, net | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Short-term lease liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| LONG-TERM LIABILITIES | ||||||||
| Long-term lease liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, $ | ||||||||
| Common Stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
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 | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Shares used in computing net loss per share | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
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 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock and warrants in equity offering, net | ||||||||||||||||||||
| Issuance of common stock under equity incentive plan | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Additional | ||||||||||||||||||||
| Common Stock | Paid-In | Accumulated | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Shares issued for services | — | |||||||||||||||||||
| Issuance of common stock and warrants in equity offering, net | ||||||||||||||||||||
| Issuance of common stock under equity incentive plan | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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 | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Shares for services | ||||||||
| Changes in assets and liabilities: | ||||||||
| Other assets and prepaid expenses | ( | ) | ||||||
| Lease right-of-use asset | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock and warrants, net. | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
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.
5
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
$
6
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 to 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.
7
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 $
| Three Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Options to purchase common stock | ||||||||
| Common stock purchase warrants | ||||||||
| Total | ||||||||
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.
8
NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL
June 30, 2023 | March 31, 2023 | |||||||
| (in thousands) | ||||||||
| Property and equipment, net | ||||||||
| Machinery and equipment | $ | $ | ||||||
| Computer equipment and software | ||||||||
| Construction-in-process | ||||||||
| Leasehold improvements | ||||||||
| Office equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
June 30, 2023 | March 31, 2023 | |||||||
| (in thousands) | ||||||||
| Accrued expenses | ||||||||
| Accrued wages and employee benefits | $ | $ | ||||||
| Other | ||||||||
| $ | $ | |||||||
NOTE 3 – LEASES
W. Bernardo Drive, San Diego, CA
The
Thornmint Road, San Diego, CA
The
| Annual Fiscal Years | Operating Lease | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total future lease payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of lease liability | $ | |||
Cash paid for amounts included in the measurement
of lease liabilities was approximately $
9
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 $
Pursuant to the Underwriting Agreement, the Company
granted the Underwriter a 30-day option to purchase up to an additional
The Underwriter was paid a cash fee of
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
| Type | Number of Shares | Exercise Price | Expiration | |||||||
| Common stock | $ | |||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Total | ||||||||||
The
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 | $ | |||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Common stock | ||||||||||
| Total | ||||||||||
Other
During the three months ended June 30, 2022, the
Company issued
10
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
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 $
During the three months ended June 30, 2023, the
Company granted
| Three Months Ended, June 30, | ||||||||
| 2023 | 2022 | |||||||
| Risk-free interest rates | % | % | ||||||
| Volatility | % | % | ||||||
| Expected life (years) | ||||||||
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.
| Options Outstanding | ||||||||||||
| Weighted | ||||||||||||
| Shares | Average | |||||||||||
| Available | Number of | Exercise | ||||||||||
| for Grant | Shares | Prices | ||||||||||
| Balance at March 31, 2023 | $ | |||||||||||
| Options granted | ( | ) | ||||||||||
| Share awards | ( | ) | ||||||||||
| Options cancelled and returned to the Plan | ( | ) | ||||||||||
| Balance at June 30, 2023 | $ | |||||||||||
11
There were no stock options exercised during the three months ended June 30, 2023 and 2022.
| 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 | $ | $ | — | |||||||||||||||||||||
| $3.95 - $7.51 | $ | $ | — | |||||||||||||||||||||
| $8.61 - $17.70 | $ | $ | — | |||||||||||||||||||||
| $0.93 - $17.70 | $ | $ | — | |||||||||||||||||||||
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 $
12
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.
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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.
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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.
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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.
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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.
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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 | ||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MODULAR MEDICAL, INC. | ||
| Date: August 14, 2023 | By: | /s/ James E. Besser |
| James E. Besser | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Paul DiPerna | |
| Paul DiPerna | ||
| Chairman, President, Chief Financial Officer and Treasurer | ||
| (Principal Financial Officer) | ||
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Exhibit 4.11
MODULAR MEDICAL, INC.
AMENDED AND RESTATED 2017 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK UNIT AWARD
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.
| Name of Participant: | ||
| Date of Grant: | ||
| Vesting Commencement Date: | ||
|
Total Number of Shares Subject to Restricted Stock Units: |
||
| Vesting Schedule: |
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.”
| PARTICIPANT | MODULAR MEDICAL, INC. | ||
| Participant’s Signature | By: | ||
| Participant’s Printed Name | Title: | ||
MODULAR MEDICAL, INC.
AMENDED & RESTATED 2017 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
| The Plan and Other Agreements |
The RSUs that you are receiving are granted pursuant and subject in all respects to the applicable provisions of the Plan, which is incorporated herein by reference. Capitalized terms not defined in this Restricted Stock Unit Agreement (the “Agreement”) will have the meanings ascribed to them in the Plan.
The attached Notice of Restricted Stock Unit Award (the “Notice”), this Agreement and the Plan constitute the entire understanding between you and the Company regarding this Award. Any prior agreements, commitments or negotiations concerning this Award are superseded. This Agreement may be amended by the Committee without your consent; however, if any such amendment would materially impair your rights or obligations under this Agreement, this Agreement may be amended only by another written agreement, signed by you and the Company. |
| Payment for RSUs | No cash payment is required for the RSUs you receive. You are receiving the RSUs in consideration for Continuous Services rendered by you. |
| Vesting | The RSUs that you are receiving will vest in installments, as shown in the Notice of RSU Award. No additional RSUs vest after your Continuous Service as an Employee or a Consultant has terminated for any reason. |
| Forfeiture | If your Continuous Service terminates for any reason, then this Award expires immediately as to the number of RSUs that have not vested before the termination date and do not vest as a result of termination. This means that the unvested RSUs will immediately be cancelled. You receive no payment for RSUs that are forfeited. The Company determines when your Continuous Service terminates for this purpose and all purposes under the Plan and its determinations are conclusive and binding on all persons. |
| Leaves of Absence | If you go on a leave of absence, then the vesting schedule specified in the Notice of Restricted Stock Unit Award may be adjusted in accordance with the Company’s leave of absence policy or the terms of your leave. If you commence working on a part-time basis, then the vesting schedule specified in the Notice of Restricted Stock Unit Award may be adjusted in accordance with the Company’s part-time work policy or the terms of an agreement between you and the Company pertaining to your part-time schedule. |
|
Nature of RSUs
|
Your RSUs are mere bookkeeping entries. They represent only the Company’s unfunded and unsecured promise to issue Shares on a future date. As a holder of RSUs, you have no rights other than the rights of a general creditor of the Company. |
| No Voting Rights or Dividends | Your RSUs carry neither voting rights nor rights to dividends. You, or your estate or heirs, have no rights as a stockholder of the Company unless and until your RSUs are settled by issuing Shares. No adjustments will be made for dividends or other rights if the applicable record date occurs before your Shares are issued, except as described in the Plan. |
2
| RSUs Nontransferable | You may not sell, transfer, assign, pledge or otherwise dispose of any RSUs. For instance, you may not use your RSUs as security for a loan. If you attempt to do any of these things, your RSUs will immediately become invalid. |
| Settlement of RSUs |
Each of your vested RSUs will be settled when it vests; provided, however, that settlement of each RSU will be deferred to the first permissible trading day for the Shares, if later than the applicable vesting date, but in no event later than two and one-half (2-1/2) months following the calendar year in which the applicable vesting date occurs.
For purposes of this Agreement, “permissible trading day” means a day that satisfies all of the following requirements: (1) the exchange on which the Shares are traded is open for trading on that day; (2) you are permitted to sell Shares on that day without incurring liability under Section 16(b) of the Exchange Act; (3) either (a) you are not in possession of material non-public information that would make it illegal for you to sell Shares on that day under Rule 10b-5 under the Exchange Act or (b) Rule 10b5-1 under the Exchange Act would apply to the sale; (4) you are permitted to sell Shares on that day under such written insider trading policy as may have been adopted by the Company; and (5) you are not prohibited from selling Shares on that day by a written agreement between you and the Company or a third party.
At the time of settlement, you will receive one Share for each vested RSU; provided, however, that no fractional Shares will be issued or delivered pursuant to the Plan or this Agreement, and the Committee will determine whether cash will be paid in lieu of any fractional Share or whether such fractional Share and any rights thereto will be canceled, terminated or otherwise eliminated. In addition, the Shares are issued to you subject to the condition that the issuance of the Shares not violate any law or regulation. |
| Withholding Taxes and Stock Withholding |
Regardless of any action the Company and/or the Subsidiary or Affiliate employing you (“Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the award, vesting or settlement of the RSUs, the subsequent sale of Shares acquired pursuant to settlement and the receipt of any dividends; and (2) do not commit to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items.
Prior to the settlement of the RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer. In this regard, you authorize the Company and/or your Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer. With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when the RSUs are settled, provided that the Company only withholds Shares having a Fair Market Value equal to the amount necessary to satisfy the maximum legally required tax withholding, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company. The Fair Market Value of the Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Finally, you will pay to the Company or your Employer any amount of Tax-Related Items that the Company or your Employer may be required to withhold as a result of your participation in the Plan or your acquisition of Shares that cannot be satisfied by the means previously described. The Company may refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section, and your rights to the Shares will be forfeited if you do not comply with such obligations on or before the date that is two and one-half (2-1/2) months following the calendar year in which the applicable vesting date for the RSUs occurs. |
3
| Restrictions on Resale | You agree not to sell any Shares at a time when applicable laws, Company policies or an agreement between the Company and its underwriters prohibit a sale. This restriction will apply as long as your Continuous Service continues and for such period of time after the termination of your Continuous Service as the Company may specify. |
| No Retention Rights | Neither this Award nor this Agreement gives you the right to be employed or retained by the Company or any Subsidiary or Affiliate of the Company in any capacity. The Company and its Subsidiaries and Affiliates reserve the right to terminate your Continuous Service at any time, with or without cause. |
| Adjustments | The number of RSUs covered by this Award will be subject to adjustment in the event of a stock split, a stock dividend or a similar change in Shares, and in other circumstances, as set forth in the Plan. The forfeiture provisions and restrictions described above will apply to all new, substitute or additional restricted stock units or securities to which you are entitled by reason of this Award. |
| Successors and Assigns | Except as otherwise provided in the Plan or this Agreement, every term of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective heirs, legatees, legal representatives, successors, transferees and assigns. |
| Notice | Any notice required or permitted under this Agreement will be given in writing and will be deemed effectively given upon the earliest of personal delivery, receipt or the third (3rd) full day following mailing with postage and fees prepaid, addressed to the other party hereto at the address last known in the Company’s records or at such other address as such party may designate by ten (10) days’ advance written notice to the other party hereto. |
| Section 409A of the Code | To the extent this Agreement is subject to, and not exempt from, Section 409A of the Code, this Agreement is intended to comply with Section 409A, and its provisions will be interpreted in a manner consistent with such intent. You acknowledge and agree that changes may be made to this Agreement to avoid adverse tax consequences to you under Section 409A. |
| Representations | In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time any portion of this Award is received, you will, if required by the Company, concurrently with the receipt of any portion of this Award, deliver to the Company your Investment Representation Statement in the form attached hereto as Exhibit A. |
| Applicable Law and Choice of Venue |
This Agreement will be interpreted and enforced under the laws of the State of Delaware as to matters within the scope thereof, and as to all other matters, the internal laws of the State of California, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of any state.
For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this Award or this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation will be conducted only in the courts of San Diego County, California, or the federal courts for the United States for the Southern District of California, and no other courts, where this grant is made and/or to be performed. |
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| Miscellaneous |
You understand and acknowledge that (1) the Plan is entirely discretionary, (2) the Company has reserved the right to amend, suspend or terminate the Plan at any time, (3) the grant of this Award does not in any way create any contractual or other right to receive additional grants of awards (or benefits in lieu of awards) at any time or in any amount and (4) all determinations with respect to any additional grants, including (without limitation) the times when awards will be granted, the number of Shares subject to awards and the vesting schedule, will be at the sole discretion of the Company.
The value of this Award will be an extraordinary item of compensation outside the scope of your employment contract, if any, and will not be considered a part of your normal or expected compensation for purposes of calculating severance, resignation, redundancy or end-of-Continuous Service payments, bonuses, long-Continuous Service awards, pension or retirement benefits or similar payments.
You understand and acknowledge that participation in the Plan ceases upon termination of your Continuous Service for any reason, except as may explicitly be provided otherwise in the Plan or this Agreement.
You hereby authorize and direct your employer to disclose to the Company or any Subsidiary or Affiliate any information regarding your employment, the nature and amount of your compensation and the fact and conditions of your participation in the Plan, as your employer deems necessary or appropriate to facilitate the administration of the Plan.
You consent to the collection, use and transfer of personal data as described in this subsection. You understand and acknowledge that the Company, your employer and the Company’s other Subsidiaries and Affiliates hold certain personal information regarding you for the purpose of managing and administering the Plan, including (without limitation) your name, home address, telephone number, date of birth, social insurance or other government identification number, salary, nationality, job title, any Shares or directorships held in the Company and details of all awards or any other entitlements to Shares awarded, canceled, exercised, vested, unvested or outstanding in your favor (the “Data”). You further understand and acknowledge that the Company, its Subsidiaries and/or its Affiliates will transfer Data among themselves as necessary for the purpose of implementation, administration and management of your participation in the Plan and that the Company and/or any Subsidiary may each further transfer Data to any third party assisting the Company in the implementation, administration and management of the Plan. You understand and acknowledge that the recipients of Data may be located in the United States or elsewhere, , and that the laws of a recipient’s country of operation (e.g., the United States) may not have equivalent privacy protections as local laws where you reside or work. You authorize such recipients to receive, possess, use, retain and transfer Data, in electronic or other form, for the purpose of administering your participation in the Plan, including a transfer to any broker or other third party with whom you elect to deposit Shares acquired under the Plan of such Data as may be required for the administration of the Plan and/or the subsequent holding of Shares on your behalf. You may, at any time, view the Data, require any necessary modifications of Data, make inquiries about the treatment of Data or withdraw the consents set forth in this subsection by contacting the Human Resources Department of the Company in writing. |
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EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
| PARTICIPANT | : | |
| COMPANY | : | MODULAR MEDICAL, INC. |
| SECURITY | : | COMMON STOCK |
| AMOUNT | : | ___ SHARES |
| DATE | : |
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.
| PARTICIPANT: | ||
| Date: | ||
6
Exhibit 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| (d) | Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ James E. Besser | Date: August 14, 2023 | |
| James E. Besser | ||
| Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| (d) | Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| /s/ Paul M. DiPerna | Date: August 14, 2023 | |
| Paul M. DiPerna | ||
| Chairman, President, Chief Financial Officer and Treasurer |
Exhibit 32.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company. |
| By: | /s/ James E. Besser | Date: August 14, 2023 | |
| James E. Besser | |||
| Chief Executive Officer |
| By: | /s/ Paul M. DiPerna | Date: August 14, 2023 | |
| Paul M. DiPerna | |||
| Chairman, President, Chief Financial Officer and Treasurer |
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.
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares shares in Thousands |
Jun. 30, 2023 |
Mar. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Preferred stock, shares authorized | 5,000 | 5,000 |
| Preferred stock, shares issued | ||
| Preferred stock, shares outstanding | ||
| Common stock, par value (in Dollars per share) | $ 0.001 | $ 0.001 |
| Common stock, shares authorized | 50,000 | 50,000 |
| Common stock, shares issued | 21,095 | 10,949 |
| Common stock, shares, outstanding | 21,095 | 10,949 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 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 net loss per share (in Dollars per share) | $ (0.22) | $ (0.3) |
| Shares used in computing net loss per share | ||
| Basic shares used in computing net loss per share (in Shares) | 17,099 | 11,588 |
Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) - $ / shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Income Statement [Abstract] | ||
| Diluted net loss per share | $ (0.24) | $ (0.33) |
| Diluted shares used in computing net loss per share | 15,750 | 10,744 |
The Company and Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The Company and Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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 to 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:
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).
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. |
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Consolidated Balance Sheet Detail |
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| Consolidated Balance Sheet Detail [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED BALANCE SHEET DETAIL | NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL
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Leases |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| LEASES | 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).
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. |
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Stockholders' Equity |
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| Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCKHOLDERS' EQUITY | 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):
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):
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. |
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Stock-Based Compensation |
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| Stock-Based Compensation [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| STOCK-BASED COMPENSATION | 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:
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:
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:
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. |
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Income Taxes |
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| Income Taxes [Abstract] | |
| INCOME TAXES | 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. |
Commitments and Contingencies |
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| Commitments and Contingencies [Abstract] | |
| COMMITMENTS AND CONTINGENCIES | 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. |
Accounting Policies, by Policy (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Liquidity and Going Concern | 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.
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| Basis of Presentation | 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. |
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| Use of Estimates | 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. |
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| Reportable Segment | Reportable Segment The Company operates in one business segment and uses one measurement of profitability for its business. |
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| Research and Development | Research and Development The Company expenses research and development expenditures as incurred. |
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| General and Administrative | 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. |
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| Concentration of Credit Risk | 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.
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| Risks and Uncertainties | 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. |
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| Cash and Cash Equivalents | 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. |
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| Property and Equipment | 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 to 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. |
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| Fair Value of Financial Instruments | 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:
Due to their short-term nature, the carrying values of cash equivalents, accounts payable and accrued expenses, approximate fair value. |
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| Leases | 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.
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| Stock-Based Compensation | 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. |
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| Per-Share Amounts | 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).
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| Reclassifications | 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. |
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| Comprehensive Loss | 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. |
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| Recently Issued Accounting Pronouncement | 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. |
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The Company and Summary of Significant Accounting Policies (Tables) |
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| Schedule of Diluted Net Loss Per Share | 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).
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Consolidated Balance Sheet Detail (Tables) |
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| Schedule of Property and Equipment, Net |
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| Schedule of Accrued Expenses |
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Leases (Tables) |
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| Schedule of Future Minimum Payments Under the Facility Operating Lease | Future minimum payments under the facility operating
lease, as of June 30, 2023, are listed in the table below (in thousands).
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Stockholders' Equity (Tables) |
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| Schedule of Warrants Outstanding | As of June 30, 2023, the Company
had the following warrants outstanding (share amounts in thousands):
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Stock-Based Compensation (Tables) |
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Jun. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Fair-Value Assumptions of Options | The weighted-average grant date fair value of
options granted was $1.00 and $4.26 per share for the three months ended June 30, 2023 and 2022, respectively. The following assumptions
were used in the fair-value method calculations:
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| Schedule of Stock Option Activity | A summary of stock option activity under the Plan
is presented below:
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| Schedule of Outstanding and Exercisable Option, Range | The following table summarizes the range of outstanding
and exercisable options as of June 30, 2023:
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The Company and Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| The Company and Summary of Significant Accounting Policies [Line Items] | ||
| Federal deposit insurance corporation (in Dollars) | $ 250,000 | |
| Loss per share (in Dollars per share) | $ 0.03 | |
| Shares loss (in Shares) | 348 | 844,000 |
| Minimum [Member] | ||
| The Company and Summary of Significant Accounting Policies [Line Items] | ||
| Estimated useful lives | 3 years | |
| Maximum [Member] | ||
| The Company and Summary of Significant Accounting Policies [Line Items] | ||
| Estimated useful lives | 5 years | |
The Company and Summary of Significant Accounting Policies (Details) - Schedule of Diluted Net Loss Per Share - shares shares in Thousands |
3 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Schedule of the company and summary of significant accounting policies [Abstract] | ||
| Options to purchase common stock | 2,824 | 1,820 |
| Common stock purchase warrants | 11,997 | 6,217 |
| Total | 14,821 | 8,037 |
Consolidated Balance Sheet Detail (Details) - Schedule of Property and Equipment, Net - USD ($) $ in Thousands |
Jun. 30, 2023 |
Mar. 31, 2023 |
|---|---|---|
| Property and equipment, net | ||
| Property and equipment, gross | $ 2,351 | $ 1,977 |
| Less: accumulated depreciation and amortization | (315) | (256) |
| Total property and equipment, net | 2,036 | 1,721 |
| Machinery and equipment [Member] | ||
| Property and equipment, net | ||
| Property and equipment, gross | 1,171 | 820 |
| Computer equipment and software [Member] | ||
| Property and equipment, net | ||
| Property and equipment, gross | 66 | 66 |
| Construction-in-process [Member] | ||
| Property and equipment, net | ||
| Property and equipment, gross | 1,018 | 1,003 |
| Leasehold improvements [Member] | ||
| Property and equipment, net | ||
| Property and equipment, gross | 33 | 25 |
| Office equipment [Member] | ||
| Property and equipment, net | ||
| Property and equipment, gross | $ 63 | $ 63 |
Consolidated Balance Sheet Detail (Details) - Schedule of Accrued Expenses - USD ($) $ in Thousands |
Jun. 30, 2023 |
Mar. 31, 2023 |
|---|---|---|
| Accrued expenses | ||
| Accrued wages and employee benefits | $ 198 | $ 267 |
| Other | 72 | |
| Total accrued expenses | $ 198 | $ 339 |
Leases (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Feb. 01, 2023 |
|
| Leases [Abstract] | |||
| Lessee operating lease term of contract | 39 months | 48 months | |
| Security deposit | $ 100,000 | ||
| Monthly rent | $ 36,000 | ||
| Percentage of annual rent | 4.00% | ||
| Percentage of borrowing interest rate | 8.00% | ||
| Obtained a right-of-use asset of exchange obligations operating leas | $ 1,560,000 | ||
| Cash paid for lease liabilities | 149,000 | $ 40,000 | |
| Rent expense | $ 112,000 | $ 27,000 | |
Leases (Details) - Schedule of Future Minimum Payments Under the Facility Operating Lease $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| Leases [Abstract] | |
| 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 |
Stockholders' Equity (Details) - USD ($) |
3 Months Ended | |||
|---|---|---|---|---|
May 25, 2023 |
May 15, 2023 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Stockholders' Equity [Abstract] | ||||
| Aggregate gross proceeds (in Dollars) | $ 1,408,000 | $ 9,390,000 | ||
| Common stock | 8,816,900 | |||
| Warrants purchase | 4,408,450 | |||
| Public offering per unit (in Dollars per share) | $ 2.13 | |||
| Warrant price per share (in Dollars per share) | $ 1.22 | |||
| Common stock exercise price (in Dollars per share) | $ 1,322,534 | |||
| Additional warrants | 661,267 | |||
| Underwriter cash fee payment percentage | 7.00% | |||
| Reimbursement expenses (in Dollars) | $ 125,000 | |||
| Underwriter common stock purchase warrants | 92,577 | 617,183 | ||
| Exercise price (in Dollars per share) | $ 1.32 | |||
| Pre-funded warrants | 1,348,000 | 1,348,000 | ||
| Shares issued | 348 | 844,000 | ||
| Fair values amount (in Dollars) | $ 1,000 |
Stock-Based Compensation (Details) - USD ($) |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Oct. 31, 2017 |
Jun. 30, 2023 |
Jan. 31, 2023 |
Jun. 30, 2022 |
Aug. 31, 2021 |
Jan. 31, 2020 |
|
| Stock-Based Compensation [Abstract] | ||||||
| Shares approved under equity incentive plan | 1,000,000 | |||||
| Common stock, capital shares reserved for future issuance | 2,000,000 | 1,333,334 | 333,334 | |||
| Unamortized compensation cost (in Dollars) | $ 3,084,000 | |||||
| weighted-average period years | 1 year 10 months 24 days | |||||
| Stock based compensation (in Dollars) | $ 6,375 | |||||
| Share based compensation expenses (in Dollars) | $ 6,000 | |||||
| Grant options terms | 10 years | |||||
| Purchase shares | 373,375 | |||||
| Weighted-average grant date fair value of stock options granted price (in Dollars per share) | $ 1 | $ 4.26 |
Stock-Based Compensation (Details) - Schedule of Fair-Value Assumptions of Options |
3 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Minimum [Member] | ||
| Risk-free interest rates | 3.51% | 2.82% |
| Volatility | 83.00% | 159.00% |
| Expected life (years) | 5 years | 5 years |
| Maximum [Member] | ||
| Risk-free interest rates | 4.13% | 3.25% |
| Volatility | 152.00% | 223.00% |
| Expected life (years) | 6 years 1 month 6 days | 6 years |
Commitments and Contingencies (Details) |
3 Months Ended |
|---|---|
|
Jun. 30, 2023
USD ($)
| |
| Commitments and Contingencies [Abstract] | |
| Purchase of machinery and equipment outstanding | $ 566,000 |