UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
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For the Quarterly Period Ended
or
For the Transition Period from to
Commission file number:
(Exact Name of Registrant as Specified in its Charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
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| The |
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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| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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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
SEPTEMBER 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)
| September 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 | Six Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| 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)
| Common Stock | Additional 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 | ( | ) | ||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||
| Issuance of common stock under equity incentive plan | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net Loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional 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 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Issuance of common stock under equity Incentive plan | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance as of September 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)
| Six Months Ended | ||||||||
| September 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, 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 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 six months ended September 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.
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.
Wars and acts of terrorism have led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains elevated. While 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
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 $
| Six Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Options to purchase common stock | ||||||||
| Unvested restricted stock units | ||||||||
| 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 and six months ended September 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
| September 30, 2023 | March 31, 2023 | |||||||
| Property and equipment, net | (in thousands) | |||||||
| Machinery and equipment | $ | $ | ||||||
| Computer equipment and software | ||||||||
| Construction-in-process | ||||||||
| Leasehold improvements | ||||||||
| Office equipment | ||||||||
| Less: accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
| September 30, 2023 | March 31, 2023 | |||||||
| Accrued expenses | (in thousands) | |||||||
| 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 | ||||||||||||
| Type | Number of Shares | Exercise Price | Expiration | |||||||||
| Common stock | $ | |||||||||||
| Common stock | $ | |||||||||||
| Common stock | $ | |||||||||||
| Common stock | $ | |||||||||||
| Total | ||||||||||||
Other
During the six months ended September 30, 2023 and 2022, the Company
issued
10
NOTE 5 – STOCK-BASED COMPENSATION
Amended 2017 Equity Incentive Plan
In October 2017, the Company’s board
of directors (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 September
30, 2023, the unamortized compensation cost was approximately $
During the three months ended September 30, 2023,
the Company issued
Three
Months Ended | Six Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 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 | ||||||||||||
| Shares | Weighted Average | |||||||||||
| Available for Grant | Number of Shares | Exercise Prices | ||||||||||
| Balance at March 31, 2023 | $ | |||||||||||
| Options granted | ( | ) | ||||||||||
| Share awards | ( | ) | ||||||||||
| Options cancelled and returned to the Plan | ( | ) | ||||||||||
| Balance at June 30, 2023 | ||||||||||||
| Options granted | ( | ) | ||||||||||
| Share awards | ( | ) | ||||||||||
| RSUs granted | ( | ) | ||||||||||
| Options cancelled and returned to the Plan | ( | ) | ||||||||||
| Balance at September 30, 2023 | $ | |||||||||||
11
There were no stock options exercised during the six months ended September 30, 2023 and 2022.
| Number of Shares | Weighted Fair Value | |||||||
| Balance at March 31, 2023 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Non-vested shares as of September 30, 2023 | $ | |||||||
The total intrinsic value of the RSUs
outstanding as of September 30, 2023 was approximately $
Options Outstanding | Options Exercisable | |||||||||||||||||||||||
| Range of Exercise Price | Number Outstanding | Weighted Average | 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 September 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 six months ended September 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 September 30, 2023, the Company had outstanding purchase orders for machinery
and equipment and related expenditures of approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (this Report). This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising efforts, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on June 26, 2023 and in other reports that we file from time to time with the Securities and Exchange Commission. Any statements about our business, financial results, financial condition and operations contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,” or similar expressions are intended to identify forward-looking statements. Our actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2023. These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation, the direct and indirect effects of coronavirus disease 2019, or COVID-19, as well as inflationary risks, including the risk that the cost of certain of the Company’s components is increasing, and related issues that may arise therefrom. Many of those factors are outside of our control and could cause actual results to differ materially from those expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances, or assumptions underlying such statements, or otherwise.
Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2024 refers to the fiscal year ending March 31, 2024). Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” refer to Modular Medical, Inc. and its consolidated subsidiary.
Company Overview
We are a development-stage medical device company focused on the design, development and commercialization of an innovative insulin pump using modernized technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product, we seek to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of care that presently-available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription, reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated “super users” and expand the category into the mass market. The product seeks to serve both the type 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets.
Historically, we have financed our operations principally through private placements and public offerings of our common stock and sales of convertible promissory notes. Based on our current operating plan, substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included in this Report are issued exists. Our ability to continue as a going concern depends on our ability to raise additional capital, likely through the sale of equity or debt securities, to support our future operations. If we are unable to secure additional capital, we will be required to curtail our research and development initiatives and take additional measures to reduce costs. We have provided additional disclosure in Note 1 to the consolidated financial statements in Item 1 of this Report and under Liquidity below.
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Economic Disruptions
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. government in March 2020. This negatively affected the U.S. and global economy, disrupted global supply chains, significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in- place” and created significant disruption of the financial markets. While the U.S. national emergency expired in May 2023 and substantially all closures and “shelter-in-place” orders have ended, there can be no assurance that the COVID-19 pandemic will not impact our operational and financial performance in the future, as the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread are uncertain, out of our control, and cannot be predicted.
Wars and acts of terrorism have led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains elevated. While we were able to access the capital markets in May 2023 and 2022, in the future, we may be unable to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our existing stockholders and to our business.
For additional information on risks that could impact our future results, please refer to “Risk Factors” in Part I, Item 1A of this Report.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2023. As of September 30, 2023, there have been no material changes to our significant accounting policies and estimates.
Results of Operations
Research and Development
| September 30, | Change | |||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| 2023 | 2022 | 2022 to 2023 | ||||||||||||||
| Research and development – Three months ended | $ | 2,980 | $ | 2,385 | $ | 595 | 24.9 | % | ||||||||
| Research and development – Six months ended | $ | 5,584 | $ | 4,607 | 977 | 21.2 | % | |||||||||
Our research and development expenses include personnel, overhead and other costs associated with the development and initial production of our insulin pump products. We expense research and development costs as they are incurred.
Research and development, or R&D, expenses increased for the three months ended September 30, 2023 compared with the same period of 2022, primarily due to increased employee-related costs of approximately $377,000, increased material costs of approximately $165,000 and increased consulting expenses of approximately $41,000. The increases in material and consulting costs were primarily attributable to pre-submission activities, as we are producing units and incurring testing costs in anticipation of the 510(k) submission of our pump product to the U.S. Food and Drug Administration, or FDA.
R&D expenses increased for the six months ended September 30, 2023 compared with the same period of 2022, primarily due to increased employee-related costs of approximately of $786,000, an increase of approximately $61,000 in stock-based compensation expense and an increase in materials costs of $342,000. These increases were partially offset by an approximately $213,000 decrease in consulting costs, as we have increased our employee headcount and completed development of our pump product. The increase in material costs were primarily attributable to pre-submission activities, as we are producing units and incurring testing costs in anticipation of our 510(k) submission to the FDA.
Our R&D employee headcount increased to 35 at September 30, 2023 from 28 at September 30, 2022. R&D expenses included stock-based compensation expenses of approximately $373,000 and $362,000 for the three-months ended September 30, 2023 and 2022, respectively, and $739,000 and $678,000 for the six months ended September 2023 and 2022, respectively. We expect research and development expenses to increase for the remainder of fiscal 2024, as we expect to incur increased costs in connection with our pre-submission testing for submission of our MODD-1 insulin pump to the FDA.
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General and Administrative
| September 30, | Change | |||||||||||||||
| (dollar amounts in thousands) | ||||||||||||||||
| 2023 | 2022 | 2022 to 2023 | ||||||||||||||
| General and administrative – Three months ended | $ | 1,210 | $ | 1,064 | $ | 146 | 13.7 | % | ||||||||
| General and administrative – Six months ended | $ | 2,357 | $ | 2,341 | $ | 16 | 0.7 | % | ||||||||
General and administrative expenses consist primarily of personnel and related overhead costs for finance, human resources, marketing, and general management.
General and administrative, or G&A, expenses increased for the three months ended September 30, 2023 compared with the same period of the prior year, primarily as a result of increases in facility-related expenses of approximately $120,000, marketing-related expenses of approximately $85,000, depreciation expense of approximately $72,000, and employee-related costs of approximately $70,000, as partially offset by a decrease in expenses for stock-based compensation of approximately $190,000 and consulting and professional services of approximately $90,000.
G&A expenses increased for the six months ended September 30, 2023 compared with the same period of the prior year, primarily as a result increases in facility-related costs of approximately $230,000, employee-related costs of approximately $150,000, depreciation expense of approximately $110,000, and marketing-related expenses of approximately $80,000, as partially offset by decreases in stock-based compensation expenses of approximately $495,000 and consulting and professional services expenses of approximately $238,000.
Our G&A employee headcount increased to four at September 30, 2023 from two at September 30, 2022. G&A expenses included stock-based compensation expenses of approximately $191,000 and $381,000 for the three months ended September 30, 2023 and 2022, respectively, and $308,000 and $803,000 for the six months ended September 30, 2023 and 2022, respectively. We expect G&A expenses to remain consistent for the remainder of fiscal 2024.
Liquidity and Going Concern
As a development-stage enterprise, we do not currently have revenues to generate cash flows to cover operating expenses. Since our inception, we have incurred operating losses and negative cash flows from operations in each year due to costs incurred in connection with R&D activities and G&A expenses associated with our operations. For the six months ended September 30, 2023 and year ended March 31, 2023, we incurred net losses of $7.9 million and $13.9 million, respectively. At September 30, 2023, we had a cash balance of approximately $6.3 million and an accumulated deficit of $56.4 million. When considered with our current operating plan, these conditions raise substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included in this Report are issued. Our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our operating needs include the planned costs to operate our business, including amounts required to fund research and development activities, including clinical studies, working capital and capital expenditures. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities to support our future operations. In May 2023, we completed a public offering of units, comprising shares of our common stock and warrants to purchase shares of our common stock, for net proceeds of $9.7 million. Our future capital requirements and the adequacy of our available funds will depend on many factors, including, without limitation, our ability to successfully commercialize our product, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product offerings. If we are unable to secure additional capital timely, we may be required to curtail R&D initiatives, reduce headcount and take additional measures to reduce costs in order to conserve our cash.
For the six months ended September 30, 2023, we used approximately $6,484,000 in operating activities, which primarily resulted from our net loss of approximately $7,920,000 and net changes in operating assets and liabilities of approximately $224,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $1,048,000, depreciation and amortization expenses of approximately $153,000 and other immaterial adjustments. For the six months ended September 30, 2022, we used $5,527,000 in operating activities, which primarily resulted from our net loss of $6,949,000, as adjusted for changes to operating assets and liabilities of approximately $194,000, as adjusted for non-cash items, including stock-based compensation expenses of approximately $1,481,000, approximately $101,000 for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of approximately $60,000 and other immaterial adjustments.
For the six months ended September 30, 2023 and 2022, cash used in investing activities of approximately $718,000 and $81,000, respectively, was for the purchase of property and equipment.
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Cash provided by financing activities of $9.7 million for the six months ended September 30, 2023 was attributable to net proceeds from the issuance of common stock and warrants in a public offering, which closed in May 2023. Cash provided by financing activities of $7.4 million for the six months ended September 30, 2022 was attributable to net proceeds from the issuance of common stock and warrants in a registered direct offering, which closed in May 2022.
Purchase Obligations
Our primary purchase obligations include purchase orders for machinery and equipment. At September 30, 2023, we had outstanding purchase orders for machinery and equipment and related expenditures of approximately $996,000.
Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements are detailed in Note 1 in the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our management concluded that, as of September 30, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting.
During the three months ended September 30, 2023, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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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, Use of Proceeds, and Issuer Repurchases of Equity Securities
Recent Sales of Unregistered Securities
On September 29, 2023, we issued the following shares of unregistered common stock: i) a total of 6,265 shares to four of our non-employee directors in accordance with our Outside Director Compensation Plan; and ii) 20,834 shares to one of our non-employee directors upon vesting of a restricted stock unit award. On August 14, 2023, we issued 1,428 shares of unregistered common stock to a service provider. The aforementioned issuances were made pursuant to exemptions from registration pursuant to Section 4(2) and/or Rule 506 of Regulation D of the Securities Act.
Item 3. Defaults Upon Senior Securities
There has been no default in the payment of principal, interest, or a sinking or purchase fund installment, or any other material default, with respect to any indebtedness of ours.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit | Reference | Filed or Furnished | ||||||||
| Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | |||||
| 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 September 30, 2023, filed with the SEC on November 13, 2023, formatted in Inline Extensible Business Reporting Language (Inline XBRL): (i) the Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2023 and 2022, (ii) the Condensed Consolidated Balance Sheets as of September 30 2023 and March 31, 2023, (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended September 30, 2023 and 2022, (iv) the Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022, and (v) Notes to Condensed Consolidated Financial Statements. | X | ||||||||
| 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: November 13, 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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