BEAR LAKE RECREATION INC
BEAR LAKE RECREATION INC details
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D .C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2022
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-41277
MODULAR MEDICAL, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16772 W. Bernardo Drive, San Diego, California
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per share MODD The Nasdaq Stock Market, LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 10,9 25,723 as of November 14, 2022.
SEPTEMBER 30, 2022
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION 3
Item 1. Financial Statements (Unaudited): 3
Condensed Consolidated Balance Sheets as of September 30, 2022 and March 31, 2022 3
Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2022 and 2021 4
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and six months ended September 30, 2022 and 2021 5
Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2022 and 2021 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 4. Controls and Procedures 19
PART II — OTHER INFORMATION 20
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Mine Safety Disclosures 21
Item 5. Other Information 21
Item 6. Exhibits 22
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
Modular Medical, Inc.
Condensed Consolidated Balance Sheets
September 30, March 31,
Cash and cash equivalents $ 1 0,840,597 $ 9,076,372
Prepaid expenses and other 164,566 313,422
TOTAL CURRENT ASSETS 11,005,163 9,389,794
Property and equipment, net 257,053 235,959
Right of use asset, net 75,421 120,693
Security deposit 100,000 100,000
TOTAL NON-CURRENT ASSETS 432,474 456,652
TOTAL ASSETS $ 1 1,4 37,637 $ 9,846,446
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable $ 244,626 $ 299,951
Accrued expenses 336,119 524,891
Short-term lease liability 114,368 144,857
TOTAL CURRENT LIABILITIES 695,113 969,699
LONG-TERM LIABILITIES ’
Long-term lease liability — 39,957
TOTAL LIABILITIES 695,113 1,009,656
Commitments and Contingencies (Note 8)
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding — —
Common Stock, $0.001 par value, 50,000,000 shares authorized; 10,9 25,723 and 10,461,898 shares issued and outstanding as of September 30, 2022 and March 31, 2022, respectively 10,9 26 10,462
Additional paid-in capital 52,260,567 43,406,099
Accumulated deficit (41,528,969 ) (34,579,771 )
TOTAL STOCKHOLDERS’ EQUITY 10,742,524 8,836,790
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 1 1,4 37,637 $ 9,846,446
The accompanying notes are an integral part of these condensed consolidated financial statements.
Modular Medical, Inc.
Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
September 30, September 30,
2022 2021 2022 2021
Research and development $ 2,385,539 $ 2,105,380 $ 4,607,523 $ 3,893,511
General and administrative 1,063,572 1,589,032 2,340,678 3,174,489
Total operating expenses 3,449,111 3,694,412 6,948,201 7,068,000
Loss from operations (3,449,111 ) (3,694,412 ) (6,948,201 ) (7,068,000 )
Other income 304 48 603 368,872
Interest expense — (685,793 ) — (1,194,670 )
Loss on debt extinguishment — — — (1,321,450 )
Loss before income taxes (3,448,807 ) (4,380,157 ) (6,947,598 ) (9,215,248 )
Provision for income taxes 1,600 1,600 1,600 1,600
Net loss $ (3,450,407 ) $ (4,381,757 ) $ (6,949,198 ) $ (9,216,848 )
Net loss per share
Basic and diluted $ (0.32 ) $ (0.69 ) $ (0.64 ) $ (1.46 )
Shares used in computing net loss per share
Basic and diluted 10,914,953 6,323,925 10,830,974 6,320,916
The accompanying notes are an integral part of these condensed consolidated financial statements.
Modular Medical, Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
Common Stock Paid-In Accumulated Stockholders’
Shares Amount Capital Deficit Equity
Balance as of March 31, 2022 10,461,898 $ 10,462 $ 43,406,099 $ (34,579,771 ) $ 8,836,790
Shares issued for services 348 — 1,576 — 1,576
Issuance of common stock and warrants in equity offering, net 449,438 449 7,371,898 — 7,372,347
Issuance of common stock under equity incentive plan 2,664 3 13,747 13,750
Stock-based compensation — — 724,819 — 724,819
Net loss — — — (3,498,791 ) (3,498,791 )
Balance as of June 30, 2022 10,914,348 $ 10,914 $ 51,518,139 $ (38,078,562 ) $ 13,450,491
Issuance of common stock under equity incentive plan 11,375 12 50,368 50,380
Stock-based compensation 692,060 692,060
Net loss (3,450,407 ) (3,450,407 )
Balance as of September 30, 2022 10,925,723 $ 10,926 $ 52,260,567 $ (41,528,969 ) $ 10,742,524
Common Stock Paid-In Accumulated Stockholders’
Shares Amount Capital Deficit Deficit
Balance as of March 31, 2021 6,302,050 $ 6,302 $ 14,665,559 $ (15,947,010 ) $ (1,275,149 )
Shares issued for service 20,000 20 172,180 — 172,200
Warrants issued with convertible notes — — 3,700,632 — 3,700,632
Issuance of common stock under equity incentive plan 1,836 2 32,495 — 32,497
Stock-based compensation — — 623,423 — 623,423
Net loss — — — (4,835,091 ) (4,835,091 )
Balance as of June 30, 2021 6,323,886 $ 6,324 $ 19,194,289 $ (20,782,101 ) $ (1,581,488 )
Net loss (4,381,757 ) (4,381,757 )
Balance as of September 30, 2021 6,327,521 $ 6,328 $ 20,056,716 $ (25,163,858 ) $ (5,100,814 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
Modular Medical, Inc.
Condensed Consolidated Statements of Cash Flows
Six Months Ended
Net loss $ (6,949,198 ) $ (9,216,848 )
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on PPP note forgiveness — (368,780 )
Loss on debt extinguishment — 1,321,450
Stock-based compensation expense 1,481,009 1,518,351
Depreciation and amortization 60,180 53,599
Shares for services 100,800 314,265
Amortization of lease right-of-use asset 45,272 38,085
Change in lease liability (70,446 ) (61,032 )
Amortization of debt discount — 824,439
Changes in assets and liabilities:
Other assets and prepaid expenses 49,632 (7,941 )
Accounts payable and accrued expenses (244,097 ) 799,687
Net cash used in operating activities (5,526,848 ) (4,784,725 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (81,274 ) (22,779 )
Net cash used in investing activities (81,274 ) (22,779 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants, net 7,372,347 —
Proceeds from issuance of convertible notes, net — 4,137,200
Net cash provided by financing activities 7,372,347 4,137,200
Net increase in cash and cash equivalents 1,764,225 (670,304 )
Cash and cash equivalents at beginning of period 9,076,372 1,468,465
Cash and cash equivalents at end of period $ 10,840,597 $ 798,161
Noncash investing and financing activities:
Fair value of detachable warrants issued with convertible notes $ — $ 3,700,632
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
MODULAR MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 to address shortcomings and problems represented by the relatively limited adoption of currently available pumps for insulin-dependent people with diabetes. The Company has developed a hardware technology allowing people with insulin-dependent diabetes to receive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount of insulin to be in the blood at all times and a “bolus” delivery to address meal time glucose input and to address when the blood glucose level becomes excessively high. By addressing the time and effort required to effectively treat their condition, the Company believes it can address the less technically savvy, less motivated part of the market.
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.
Financial Accounting Standards Board (FASB) Accounting Standard Update (ASU) No. 2014-15 (ASU 2014-15), Going Concern , requires management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. If management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management must consider if there are plans that are probable to be implemented, and whether it is probable that the plans will mitigate the conditions or events raising the substantial doubt about the entity’s ability to continue as a going concern. If the substantial doubt is not alleviated after consideration of management’s plans, the entity must include a statement in the notes to the financial statements indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued including: 1) the principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, 2) management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and 3) management’s plans to attempt to mitigate the conditions or events causing the substantial doubt about the entity’s ability to continue as a 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. 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.
The Company’s operating needs include the planned costs to operate its business, 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. These condensed consolidated financial statements do not include any adjustments that might result from this uncertainty.
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 2023 refers to the fiscal year ending March 31, 2023). 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, 2022 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 September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending March 31, 2023 or for any other future period.
Reverse Stock Split
On November 24, 2021, the Company filed a certificate of amendment to its amended and restated certificate of incorporation with the Secretary of State of the State of Nevada to effect a 1-for-3 reverse stock split of the Company’s shares of common stock. Such amendment and ratio were previously approved by a majority of the Company’s stockholders and the board of directors. As a result of the reverse stock split, which was effective November 29, 2021, every three shares of the Company’s pre-reverse split outstanding common stock were combined and reclassified into one share of common stock. Proportionate voting rights and other rights of common stock holders were not affected by the reverse stock split. Any fractional shares of common stock resulting from the reverse split were rounded up to the nearest whole share. All stock options outstanding and common stock reserved for issuance under the Company’s equity incentive plans and warrants outstanding immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by three and, as applicable, multiplying the exercise price by three, as a result of the reverse stock split. All share numbers, share prices, exercise prices and per share amounts have been adjusted, on a retroactive basis to reflect this 1-for-3 reverse stock split.
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.
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 high-quality financial institutions within the United States, which are insured by the Federal Deposit Insurance Corporation 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.
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 has 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. The full extent of the COVID-19 impact on the Company’s operational and financial performance will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of the Company’s control, and cannot be predicted.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Property and Equipment
Property and equipment are recorded at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally three to five years. Depreciation is recorded in operating expenses in the consolidated statements of operations. Leasehold improvements and assets acquired through capital leases are amortized over the shorter of their estimated useful life or the lease term, and amortization is recorded in operating expenses in the consolidated statements of operations.
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.
The Company’s right-of-use assets consist of leased assets recognized in accordance with F ASB Accounting Standards Codification (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 condensed consolidated balance sheets and are expensed on a straight-line basis over the lease term in the condensed consolidated statement of operations and comprehensive loss. The Company determines the lease term by agreement with 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.
The Company recognizes stock-based compensation for stock options 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.
Basic net loss per share is computed by dividing loss for the period by the weighted-average number of shares of common stock outstanding during the period. 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.
For the six months ended September 30, 2022 and 2021, 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.
Six Months Ended
Options to purchase common stock 2,030,250 4,972,948
Common stock warrants 7,565,588 —
Total 9,595,838 4,972,948
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 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, 2022 and 2021, the Company’s comprehensive loss was the same as its net loss.
Recently Issued Accounting Pronouncement
In June 2016, the FASB issued 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 is still evaluating the impact of this accounting guidance on its results of operations and financial position.
NOTE 2 – LEASES
The Company accounts for the lease of its corporate facility in San Diego, California in accordance with ASC No. 842. The 39-month lease term commenced April 1, 2020, and the lease provides for an initial monthly rent of approximately $12,400 with annual rent increases of approximately 3%. In addition to the minimum lease payments, the Company is responsible for property taxes, insurance and certain other operating costs. The right-to-use asset and corresponding liability for the facility lease have been measured at the present value of the future minimum lease payments. A discount rate of 11%, which approximated the Company’s incremental borrowing rate, was used to measure the lease asset and liability. Lease expense is recognized on a straight-line basis over the lease term.
The Company obtained a right-of-use asset of $270,950 in exchange for its obligations under the operating lease. The landlord also provided a lease incentive of approximately $139,000, which was paid to the Company in June 2020, for the Company to make improvements to the leased space. In addition, the Company paid a $100,000 security deposit.
Future minimum payments under the facility operating lease, as of September 30, 2022, are listed in the table below.
Annual Fiscal Years Operating
Imputed interest (735 )
Present value of lease liabilities $ 114,368
Cash paid for amounts included in the measurement of lease liabilities was $ 79,014 for the six months ended September 30, 2022. Rent expense was $ 53,842 and $ 53,768 for the six months ended September 30, 2022 and 2021, respectively and $ 26,921 and $ 26,844 for the three months ended September 30, 2022 and 2021, respectively.
NOTE 3 – PPP NOTE
On April 24, 2020, the Company received a $ 368,780 unsecured loan (the PPP Note) under the Paycheck Protection Program (the PPP), which was established under the U.S. government’s Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The PPP Note to the Company was made through Silicon Valley Bank (the Lender), and the Company entered into a U.S. Small Business Administration Paycheck Protection Program Note (the Agreement) with the Lender evidencing the PPP Note. The full amount of the PPP Note was due in April 2022 and interest accrued on the outstanding principal balance of the PPP Note at a fixed rate of 1.0% per annum, which was deferred for 10 months after the covered period during which the Company used the proceeds.
In May 2021, the Lender and the U.S. Small Business Administration notified the Company that the outstanding principal and accrued interest for the PPP Note was forgiven in full. The Company accounted for the forgiveness of the PPP Note in accordance with ASC Topic 470: Debt (ASC 470), and the amount forgiven was recorded as a gain on extinguishment and recognized in the other income line of the consolidated statement of operations.
NOTE 4 – CONVERTIBLE PROMISSORY NOTES
From February through April 2021, the Company sold $2,310,000 of convertible promissory notes (each an Original Note and, collectively, the Original Notes), at par in a private placement transaction effected pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. Effective April 30, 2021, pursuant to a revocation and replacement agreement between each holder of an Original Note and the Company, the $2,310,000 of Original Notes and accrued interest thereon as of April 30, 2021 were replaced with $2,360,550 aggregate principal amount of Notes and 2021 Warrants (as defined below). The Company accounted for the replacement of the Original Notes in accordance with ASC 470 and recorded a loss on extinguishment of $ 1,321,450 and interest expense of $ 70,647 for unamortized debt issuance costs as of April 30, 2021.
In April and May 2021, pursuant to a securities purchase agreement by and between the Company and each investor (the SPA), the Company sold to investors $ 4,250,000 aggregate principal amount of convertible promissory notes (the Notes) and warrants to purchase shares of its common stock (the 2021 Warrants). The Notes were unsecured obligations of the Company with each Note having a stated maturity date of 12 months from its issue date and accrued interest at a rate of 12% per annum, payable on maturity. If the Company completed an offering of its common stock or other securities in excess of $12,000,000 of gross proceeds (a Qualified Capital Raise, as defined in the Notes), each Note holder would be required to convert its Adjusted Note Amount (as defined below) into the securities of such Qualified Capital Raise. Adjusted Note Amount equals the product of (i) the sum of all outstanding principal plus accrued interest on a Note, multiplied by (ii) 1.25.
In connection with the issuance of the Notes, the Company issued the 2021 Warrants to purchase in the aggregate 767,796 shares of its common stock at an initial exercise price of $24.00 per share. The fair value of the 2021 Warrants was $3,700,632, of which $2,379,182 was recorded as a debt discount and amortized to interest expense, and $1,321,450 was recorded as a loss on debt extinguishment. The Company calculated the fair value of the Warrants utilizing the Black-Scholes valuation model with the following assumptions: volatility of 88.98 % , risk-free interest rate of 0.86 % , a term of 5.75 years and a dividend yield of zero .
Upon the closing of a public offering in February 2022, which was a Qualified Capital Raise, in accordance with their terms, the Notes converted into 1,511,276 shares of common stock and the holders of the Notes received an additional 1,511,276 common stock purchase warrants with an exercise price of $6.60 per share. In addition, as a result of the February 2022 equity offering, the exercise price of the 767,796 outstanding 2021 Warrants was reduced to $6.00 per share.
NOTE 5 – STOCKHOLDERS’ EQUITY (DEFICIT)
Placements of Common Stock and Warrants
On May 2, 2022, the Company entered into a securities purchase agreement (the Purchase Agreement) with an institutional investor, pursuant to which the Company sold, in a registered direct offering (the Registered Offering), which closed on May 5, 2022, an aggregate of 449,438 shares (the Shares) of the Company’s common stock, par value $0.001 per share, at a purchase price per Share of $4.45 and pre-funded warrants (the Pre-Funded Warrants) to purchase an aggregate of 1,348,314 shares of common stock at a purchase price per Pre-Funded Warrant of $4.44. The Pre-Funded Warrants will be exercisable immediately on the date of issuance at an exercise price of $0.01 per share and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full.
In a concurrent private placement under the Purchase Agreement, the Company issued to the Investor warrants (the Private Placement Warrants) to purchase an aggregate of 1,438,202 shares of common stock at an exercise price of $6.60 per share. The Private Placement Warrants will be exercisable beginning on the six-month anniversary of the date of issuance (the Initial Exercise Date) and will expire on the five-year anniversary of the Initial Exercise Date.
As of September 30, 2022, the Company had the following warrants outstanding:
Type Number of Exercise Expiration
Shares Price Date
Common stock 1,348,314 $ 0.01 —
Common stock 767,796 $ 6.00 April 2027 - May 2027
Common stock 4,011,276 $ 6.60 February 2027
Common stock 1,438,202 $ 6.60 November 2027
During the six months ended September 30, 2022 and 2021, the Company issued 348 and 20,000 shares of common stock, respectively, with a fair value of approximately $ 1,576 and $ 172,200 , respectively, to service providers.
NOTE 6 – 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 increases in the number of shares reserved for issuance under the Plan by 333,334 and 1,333,334 shares, respectively. 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 September 30, 2022, the unamortized compensation cost was $ 3,847,696 related to stock options and is expected to be recognized as expense over a weighted-average period of approximately 2.17 years.
During the six months ended September 30, 2022, the Company granted 14,039 shares to members of the Board in accordance with the compensation plan for non-employee directors. During the six months ended September 30, 2022, the Company granted options with 10-year terms to purchase 506,657 shares of its common stock to employees, directors and consultants. During the six months ended September 30, 2022, the fair value of awards granted was $ 2,174,367 , and $ 1,481,009 was recorded as stock-based compensation expense in the condensed consolidated statement of operations. The following assumptions were used in the fair value calculations:
The following assumptions were used in the fair value calculations:
Three Months Ended Six Months Ended
September 30, September 30,
2022 2021 2022 2021
Risk-free interest rates 3.00 % - 4.06 % 0.8 % - 0.98 % 2.82 % - 4.06 % 0.8 % - 0.98 %
Volatility 156 % - 159 % 367 % - 370 % 156 % - 223 % 89 % - 366 %
Expected life (years) 5.0 - 5.7 5.0 - 6.2 5.0 - 5.7 5.0 - 6.0
The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model, which includes simplified methods to establish the fair term of options, as well as average volatility. The risk-free interest rate was derived from the Daily Treasury Yield Curve Rates, as published by the U.S. Department of the Treasury as of the grant date for terms equal to the expected terms of the options. A dividend yield of zero was applied because the Company has never paid dividends and has no intention to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur.
A summary of stock option activity under the EIP is presented below:
Available Number of Exercise
for Grant Shares Prices
Balance at March 31, 2022 989,466 1,650,705 $ 6.58
Options granted (265,634 ) 265,634 4.35
Share awards (2,664 ) — —
Options cancelled and returned to the Plan 96,668 (96,668 ) 7.69
Balance at June 30, 2022 817,836 1,819,671 6.19
Options granted (241,023 ) 241,023 4.35
Share awards (11,375 ) — —
Options cancelled and returned to the Plan 30,444 (30,444 ) 4.67
Balance at September 30, 2022 595,882 2,030,250 $ 6.00
There were no stock options exercised during the six months ended September 30, 2022 and 2021.
The following table summarizes the range of outstanding and exercisable options as of September 30, 2022:
Options Outstanding Options Exercisable
Average Weighted Weighted Aggregate
Range of Exercise Price Number Remaining Average Number Average Intrinsic
Outstanding Contractual Exercise Exercisable Exercise value
Life Price Price
$3.95 - $17.70 2,030,250 8.02 $ 6.00 1,228,447 $ 5.65 $ 952,473
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.
The Company is required to present the tax benefits resulting from tax deductions in excess of the compensation cost recognized from the exercise of stock options as financing cash flows in the consolidated statements of cash flows. For the six months ended September 30, 2022 and 2021, there were no such tax benefits associated with the exercise of stock options, as no stock options were exercised.
NOTE 7 – 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 2022 may be subject to examination by the U.S. federal and state tax authorities. As of September 30, 2022, the Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions.
NOTE 8 – COMMITMENTS & 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.
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, 2022 and 2021 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, and no claims for payment have been made under such agreements.
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 28, 2022 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, 2022. 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 the Russian/Ukraine conflict and inflationary risks, including the risk that the cost of certain of the Company’s materials and product 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 2023 refers to the fiscal year ending March 31, 2023). Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” refer to Modular Medical, Inc. and its consolidated subsidiary .
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 Item 1 of this Report are issued exists. 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. 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 condensed consolidated financial statements in Item 1 of this Report and under Liquidity below.
COVID-19 and Macroeconomic Factors
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 has 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. The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments, including, without limitation, the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.
Since March 2020, the jurisdiction in which we operate has issued ’shelter-in-place” orders. We have complied with these orders, and, when such orders were in place, minimized business activities at our facility. We have implemented a teleworking policy for our employees and contractors to reduce on-site activity, as necessary. We have and continue to experience longer lead times for certain components used to manufacture initial quantities of our products for our submission to the U.S. Food and Drug Administration (FDA) for approval to commercialize our pump product. We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related to COVID-19. While we believe that our operations personnel are currently in a position to build an adequate supply of products for our FDA submission, we recognize that unpredictable events could create difficulties in the months ahead. We may not be able to address these difficulties in a timely manner, which could delay our submission to the FDA and negatively impact our business, results of operations, financial condition and cash flows.
We believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as well as conditions specific to us, are becoming more difficult to isolate or quantify. In addition, these direct and indirect factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears. We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.
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 costs pressures and recessionary fears have negatively impacted the global economy. During the third quarter of 2022, the U.S. Federal Reserve continued to aggressively address elevated inflation by increasing interest rates. The U.S. Federal reserve increased interest rates by 75 basis points in each of its meetings held in July, September and November 2022, with an additional increase forecasted for December 2022, as inflation remains elevated. We were recently able to raise additional capital through equity offerings in February 2022 and May 2022, however, we will need to raise additional capital to commercialize our pump product candidate and support our operations 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 II, 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, 2022. As of September 30, 2022, there have been no material changes to our significant accounting policies and estimates.
Results of Operations
Research and Development
September 30, Change
2022 2021 2021 to 2022
Research and development – Three months ended $ 2,385,539 $ 2,105,380 $ 280,159 13.3 %
Research and development – Six months ended $ 4,607,523 $ 3,893,511 $ 714,012 18.3 %
Our research and development expenses include personnel, consulting, product prototyping 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 the three and six months ended September 30, 2022 compared with the same period of fiscal 2021, primarily due to increased engineering and operations personnel costs, prototype and production component and material costs and higher stock-based compensation expenses. The increases in R&D expenses were partially offset by a decrease in consulting costs, as we reduced our utilization of consultants, as we increased our employee headcount and completed development of aspects of our pump design and features. Our full-time R&D employee headcount increased to 28 at September 30, 2022 from 15 at September 30, 2021. R&D expenses included stock-based compensation expenses of $361,829 and $116,742 for the three months ended September 30, 2022 and 2021, respectively, and $677,923 and $255,027 for the six months ended September 30, 2022 and 2021, respectively. We expect research and development expenses to increase for the remainder of fiscal 2023, as we continue to advance the development of our pump product and hire additional personnel to develop our manufacturing process.
General and Administrative
September 30, Change
2022 2021 2021 to 2022
General and administrative – Three months ended $ 1,063,572 $ 1,589,032 $ (525,460 ) (33.1 )%
General and administrative – Six months ended $ 2,340,678 $ 3,174,489 $ (833,811 ) (26.3 )%
General and administrative expenses consist primarily of personnel and related overhead costs for marketing, finance, human resources, legal and general management.
General and administrative expenses, or G&A, decreased for the three and six months ended September 30, 2022 compared with the same period of 2021, primarily as a result of decreased personnel, stock-based compensation, professional services and marketing costs. G&A expenses included stock-based compensation expenses of $380,611 and $745,689 for three months ended September 30, 2022 and 2021, respectively and $803,086 and $1,263,324 for the six months ended September 30, 2022 and 2021, respectively. We expect G&A expenses to remain flat for the remainder of fiscal 2023.
Liquidity and Capital Resources
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 six months ended September 30, 2022, we incurred a net loss of approximately $6.9 million. For the years ended March 31, 2022 and 2021, we incurred net losses of approximately $18.6 million and $7.4 million, respectively. At September 30, 2022, we had a cash balance of approximately $10.8 million and an accumulated deficit of approximately $41.5 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 of issuance of the consolidated financial statements included in Item 1 of this Report. Our consolidated 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 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, and we are currently seeking such additional financing. In May 2022, we completed a registered direct offering of securities for net proceeds of approximately $7.4 million.
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 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 will be required to curtail our research and development initiatives and take additional measures to reduce costs in order to conserve our cash.
For the six months ended September 30, 2022, we used $5,526,848 in operating activities, which primarily resulted from our net loss of $6,949,198, net changes in operating lease assets and liabilities of $25,174 and operating assets and liabilities $194,465, as adjusted for stock-based compensation expenses of $1,481,010, $100,800 for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of $60,180 and other immaterial adjustments. For the six months ended September 30, 2021, we used $4,784,725 in operating activities, which primarily resulted from our net loss of $9,216,848, increased for a non-cash gain on the PPP Note extinguishment of $368,780 and net changes in operating lease assets and liabilities of $22,947, as adjusted for changes to operating assets and liabilities of $791,746, a loss on debt extinguishment of $1,321,450 stock-based compensation expenses of $1,518,351, $314,265 for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of $53,599 and interest expense of $824,439 for amortization of debt discount.
For the six months ended September 30, 2022 and 2021, cash used in investing activities of $81,274 and $22,779, respectively, was for the purchase of property and equipment.
Cash provided by financing activities of $7,372,347 for the six months ended September 30, 2022 was attributable to net proceeds from the issuance of common stock upon completion of an equity offering, net of underwriting fees and issuance costs. Cash provided by financing activities of $4,137,200 for the six months ended September 30, 2021 was attributable to net proceeds from the issuance of our convertible promissory notes.
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
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, 2022, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting.
During the three months ended September 30, 2022, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. To our knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of us or our subsidiary, threatened against or affecting us, our common stock, our subsidiary or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
We face many significant risks in our business, some of which are unknown to us and not presently foreseen. These risks could have a material adverse impact on our business, financial condition and results of operations in the future. There are no material changes to the risk factors set forth under Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2022, which we filed with the SEC on June 28, 2022.
We might not be able to continue as a going concern.
Our unaudited condensed consolidated financial statements as of September 30, 2022 have been prepared under the assumption that we will continue as a going concern for the next twelve months. At September 30, 2022, we had cash and cash equivalents of $10.8 million and an accumulated deficit of $41.5 million. We do not believe that our cash, cash equivalents and investments are sufficient to fund our operations for the next 12 months, and we will need to raise additional capital. As a result of our expected operating losses and cash burn for the foreseeable future and recurring losses from operations, if we are unable to raise sufficient capital through additional debt or equity arrangements, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.
If we are unable to generate sustainable operating profit and sufficient cash flows, then our future success will depend on our ability to raise capital. We are seeking additional financing and evaluating financing alternatives in order to meet our cash requirements for the next 12 months. We cannot be certain that raising additional capital, whether through selling additional debt or equity securities or obtaining a line of credit or other loan, will be available to us or, if available, will be on terms acceptable to us. If we issue additional securities to raise funds, these securities may have rights, preferences, or privileges senior to those of our common stock, and our current stockholders may experience dilution. If we are unable to obtain funds when needed or on acceptable terms, we may be required to curtail our current product development programs, cut operating costs, forego future development and other opportunities or even terminate our operations.
The invasion of Ukraine by Russia could negatively impact our business.
Russia’s recent military invasion of Ukraine has led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia’s military invasion and the resulting sanctions have had an adverse effect on global markets. We cannot predict the progress or outcome of the situation in Ukraine, as the conflict and governmental reactions are rapidly developing and beyond our control. Prolonged unrest, intensified military activities, or more extensive sanctions impacting the region could have a material adverse effect on the global economy, and such effect could in turn have a material adverse effect on the operations, results of operations, financial condition, liquidity and outlook of our business.
Sustained inflation could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Inflation rates in the markets in which we operate have increased and may continue to rise. Inflation over the last several months has led us to experience higher costs, including higher labor, materials and transportation costs. Certain of our suppliers have raised their prices and may continue to raise prices. If inflation rates continue to rise or remain elevated for a sustained period of time, they could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
On September 30, 2022, we issued 6,375 shares of our restricted common stock to four of our non-employee directors in accordance with our Outside Director Compensation Plan.
On August 8, 2022, we issued 5,000 shares of our restricted common stock to two 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. We made such determinations based upon representations by the purchasers of such securities including, without limitation, that such purchasers were “accredited investors” as defined in 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
Item 5. Other Information
Item 6. Exhibits
Exhibit No. Description of Document
10.1(1)+ Offer Letter Agreement between the Registrant and Kevin Schmid dated July 13, 2022
31.1* Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
(1) As filed with the Registrant’s Current Report on Form 8-K filed July 26, 2022, and incorporated herein by reference.
+ Management contract, compensatory plan or arrangement
* Filed herewith
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 14, 2022 By: /s/ James E. Besser
James E. Besser
Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2022 By: /s/ Paul M. DiPerna
Paul M. DiPerna
Chairman, President, Chief Financial Officer
(Principal Financial Officer)