# Modular Medical, Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [Modular Medical, Inc.](/companies/modd.md) (CIK 1074871)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 17:29 ET
- Period: 2022-09-30
- Accession: 0001019056-22-000648
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1074871/000101905622000648/modular_2q23.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1074871/000101905622000648/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $2.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2022-04-01 to 2022-09-30 | $4.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$3.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-04-01 to 2022-09-30 | −$6.9m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | $1.6k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-04-01 to 2022-09-30 | $1.6k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$3.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-04-01 to 2022-09-30 | −$6.9m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months, 2022-04-01 to 2022-09-30 | −$5.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-04-01 to 2022-09-30 | $81.3k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $10.8m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $11.0m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $11.4m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $695.1k | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $695.1k | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $10.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,278 characters.

*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.

### 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 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, 2022 | 2021 | Change 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, 2022 | 2021 | Change 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.

## Market risk

As filed, 180 characters.

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.

## Controls and procedures

As filed, 1,273 characters.

#### 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.

## Risk factors

As filed, 3,973 characters.

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.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001019056-22-000648. Last ingested by Listed: Nov 6, 2026, 13:29 ET. No prices; not investment advice.