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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-16 · 144 added, 133 removed, 83 unchanged (77% of the section changed)

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and Analysis of Financial Condition and Results of Operations

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 29, 2021 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.

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 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,”

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31 of the calendar year indicated (for example, fiscal 2022 refers to the fiscal year ending March 31, 2022).

context requires otherwise, references to “we,” “us,” “our,” and the “Company”

refer to Modular Medical, Inc.

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 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.

We have 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 substantial time and effort required by them to effectively treat their condition, we believe

we can address the less technically savvy, less motivated part of the market, which we believe is underserved.

We continue to develop our insulin pump product

and are working on the required testing and documentation for our submission to the U.S.

Food and Drug Administration, or FDA, to

obtain clearance to bring the product to market.

We have therefore not generated any revenues from product sales.

Our net losses

were $4.8 million for the three months ended June 30, 2021 and $7.4 million and $5.3 million for the years ended March 31, 2021 and 2020,

respectively.

As of June 30, 2021, we had a negative working capital of approximately $2.0 million and an accumulated deficit of $20.8

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, the Company seeks to fundamentally alter the trade-offs between cost and complexity and access

to the higher standards of care that presently-available insulin pumps provide.

By simplifying and streamlining the user experience

from introduction, prescription, reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device

market beyond the highly motivated “super users” and expand the category into the mass market.

The product seeks to

serve both the type 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets.

Historically,

we have financed our operations principally through private placements of our common stock and convertible promissory

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.

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 and under Liquidity below.

we have financed our operations principally through private placements of our common stock and convertible promissory notes.

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.

Impacts of COVID-19

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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.

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

and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control, and cannot

be predicted.

In March 2020,

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longer lead times for certain components used to manufacture initial quantities of our products for our submission to the FDA.

which is expected to occur in the quarter ending December 31, 2021.

We remain diligent in continuing to identify and manage risks

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capital in a private placement of convertible promissory notes (see discussion below under Liquidity ).

need to raise additional capital to support our operations in the future.

However, we need

to raise additional capital to support our operations in the future.

We may be unable to access the capital markets or additional

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Annual Report on Form 10-K for the year ended March 31, 2021.

As of June 30, 2021, there have been no material changes to our

significant accounting policies and estimates.

As of September 30, 2021, there have been no material changes to

our significant accounting policies and estimates.

of Operations

and Development

Three months ended June 30,

Research and development –

and development expenses include personnel, overhead and other costs associated with the development of our insulin pump product.

We expense research and development costs as they are incurred.

Three months ended

Research and development

or R&D, expenses increased for the three months ended June 30, 2021 compared with the same period of 2020, primarily due to increased

engineering and operations personnel and consulting costs.

Our full-time R&D employee headcount increased to 22 at June 30, 2021

from 10 at June 30, 2020.

R&D expenses included stock-based compensation expenses of $138,286 and $103,725 for the quarters

ended June 30, 2021 and June 30, 2020, respectively.

We expect research and development expenses to increase for the remainder of

fiscal 2021, as we continue to advance the development of our pump product and develop a low-volume manufacturing process.

– Six months ended

and development expenses include personnel, consulting, materials and other costs associated with the development of our insulin

pump product.

We expense research and development costs as they are incurred.

development, or R&D, expenses increased for the three months ended September 30, 2021 as compared with the prior period of

fiscal 2021 primarily due to increased engineering and manufacturing consulting costs, as we have increased our development and

manufacturing activities.

R&D expenses increased for the six months ended September 30, 2021 as compared with the prior period

of fiscal 2021 primarily due to increased engineering and manufacturing personnel and consulting costs, protype and production

component and material costs and stock-based compensation expenses.

R&D expenses included non-cash, stock-based compensation

expenses of $116,742 and $101,915 for the three months ended September 30, 2021 and 2020, respectively, and $255,027 and $205,640

for the six months ended September 30, 2021 and 2020, respectively.

We expect R&D expenses to remain flat to slightly

decrease for the remainder of fiscal 2022, as we continue to advance the development of our pump product and develop an initial

low-volume manufacturing process.

Administrative

Three months ended June 30,

General and administrative

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

general management.

administrative expenses, or G&A, increased for the three months ended June 30, 2021 compared with the same period of 2020, primarily

as a result of increased personnel and consulting costs, stock-based compensation expenses and professional services fees.

Our full-time

G&A headcount increased to 4 at June 30, 2021 from 3 at June 30, 2020.

G&A expenses included stock-based compensation expenses

of $517,635 and $240,991 for quarters ending June 30, 2021 and June 30, 2020, respectively.

We expect G&A expenses to remain

flat for the remainder of fiscal 2022.

September 30,

General and administrative – Three months ended

General and administrative – Six months ended

administrative expenses consist primarily of personnel and related overhead costs for facilities, marketing, finance, human resources

and general management.

administrative, or G&A, expenses, increased for the three and six months ended September 30, 2021 as compared with the prior

periods of fiscal 2021 primarily as a result of increased stock-based compensation expense and increased consulting and legal

G&A expenses included stock-based compensation expenses of $745,689 and $198,689 for the three months ended September

30, 2021 and 2020, respectively, and $1,263,324 and $439,680 for the six months ended September 30, 2021 and 2020, respectively.

We expect G&A expenses to increase for the remainder of fiscal 2022, as we pursue a public offering of our common stock.

Interest Expense

September 30,

Interest expense – Three months ended

Interest expense – Six months ended

$ (1,194,670 )

Interest expense consisted of interest

expense on our convertible promissory notes, including amortization of debt issuance cost.

To date, we have accrued all interest

on the Notes.

See Note 4 to the condensed consolidated financial statements included in Item 1 of this Report for additional disclosure.

and Capital Resources

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enterprise, we do not currently have revenues to generate cash flows to cover operating expenses.

Since our inception, we have incurred

operating losses and negative cash flows in each year due to costs incurred in connection with R&D activities and G&A expenses

associated with our operations.

For the three months ended June 30, 2021, we incurred a net loss of approximately $4.4 million.

years ended March 31, 2021 and 2020, we incurred net losses of approximately $7.4 million and $5.3 million, respectively.

2021, we had a cash balance of approximately $3.4 million and an accumulated deficit of approximately $20.8 million.

When considered

with our current operating plan and the requirement to repay all of the Notes by May 2022, these conditions raise substantial doubt about

our ability to continue as a going concern for a period of at least one year from the date that the financial statements included in

Item 1 of this Report are issued.

Our financial statements do not include adjustments to the amounts and classification of assets and

liabilities that may be necessary should we be unable to continue as a going concern.

Our 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.

As discussed in Note 3 to our condensed consolidated financial statements in Item 1 of this

Report, we obtained forgiveness of the $368,000 principal balance and interest on the PPP Note we received from Silicon Valley Bank in

April 2020 under the U.S.

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, 2020, we incurred a net loss of approximately

$9.2 million.

For the years ended March 31, 2020 and 2019, we incurred net losses of approximately $5.3 million and $2.5 million,

respectively.

At September 30, 2021, we had a cash balance of approximately $0.8 million and an accumulated deficit of approximately

$25.2 million.

When considered with our current operating plan and the requirement to repay all of the Notes by May 2022, 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.

As discussed in Note 3 to our condensed consolidated financial statements in Item 1 of this Report, we obtained forgiveness of

the $368,000 principal balance and interest on the PPP Note we received from Silicon Valley Bank in April 2020 under the U.S.

Small Business Administration Paycheck Protection Program.

As discussed in Note 4 to our condensed consolidated

financial statements in Item 1 of this Report, in May 2021, we completed a private placement of $6,610,500 aggregate principal amount

of our convertible promissory notes (the Notes).

The Notes are unsecured obligations of ours with each Note having a stated maturity

date of 12 months from its issue date (the Issue Date).

The Notes bear interest at a rate of 12% per annum, payable on maturity, provided

that, if we fail to pay any amounts when due under a Note, the interest rate increases to the greater of 16% or the maximum amount permitted

Each Note may be prepaid at the Company’s option during the first 270 calendar days following its Issue Date (the 270 th day,

As discussed in Note 4 to our condensed consolidated financial statements

in Item 1 of this Report, in May 2021, we completed a private placement of $6,610,500 aggregate principal amount of our convertible

promissory notes (the Notes).

The Notes are unsecured obligations of ours with each Note having a stated maturity date of 12 months

from its issue date (the Issue Date).

The Notes bear interest at a rate of 12% per annum, payable on maturity, provided that,

if we fail to pay any amounts when due under a Note, the interest rate increases to the greater of 16% or the maximum amount permitted

Each Note may be prepaid at our option during the first 270 calendar days following its Issue Date (the 270 th day,

the Trigger Date), subject to a 110% prepayment penalty on all principal and accrued interest then outstanding.

be prepaid in whole or in part after the Trigger Date.

No Notes may be

prepaid in whole or in part after the Trigger Date.

As discussed in Note 9 to our condensed consolidated financial statements

in Item 1 of this Report, on October 28, 2021, we issued $250,000 of common stock in a private placement, and we issued a secured

promissory note (the Bridge Note) to an investor.

The Bridge Note provides us with a $3,000,000 revolving credit facility with

all amounts being drawn down by the Company thereunder being due and payable, subject to acceleration in the event of a default,

on March 15, 2022.

On November 9, 2021, we drew down $500,000 under the Bridge Note.

Our operating

needs include the planned costs to repay the Notes, if the Notes are not converted in connection with a future equity financing,

and 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 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, 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 three months ended June 30, 2021,

we used $2,204,621 in operating activities, which primarily resulted from our net loss of $4,835,091, increased for a non-cash gain on

the PPP Note extinguishment of $368,780 and net changes in operating lease assets and liabilities of $11,474, as adjusted for changes

to operating assets and liabilities of $403,174, a loss on debt extinguishment of $1,321,450 stock-based compensation expenses of $655,920,

$266,910 for issuances of shares of common stock in exchange for services, depreciation and amortization

expenses of $24,649, interest expense of $338,619 for amortization of debt discount, and other immaterial adjustments.

For the three months

ended June 30, 2020, we used $1,507,548 in operating activities, which primarily resulted from our net loss of $1,874,157 and changes

to operating assets and liabilities of $104,129, as adjusted for stock-based compensation expenses of $344,716, depreciation and amortization

expenses of $24,986, net changes in lease assets and liabilities of $101,611 and other immaterial adjustments.

For the three months

ended June 30, 2021, cash used in investing activities of $20,076 was for the purchase of property and equipment.

For the three months

ended June 30, 2020, cash used in investing activities of $12,934 was for the purchase of property and equipment.

Cash provided by financing activities of $4,137,200 for the three months

ended June 30, 2021 was attributable to net proceeds from the issuance of our Notes.

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 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 offering.

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 in order to conserve our cash.

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, interest expense of $824,439 for

amortization of debt discount, and other immaterial adjustments.

For the six months ended September 30, 2020, we used $3,029,671

in operating activities, which primarily resulted from our net loss of $3,734,886 and changes to operating assets and liabilities

of $122,860, as adjusted for stock-based compensation expenses of $645,320, depreciation and amortization expenses of $52,314,

net changes in lease assets and liabilities of $130,441.

For the six months ended September

30, 2021 and 2020, cash used in investing activities of $22,779 and $93,303, respectively was due to the purchase of property

and equipment.

Cash provided

by financing activities of $1,539,588 for the three months ended June 30, 2020 was attributable to proceeds of $1,170,808 from sales of

our common stock in a private placement initiated in March 2020 and $368,780 from the PPP Note.

Adopted Accounting Pronouncements

Recently Adopted

Accounting Pronouncements are detailed in Note 1 in the Notes to the Condensed Consolidated Financial Statements included in Item

1 of this Report.

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 Notes.

Cash provided by financing activities of $1,487,414 for the six months ended

September 30, 2020 was attributable to net proceeds of $1,118,634 from the sale of shares of our common stock in a private placement

that was initiated in March 2020 and $368,780 in proceeds from the PPP Note.

Quantitative and Qualitative Disclosures about Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis