Item 9A. Controls and Procedures
ITEM
9A: CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure controls
and procedures are designed to ensure that information required to be disclosed in the reports filed with or furnished to the Securities
and Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the
Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to
allow timely decisions regarding required disclosure.
Under the supervision
and with the participation of our management, including our chief executive officer and our chief financial 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 (the Exchange Act). Based on this evaluation, our management concluded that as
of March 31, 2022, our disclosure controls and procedures were effective.
Management’s
Annual Report on Internal Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible
controls. Internal control over financial reporting is the process designed by, or under the supervision of, our chief executive officer
and chief financial officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with generally accepted accounting principles, and includes those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management
and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of our assets that could have a material effect on the financial statements.
62
Because of its inherent
limitations, cost-effective internal controls over financial reporting may not prevent or detect misstatements. All internal control
systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding
controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to
consolidated financial statement preparation. 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 and chief financial officer, we conducted an assessment
of the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form
10-K. In making this assessment, we used the criteria based on the framework in Internal
Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on the assessment, our management concluded that our internal control over financial reporting was effective as of
March 31, 2022.
Changes
in Internal Control over Financial Reporting
There were no changes in our internal controls
over financial reporting during the fourth fiscal quarter of 2022 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM
9B: OTHER INFORMATION
None
ITEM
9C: DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable
63
PART
III
ITEM
10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The names of our directors, executive officers
and certain information about each of them at March 31, 2022 are set forth below.
Name
Age
Position
James
Besser
46
Chief
Executive Officer
Paul
DiPerna
64
President,
Chief Financial Officer, Treasurer and Chairman of the Board of Directors
William J. Febbo(1)
53
Director
Steven Felsher(2)(3)
73
Director
Morgan
C. Frank
50
Director
Philip Sheibley(2)(3)
63
Director
Carmen Volkart(1)(2)
61
Director
Ellen O’Connor Vos
66
Director
(1)
Member
of Compensation Committee
(2)
Member
of Audit Committee
(3)
Member
of Nominating and Governance Committee
The principal occupations
and positions for at least the past five years of our directors and executive officers are described below. There are no family relationships
among any of our directors or executive officers.
James
“Jeb” Besser . Mr. Besser has served as our chief executive officer since February 23, 2022 and combines over 25 years
of experience in alternative investments, strategic advisory, corporate strategy and corporate governance. Since 1999, he has been a
Managing Member at Manchester Management Company, LLC (Manchester), an investment management firm. Mr. Besser is also currently a director
of River Stone Biotech, a development stage specialty bioprocessing company. He holds a B.A. in history from Brown University. We believe
that Mr. Besser is qualified to serve as member of our board of directors due to his extensive prior experience conducting financial
analysis of public companies (certain of which were in the development stage), including such public companies’ management teams,
products, including products in the development stage, the potential markets for such products and other factors that could affect the
likelihood and timing of success and market penetration of such entities’ products as well as his capital raising activities. We
believe this provides us with valuable insights into the financial markets and investment criteria of institutional and other investors
as well as capital raising activities.
Paul
DiPerna. Mr. DiPerna has been our chairman, chief financial officer, president and treasurer
since we acquired Quasuras, Inc. (Quasuras) in July 2017. He also served as our chief executive officer from July 2017 until August 2021.
In 2015, he founded Quasuras, an early-stage medical device company developing an insulin pump product, and, until its acquisition by
us, he served as its chief executive officer and chairman. Prior to that, Mr. DiPerna founded Fuel Source Partners, LLC to incubate early
stage medical device products and accumulate technical talent. Our current pump product was one of such proposed products and was spun-out
to Quasuras in 2015. From 2012 to 2015, he served as a co-inventor at a private company with property rights in a medical device used
for blood borne infection control called the Curos Cap, which was acquired by 3M Corporation. In 2003, Mr. DiPerna founded Tandem Diabetes
Care, Inc. (Tandem) and held various positions, including as director, chief executive officer and chief technology officer and was primarily
responsible for the design concept and development of Tandem’s initial insulin pump. Prior to that, he held executive and management
positions at Baxter Healthcare Corporation (Baxter) where he was tasked with identifying synergistic opportunities in the diabetes industry.
As a result, Mr. DiPerna developed substantial expertise and knowledge in the diabetes industry and led attempts by Baxter to acquire
three insulin pump manufacturers. Previously, he held mechanical design engineering positions in the automated test equipment and blood
separation sciences industries. Mr. DiPerna holds 70 patents in medical device and microfluidic technology and has achieved numerous
product clearances with the FDA. He has also achieved multiple successful exits with previous companies. Mr. DiPerna received a Masters
in Engineering Management from Northeastern University and a B.S. in Mechanical Engineering from the University of Massachusetts and
has spent over 35 years in the medical-device industry. We believe that Mr. DiPerna is qualified to serve as the chairman of our board
of directors due to his extensive knowledge and experience in the medical-device industry generally, and, in particular, with regard
to insulin pumps and the diabetes industry, as well as his management and leadership experience from holding director and senior executive
positions in other public and private companies and leading project development teams of medical device companies.
64
William
J. Febbo. Mr. Febbo was appointed to our board of directors in January 2020. He
is currently the Chief Executive Officer and a director of OptimizeRx Corporation, a digital health company focused on bringing life
sciences support to patients and providers, having joined the company in 2016. Since April 2022, he has served as member of the board
of directors of Augmedix, Inc., a Nasdaq-listed provider of automated medical documentation and data services. Mr. Febbo founded Plexuus,
LLC, a payment processing business for medical professionals in September 2015 and remained its Chairman from September 2015 to December
2020. From April 2007 to September 2015, he served as Chief Operating Officer of Merriman Holdings, Inc., an investment banking firm,
where he assisted with capital raises in the technology, biotechnology, clean technology, consumer and resources industries. Mr. Febbo
was a co-founder of, and from September 2013 to September 2015 served as Chief Executive Officer of, Digital Capital Network, Inc. a
transaction platform for institutional and accredited investors. He was a co-founder of, and from January 1999 to September 2015 was
Chief Executive Officer of, MedPanel, LLC, a provider of market intelligence and communications for the pharmaceutical, biomedical, and
medical device industries. Since 2017, Mr. Febbo has been a faculty member of the Massachusetts Institute of Technology’s linQ
program, which is a collaborative initiative focused on increasing the potential of innovative research to benefit society and the economy.
Since 2004, he has been a board member of the United Nations Association of Greater Boston, a resource for the citizens of Greater Boston
on the broad agenda of critical global issues addressed by the United Nations and its agencies. He holds a B.A. in international studies
and Spanish from Dickinson College. We believe that Mr. Febbo is qualified to serve on our board of directors because of his wealth of
experience in building and managing health services and financial businesses. Mr. Febbo brings more than 20 years of experience in building
and managing health services and financial businesses.
On January 29, 2018,
the Financial Industry Regulatory Authority (FINRA) accepted a Letter of Acceptance, Waiver and Consent (the Consent) submitted by Mr.
Febbo. Without admitting or denying the findings, Mr. Febbo consented to the sanctions and to the entry of findings that he permitted
Merriman Capital, Inc. to conduct a securities business while below its net capital requirement. From August 2012 to October 2015, he
was the Financial and Operations Principal (FinOp) for a registered broker-dealer, Merriman Capital, Inc. (Merriman). During certain
months, while Mr. Febbo was FinOp, FINRA found that certain of Merriman’s net capital filings with FINRA were inaccurate because
of the method by which Merriman calculated net capital and that, when corrected, it was retroactively determined that Merriman had operated
below its minimum net capital requirements. Mr. Febbo, as FinOp, signed certain of these reports and was thus held responsible. Based
on the Consent, in settlement, Mr. Febbo, who was then no longer registered with any broker-dealer, accepted a fine of $5,000, a 10-business
day suspension from acting as FinOp for any FINRA member and required to requalify by examination for the Series 27 license before again
acting in a FinOp capacity.
Steven
Felsher. Mr. Felsher was appointed to our board of directors in November 2021. Mr. Felsher is
an experienced executive with respect to finance, administration, governance and other aspects of public and private company management.
He has served as a member of the board of directors of Signal Hill Acquisition Corp., a special purpose acquisition company, since March
2021. From August 2018 to July 2020, he served as a member of the board of directors of Sito Mobile, Inc., a publicly-traded company
that provided customized, data-driven solutions for brands spanning all forms of media. From January 2011 to June 2019, Mr. Felsher was
a senior advisor at Quadrangle Group LLC, a private investment firm focused on the information and communications technology sectors.
He spent a substantial portion of his career with Grey Global Group Inc., a global marketing services company, where he served as a senior
executive from 1979 until 2007, most recently as vice chairman and chief financial officer. He holds a BA in classical Greek from Dickinson
College and a J.D. from Yale University School of Law. We believe that Mr. Felsher is qualified to serve on our board of directors because
of his extensive business experience with administration, governance, capital allocation and other aspects of public and private company
management.
Morgan
C. Frank. Mr. Frank was appointed to our board of directors in April 2017. Mr. Frank has
worked with Manchester, LP since May 2002, and, prior to such time, he was a founder and managing director at First Principles Group,
a boutique consultancy and principal investor specializing in corporate restructuring, restarts, intellectual property assessment and
salvage, and spin outs. Prior to such time, Mr. Frank spent approximately five years as an analyst and portfolio manager at Hollis Capital,
a San Francisco based hedge fund and prior thereto, Mr. Frank worked for an independent private client group at Paine Webber specializing
in primary research to develop investment ideas (particularly short sale ideas) for institutional clients. Prior to his employment at
Paine Webber, Mr. Frank was a currency trader for Eastern Vanguard. Mr. Frank holds a BA in Economics and in Political Science from Brown
University. We believe that Mr. Frank is qualified to serve as member of our board of directors due to his extensive prior experience
conducting financial analysis of public companies (certain of which were in the development stage), including such public companies’
management teams, products, including products in the development stage, the potential markets for such products and other factors that
could affect the likelihood and timing of success and market penetration of such entities’ products as well as his capital raising
activities. We believe this provides us with valuable insights into the financial markets and investment criteria of institutional and
other investors as well as capital raising activities.
65
Philip
Sheibley. Mr. Sheibley was appointed to our board of directors in November 2021. Mr. Sheibley
is an experienced executive and venture capitalist. Since 2011, he has served as a principal at Alumni Investment Partners, a private
equity firm. From 1981 to 2010, Mr. Sheibley served as a management and technology consultant with Accenture, where he focused on the
life sciences area, holding a variety of leadership positions, including North American industry director for life sciences and global
lead for management consulting. Mr. Sheibley holds a B.S. in industrial and systems engineering with a business minor from Lehigh University.
We believe that Mr. Sheibley is qualified to serve on our board of directors because of his extensive business experience in the life
sciences area and experience with venture capital investment and consulting, including financing transactions for early-stage and scale-up
stage companies, assisting with scale-up strategy/execution, and participating as a board member in the medical products industry.
Carmen
Volkart. Ms. Volkart was
appointed to our board of directors in December 2019. She has served as chief financial officer of Natureworks LLC, an advanced materials
company offering a portfolio of renewably-sourced polymers, since October 2018. Ms. Volkart served as a member of the board of directors,
including as a member of the audit committee of Antares Pharma, Inc., a Nasdaq-listed, specialty pharmaceutical company, from October
2021 to May 2022, when it was acquired by another Nasdaq-listed company. From October 2012 to July 2018, she served as chief financial
officer and, for a portion of that time, as senior vice president of commercialization for NxThera, Inc., a medical device company pioneering
the application of convective radiofrequency thermotherapy to treat endurological conditions. Ms. Volkart served as global chief financial
officer of Tornier N.V. from 2010 to 2012, and was chief operating and financial officer, corporate secretary, compliance officer and
treasurer of Spine Wave, Inc. from 2006 to 2010. Prior to 2006, she held various executive and financial positions at American Medical
Systems, Inc., Medtronic, Inc. and Honeywell, Inc. Ms. Volkart holds a B.S. in accounting from the University of North Dakota
and an MBA with a concentration in strategic management from the University of Minnesota. We believe that Ms. Volkart is qualified to
serve on our board of directors because of her substantial financial and public-company experience, as she has served as chief financial
officer at multiple medical device and other companies.
Ellen
O’Connor Vos. Ms. Vos was appointed to our board of directors in May 2021 and served as
our chief executive officer from August 2021 until February 23, 2022. Ms. Vos has served as a member of VosHealth LLC since November
2020. Prior to that, she served as the president and chief executive officer of the Muscular Dystrophy Association from October 2017
to November 2020. Previously, Ms. Vos had been chief executive officer of ghg | greyhealth group from 1996 to 2017, and she has been
a champion of using digital capabilities to improve the public health. Ms. Vos also serves on the board of OptimizeRX Corporation, a
publicly-traded digital health company, and the Jed Foundation, a leading nonprofit dedicated to protecting the emotional health of college
students, and was a founding board member of MMRF, a pioneering cancer research foundation. Ms. Vos holds a B.S. in nursing from Alfred
University. We believe that Ms. Vos is qualified to serve on our board of directors because of her executive experience and extensive
executive skills in digital marketing, commercialization and communications in the healthcare industry.
Involvement
in Legal Proceedings
Except with regard
to Mr. Febbo, to our knowledge, none of our executive officers or our directors has, during the last ten years:
· had
any bankruptcy petition filed by or against the business or property of the person, or of
any partnership, corporation or business association of which he was a general partner or
executive officer, either at the time of the bankruptcy filing or within two years prior
to that time;
· been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily
enjoining, barring, suspending or otherwise limiting, his or her involvement in any type
of business, securities, futures, commodities, investment, banking, savings and loan, or
insurance activities, or to be associated with persons engaged in any such activity;
· been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity
Futures Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated;
· been
the subject of, or a party to, any federal or state judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement
of a civil proceeding among private litigants), relating to an alleged violation of any federal
or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or
66
· been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act),
or any equivalent exchange, association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
To our knowledge, there
are no material proceedings to which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5%
of any class of voting securities of us, or any associate of any such director, officer, affiliate of ours, or security holder is a party
adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
Arrangements
for Appointment of Directors and Officers
Pursuant to the Reorganization
and Share Exchange Agreement dated as of July 24, 2017, by and among us, Quasuras, Mr. DiPerna and the other stockholders of Quasuras
(the Share Agreement), until July 24, 2022, our board of directors shall consist of no more than five and no less than two directors
of which (i) Manchester has the right to appoint two directors, pursuant to which Manchester appointed Mr. Frank and Ms. Volkart and
(ii) Mr. DiPerna, in addition to being our chairman of the board, has the right to appoint two additional directors, pursuant to which
he appointed Messrs. Burns and Febbo. In May 2021, the parties amended the Share Agreement and removed Manchester’s and Mr. DiPerna’s
rights to appoint directors. In addition, the parties agreed that Mr. DiPerna shall remain chairman of our board of directors until July
2022; provided, that in the event Mr. DiPerna resigns or is otherwise replaced as our chief executive officer, Mr. DiPerna shall remain
as chairman of our board of directors for an additional period of three years. Following such amendment, our board of directors increased
the size of the board to six members and, on May 18, 2021, appointed Ellen O’Connor Vos to our board.
The
DiPerna Employment and Related Agreements
We entered into an
employment agreement dated August 1, 2018, with Mr. DiPerna pursuant to which Mr. DiPerna was employed by us as our chief executive officer
and president for an initial 2-year term with automatic one-year renewals. Pursuant to such agreement, we agreed to pay Mr. DiPerna:
i) an annual salary of $200,000 in cash, ii) $100,000 per year in fully-vested stock options granted monthly at an exercise price determined
by our board of directors in its sole discretion and iii) an annual bonus of $300,000, payable at the discretion of our board of directors,
either in shares or in cash. If the board chooses to pay the bonus in shares, such shares will be valued at a price determined by our
board of directors. Pursuant to such employment agreement (i) if (a) we terminate Mr. DiPerna’s employment without cause or he
resigns with good reason, we will pay Mr. DiPerna a lump sum of $200,000, and (b) we terminate Mr. DiPerna’s employment for cause,
we are not obligated to make any severance payment and Mr. DiPerna will receive only his base compensation through the last day of his
employment, (ii) upon Mr. DiPerna’s death or disability, he will receive his base compensation through the last day of his employment
and will remain eligible for all applicable benefits relative to death or disability pursuant to any plans that we have in place at such
time, and (iii) upon a change of control (as defined in the employment agreement), Mr. DiPerna will be paid a lump sum of $100,000 within
sixty days of the time at which such change of control takes place.
In May 2020,
we amended our employment agreement with Mr. DiPerna to provide that in the event of a change in control:
· within
60 days of the date the change in control occurs, Mr. DiPerna shall be paid by us or our
successor in interest a lump sum cash payment equal to 12 months of Mr. DiPerna’s then
annual Base Compensation (as defined in the employment agreement); and
· immediately
prior to such change of control, any unvested stock options or other unvested securities
of ours issued to Mr. DiPerna shall automatically accelerate and immediately become fully
vested and exercisable.
In June 2020, our board
of directors approved an amendment to the employment agreement to provide that Mr. DiPerna’s base salary would be paid entirely
in cash commencing July 1, 2020. The payment of the additional cash component of Mr. DiPerna’s annual base salary ($8,333.33 per
month) was initially be deferred (the Deferred Salary) and accrue for Mr. DiPerna’s benefit until the Company has received $5,000,000
of cumulative gross proceeds of financing, at which time the Deferred Salary shall be paid to Mr. DiPerna and the salary deferrals will
cease. The salary deferrals ceased and the Deferred Salary was paid to Mr. DiPerna in May 2021. In August 2021, Mr. DiPerna resigned
as our chief executive officer, and he continues to serve as our president, chief financial officer, treasurer and chairman of our board
of directors.
67
If a change of control
occurred on March 31, 2022, under his employment agreement, Mr. DiPerna would be entitled to:
· payment
of a lump sum of $300,000 within 60 days of the time at which such change of control takes
place; and
· accelerated
vesting of 27,778 shares of common stock under an unvested stock option. The value of the
shares subject to accelerated vesting is calculated as the intrinsic value per share multiplied
by the number of shares that would become fully vested upon a change of control. The intrinsic
value per share would be calculated as the excess of the closing price of the common stock
of $4.40 on the Nasdaq Capital Market on March 31, 2022 over the exercise price of the option.
As of March 31, 2022, the intrinsic value was zero.
In connection with
our acquisition of Quasuras, we entered into an Intellectual Property Transfer Agreement dated as of July 24, 2017, with Quasuras and
Mr. DiPerna, pursuant to which Mr. DiPerna transferred to us all intellectual property rights owned directly and/or indirectly by him
related to our business. Separately, we agreed to pay Mr. DiPerna, as part of his compensation for services to be performed for us, pursuant
to a royalty agreement, certain fees based upon future sales, if any, of our potential product subject to a maximum $10,000,000 cap on
the aggregate amount of fees that Mr. DiPerna could earn from such arrangement.
The
Vos Employment Agreement
On August 11, 2021,
we entered into a two-year employment agreement (the Agreement) with Ms. Vos for her service as our chief executive officer, and the
Agreement renews for one-year terms, unless either party provides the other with 90-day prior written notice of termination. The Agreement
provided that Ms. Vos was entitled to total base compensation of $300,000 annually, as follows: a cash salary of $250,000 per year (the
Cash Salary), plus deferred salary of $50,000 per year (the Deferred Salary and, together with the Cash Salary, the Base Compensation).
On
February 23, 2022, Ms. Vos informed our board of directors that she was resigning from her position as our chief executive officer,
effective immediately (the Resignation). In connection with the Resignation, we and Ms. Vos entered into a Severance and Release
Agreement dated February 23, 2022 (the Separation Agreement). Pursuant to the Separation Agreement, Ms. Vos is entitled to receive
separation payments in an aggregate gross amount of $375,000. Under the terms of the Separation Agreement, the vesting of an option
to purchase 362,452 shares of the Company’s common stock, which was granted to Ms. Vos on August 11, 2021, ceased
on May 24, 2022 and the remaining unvested shares were forfeited.
Communications
with our Board of Directors
Stockholders who desire
to communicate with the board of directors, or a specific director, may do so by sending the communication addressed to either the corporate
secretary, the board of directors or any individual director, c/o Modular Medical, Inc., 16772 West Bernardo Drive, San Diego, California
92127. These communications will be delivered to the board of directors, or any individual director, as specified.
Corporate
Governance
Board
Leadership Structure and Role in Risk Oversight
Due to the small size
and early stage of the Company, we have not adopted a formal policy on whether the chairman and chief executive officer positions should
be separate or combined. Since 2017, Mr. DiPerna has been serving as our chairman, and, since February 23, 2022, Mr. Besser has been
serving as our chief executive officer. Our board of directors has oversight responsibility for our risk management processes. Our board
of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate, regarding
our assessment of risks. Our board of directors will focus on the most significant risks facing us and our general risk management strategy,
and also ensure that risks undertaken by us are consistent with our appetite for risk. While our board of directors oversees our risk
management processes, management is responsible for day-to-day risk management processes. We believe this division of responsibilities
is the most effective approach for addressing the risks facing us and that the leadership structure of our board of directors supports
this approach.
68
We have established
an audit committee, a compensation committee, and a nominating and governance committee. Each committee’s members and functions
are described below.
Audit
Committee
Our board of
directors established the audit committee (the Audit Committee) for the purpose of overseeing the accounting and financial reporting
processes and audits of our financial statements. The Audit Committee also is charged with reviewing any internal control violations
under our whistleblower policy. The responsibilities of our audit committee are described in the Audit Committee Charter adopted by our
board of directors, a current copy of which can be found on the investors section of our website, www.modular-medical.com.
Ms. Volkart, Mr. Felsher
and Mr. Sheibley are the current members of the Audit Committee. Mr. Felsher serves as the chairperson and has been designated by the
board of directors as the “audit committee financial expert,” as defined by Item 407(d)(5) of Regulation S-K under the Securities
Act of 1933, as amended, and the Exchange Act. That status does not impose duties, liabilities or obligations that are greater than the
duties, liabilities or obligations otherwise imposed on her as a member of the audit committee and the board of directors, however. Our
board of directors has determined that each of our Audit Committee members satisfies the “independence” requirements of the
Nasdaq listing rules and meets the independence standards under Rule 10A-3 under the Exchange Act.
Compensation
Committee
Our board of directors
established a compensation committee for the purpose of reviewing, recommending
and approving our compensation policies and benefits, including the compensation of all of our executive officers and directors . Mr.
Febbo and Ms. Volkart are the current members of the compensation committee, and Mr. Febbo serves as the chairperson. Each of
our compensation committee members satisfies the “independence” requirements of the Nasdaq listing rules and meets the independence
standards under Rule 10A-3 under the Exchange Act.
Our
compensation committee is responsible for reviewing, recommending and approving our compensation policies and benefits, including the
compensation of all of our executive officers and directors, and it also has the principal responsibility for the administration of our
equity incentive plan. The responsibilities of our compensation committee are more fully described in the Compensation Committee Charter
adopted by our board of directors, a current copy of which can be found on the investors section of our website, www.modular-medical.com.
Nominating
and Corporate Governance Committee
The Nominating and
Governance Committee consists of Mr. Sheibley and Mr. Felsher, and Mr. Sheibley serves as the chairperson. Each of the members of our
Nominating and Governance Committee satisfies the “independence” requirements of the Nasdaq listing rules and meets the independence
standards under Rule 10A-3 under the Exchange Act. The Nominating and Governance Committee will consider persons recommended by stockholders
for inclusion as nominees for election to our board of directors if the information required by our bylaws is submitted in writing in
a timely manner addressed and delivered to our secretary at the address of our executive offices.
The Nominating and
Governance Committee will identify and evaluate nominees for our board of directors, including nominees recommended by stockholders,
based on numerous factors it considers appropriate, some of which may include strength of character, mature judgment, career specialization,
relevant technical skills, diversity, and the extent to which the nominee would fill a present need on our board of directors. The responsibilities
of our Nominating and Governance committee are more fully described in the Nominating and Governance Committee Charter adopted by our
board of directors, a current copy of which can be found on the investors section of our website, www.modular-medical.com.
Code
of Business Conduct and Ethics for Employees, Executive Officers and Directors
We have adopted a Code
of Business Conduct and Ethics, or the Code of Conduct, applicable to all of our employees, executive officers and members of our board
of directors. The Code of Conduct is available on our website at www.modular-medical.com. Our Nominating and Governance Committee is
responsible for overseeing the Code of Conduct, and our board of directors must approve any waivers of the Code of Conduct. In addition,
we intend to post on our website all disclosures that are required by law concerning any amendments to, or waivers from, any provision
of the Code of Conduct.
69
Board
Diversity
We seek diversity in
experience, viewpoint, education, skill, and other individual qualities and attributes to be represented on our board of directors. We
believe directors should have various qualifications, including individual character and integrity; business experience; leadership ability;
strategic planning skills, ability, and experience; requisite knowledge of our industry and finance, accounting, and legal matters; communications
and interpersonal skills; and the ability and willingness to devote time to our company. We also believe the skill sets, backgrounds,
and qualifications of our directors, taken as a whole, should provide a significant mix of diversity in personal and professional experience,
background, viewpoints, perspectives, knowledge, and abilities. Nominees are not to be discriminated against on the basis of race, religion,
national origin, sex, sexual orientation, disability, or any other basis proscribed by law. The assessment of prospective directors is
made in the context of the perceived needs of our board of directors from time to time.
All of our directors
have held high-level positions in business or professional service firms and have experience in dealing with complex issues. We believe
that all of our directors are individuals of high character and integrity, are able to work well with others, and have committed to devote
sufficient time to the business and affairs of our company. In addition to these attributes, the description of each director’s
background set forth above indicates the specific qualifications, skills, perspectives, and experience necessary to conclude that each
individual should continue to serve as a director of ours.
Delinquent
Section 16(a) Reports
Section 16(a) of
the Exchange Act requires our directors, executive officers and persons who own more than 10% of a registered class of our equity securities
to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of
ours. Directors, executive officers and greater than 10% holders are required by SEC regulation to furnish us with copies of all Section 16(a) reports
they file. Based on our review of Forms 3 and 4 filed during fiscal 2022 (and any written representations to us by such persons),
we believe that all directors, executive officers and 10% stockholders complied with all applicable Section 16(a) filing requirements
during fiscal 2022, except that:
· Mr.
DiPerna failed to timely file a Form 4;
· Mr.
Felsher failed to timely file a Form 3 and a Form 4; and
· Mr.
Febbo failed to timely file a Form 4.
70
ITEM
11. EXECUTIVE COMPENSATION
SUMMARY
COMPENSATION TABLE
The following table sets forth compensation
information for fiscal 2022 and 2021 for each of our named executive officers.
Name and Principal
Position
Year
Salary
($)
Stock
Awards
($)
Option
Awards
($)(1)
Non-Equity
Incentive
Plan
Compensation
($)
All
Other
Compensation
($)
Total
($)
Paul DiPerna, President, Chief Financial Officer,
2022
370,833 (3)
—
—
—
—
370,833
Treasurer and Chairman (2)
2021
200,000
—
25,000
—
50,000 (4)
275,000
James E. Besser, Chief Executive Officer (5)
2022
—
—
—
—
—
—
Ellen O’Connor Vos, Chief Executive Officer (6)
2022
133,654
—
4,414,645
—
409,662 (7)
4,957,961
Stephen Daly, Chief Commercial Officer (8)
2022
59,395
—
—
—
6,046
65,441
2021
234,000
—
—
—
—
234,000
(1)
Award
amounts reflect the aggregate grant date fair value with respect to awards granted, as determined pursuant to FASB ASC Topic
718. The assumptions used to calculate the aggregate grant date fair value of option awards are set forth in the notes to the consolidated
financial statements included in item 8 of this Report. These amounts do not reflect actual compensation earned or to be earned by
our named executive officers.
(2)
From
August 2018 until June 30, 2020, Mr. DiPerna’s $300,000 annual salary was paid $200,000 in cash and $100,000 in fully-vested
stock options granted monthly.
(3)
Includes
payment of $70,833 of deferred salary.
(4)
Earned
as a bonus of which $22,000 was paid on April 30, 2021, and the remainder was paid in quarterly installments commencing on July 15,
2021.
(5)
Ms.
Besser was appointed our chief executive officer in February 2022 and is paid de minimis
compensation of $1.00 per year .
(6)
Ms.
Vos was appointed our chief executive officer in August 2021 at an annual cash salary of $250,000 per year plus deferred salary of
$50,000 per year. She resigned as our chief executive officer in February 2022. The compensation amounts disclosed in the table above
exclude amounts paid to Ms. Vos for her service as a non-employee director.
(7)
Represents
payment during fiscal 2022 of i) accrued holiday and vacation pay, ii) deferred salary and
iii) three months of salary for the notice period and accrued severance of $300,000 that
will be paid in fiscal 2023.
(8)
Mr. Daly became our chief commercial officer in
March 2020 at an annual base salary of $250,000. In February 2021, Mr. Daly converted to part time, and his annual base salary was
reduced to $125,000. Mr. Daly resigned as our Chief Commercial Officer in September 2021, and we and Mr. Daly entered into a consulting
arrangement pursuant to which Mr. Daly provides services to us on a part-time basis.
71
Outstanding
Equity Awards at Fiscal Year-End
The following
table shows certain information regarding outstanding equity awards held by our named executive officers as of March 31, 2022.
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price($)
Option
Expiration
Date(1)
Paul DiPerna
1,155
(2)
—
9.48
6/1/2030
1,169
(3)
—
9.48
5/1/2030
1,170
(4)
—
9.48
4/1/2030
1,660
(5)
—
7.44
3/2/2030
1,745
(6)
—
7.44
2/1/2030
1,727
(7)
—
7.44
1/1/2030
1,809
(8)
—
6.75
12/1/2029
1,811
(9)
—
6.75
11/1/2029
1,721
(10)
—
6.75
10/1/2029
1,662
(11)
—
6.75
9/15/2029
1,666
(12)
—
6.75
8/15/2029
1,660
(13)
—
6.75
7/15/2029
1,650
(14)
—
6.75
6/15/2029
1,677
(15)
—
6.75
5/15/2029
1,624
(16)
—
6.75
4/15/2029
1,694
(17)
—
6.75
3/15/2029
1,641
(18)
—
6.75
2/15/2029
1,603
(19)
—
6.75
1/15/2029
1,775
(20)
—
6.75
12/15/2028
1,775
(21)
—
6.75
11/15/2028
6,005
(22)
—
1.98
10/15/2028
6,005
(23)
—
1.98
09/15/2028
6,005
(24)
—
1.98
08/15/2028
2,222
(25)
27,778
6.75
11/25/2029
(1)
The
standard option term is ten years, but all of the options expire automatically unless exercised within 90 days after the cessation
of service as an employee, director or consultant.
(2)
The
option was granted on June 1, 2020, and the shares subject to this option were fully vested on the grant date.
(3)
The
option was granted on May 1, 2020, and the shares subject to this option were fully vested on the grant date.
(4)
The
option was granted on April 1, 2020, and the shares subject to this option were fully vested on the grant date.
(5)
The
option was granted on March 2, 2020, and the shares subject to this option were fully vested on the grant date.
(6)
The
option was granted on February 1,2020, and the shares subject to this option were fully vested on the grant date.
(7)
The
option was granted on January 1, 2020, and the shares subject to this option were fully vested on the grant date.
(8)
The
option was granted on December 1, 2019, and the shares subject to this option were fully vested on the grant date.
(9)
The
option was granted on November 1, 2019, and the shares subject to this option were fully vested on the grant date.
(10)
The
option was granted on October 1, 2019, and the shares subject to this option were fully vested on the grant date.
(11)
The
option was granted on September 15, 2019, and the shares subject to this option were fully vested on the grant date.
(12)
The
option was granted on August 15, 2019, and the shares subject to this option were fully vested on the grant date.
(13)
The
option was granted on July 15, 2019, and the shares subject to this option were fully vested on the grant date.
(14)
The
option was granted on June 15, 2019, and the shares subject to this option were fully vested on the grant date.
(15)
The
option was granted on May 15, 2019, and the shares subject to this option were fully vested on the grant date.
(16)
The
option was granted on April 15, 2019, and the shares subject to this option were fully vested on the grant date.
(17)
The
option was granted on March 15, 2019, and the shares subject to this option were fully vested on the grant date.
(18)
The
option was granted on February 15, 2019, and the shares subject to this option were fully vested on the grant date.
(19)
The
option was granted on January 15, 2019, and the shares subject to this option were fully vested on the grant date.
(20)
The
option was granted on December 15, 2018, and the shares subject to this option were fully vested on the grant date.
(21)
The
option was granted on November 15, 2018, and the shares subject to this option were fully vested on the grant date.
72
(22)
The
option was granted on October 15, 2018, and the shares subject to this option were fully vested on the grant date.
(23)
The
option was granted on September 15, 2018, and the shares subject to this option were fully vested on the grant date.
(24)
The
option was granted on August 15, 2018, and the shares subject to this option were fully vested on the grant date.
(25)
The
option was granted on November 25, 2019, and the shares subject to this option vest monthly over three years commencing January 1, 2020,
subject to continued service as an employee, director or consultant.
Employment
Agreements
We have entered into
our standard form of employment, confidential information and invention assignment agreement with each of our named executive officers.
We also have entered into agreements to indemnify our directors and executive officers, in addition to the indemnification provided for
in our certificate of incorporation and bylaws. These agreements, among other things, provide for indemnification of our directors and
certain executive officers for many expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any
such person in any action or proceeding, including any action by or in the right of the Company, arising out of such person’s services
as a director or executive officer of ours, any subsidiary of ours or any other company or enterprise to which such person provided services
at our request.
Director
Compensation
Effective April 1,
2021, our board of directors approved our outside (non-employee) director compensation plan (the Director Plan). Pursuant to the Director
Plan, outside directors are paid the following annual retainers:
·
$ 25,000
for service as a member of the board of directors;
·
$5,000
for service as chair of the audit committee; and
·
$5,000
for service as chair of the compensation committee.
The annual retainers
will be paid in quarterly installments in either cash, options to purchase shares of our common stock or in shares of our common stock,
as directed by each director based on an annual election. In addition, under the Director Plan, each director will also receive an annual
service equity award of $100,000 paid in quarterly installments in either options to purchase shares of our common stock or shares of
our common stock, as directed by each director based on an annual election.
In addition,
upon appointment to our board of directors, we award our non-employee directors a stock option grant under our Amended 2017 Equity Incentive
Plan (the 2017 Plan). During fiscal 2022, we awarded each of the new non-employee directors a stock option to purchase 16,667 shares
of our common stock. These options vest annually over three years from the date of appointment to our board of directors.
The following table summarizes the compensation earned by our non-employee directors in fiscal 2022:
Fee
Restricted Stock
Option
Compensation
Awards
Awards
All Other
Total
Name
($)
($)
($)(1)(2)
Compensation(3)
($)
Liam Burns(4)
18,750
—
222,291
—
241,041
William Febbo
30,000
—
—
100,000
130,000
Steven Felsher(5)
—
—
194,981
8,657
203,638
Morgan Frank
—
—
375,105
—
375,105
Philip Sheibley(5)
8,424
—
169,588
33,696
211,078
Carmen Volkart
—
—
296,423
29,671
326,094
Ellen O’Connor Vos(6)
2,953
—
281,339
—
284,292
(1)
Award
amounts reflect the aggregate grant date fair value with respect to awards granted, as determined pursuant to FASB ASC Topic 718.
The assumptions used to calculate the aggregate grant date fair value of option awards are set forth in the notes to the consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K. These amounts do not reflect actual compensation earned
or to be earned by our directors.
(2)
As
of March 31, 2022, our non-employee directors each held outstanding options to purchase the following number of shares of our
common stock: William Febbo, 66,667; Steven Felsher, 38,084; Morgan Frank, 100,699 ; Philip Sheibley, 16,667; Carmen Volkart;
90,558 and Ellen O’Connor Vos, 111,873 .
(3) Represents stock awards; we
calculated the estimated fair value of the stock awards issued to our non-employee directors using the closing price per share of our
common stock on the day prior to the grant date in accordance with the Director Plan.
73
(4) Mr. Burns resigned as a director
on December 31, 2021.
(5) Messrs. Felsher and Sheibley
were appointed to our board of directors on November 29, 2021.
(6) Ms. Vos was appointed to our
board of directors in May 2021 and as our chief executive officer in August 2021. In February 2022, Ms. Vos resigned as our chief executive
officer.
ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following
table sets forth certain information as of May 31, 2022 concerning the ownership of our common stock by:
· each
shareholder known by us to be the beneficial owner of more than 5% of the outstanding shares
of our common stock (currently our only class of voting securities);
· each
of our directors;
· each
of our executive officers; and
· all
directors and executive officers as a group.
Beneficial ownership
is determined in accordance with Rule 13d-3 of the Exchange Act, and includes all shares over which the beneficial owner exercises voting
or investment power. Shares that are issuable upon the exercise of options, warrants and other rights to acquire common stock that are
presently exercisable or exercisable within 60 days of May 31, 2022 are reflected in a separate column in the table below. These shares
are taken into account in the calculation of the total number of shares beneficially owned by a particular holder and the total number
of shares outstanding for the purpose of calculating percentage ownership of the particular holder. We have relied on information supplied
by our officers, directors and certain stockholders and on information contained in filings with the SEC. Except as otherwise indicated,
and subject to community property laws where applicable, we believe, based on information provided by these persons, that the persons
named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
The percentage of beneficial ownership is based on 10,911,684 shares of common stock outstanding as of May 31, 2022.
Unless otherwise stated,
the business address of each of our directors and executive officers listed in the table is 16772 West Bernardo Drive, San Diego, California
92127.
Name and principal position
Number of Shares
Beneficially Owned
(Excluding
Outstanding
Options and
Warrants)(1)
Number of
Shares Issuable
on Exercise of
Outstanding
Options and
Warrants(2)
Percent of
Class
JEB Partners, L.P.
2,720,577 (3)
653,511
29.17
Manchester Explorer, L.P.
2,720,577 (3)
653,511
29.17
Manchester Management LLC
2,720,577 (3)
653,511
29.17
Sio Capital Management, LLC
449,438 (4)
712,000 (5)
9.99
Directors and Officers:
James E. Besser
2,720,577
653,511
29.17
Paul DiPerna
2,553,586 (6)
186,682
24.69
William Febbo
79,105
113,260
1.74
Steven Felsher
2,174
21,417
*
Morgan C. Frank
2,720,577 (3)
737,554
29.69
Philip Sheibley
8,139
—
*
Carmen Volkart
3,999
73,892
*
Ellen O’Connor Vos(5)
18,519
95,206
1.03
All current directors and executive officers as a group (8 persons)
5,386,099
928,131
58.16
*
Represents
less than 1%
(1)
Excludes
shares subject to outstanding options and warrants to acquire common stock that are exercisable within 60 days of May 31, 2022.
(2)
Represents
the number of shares subject to outstanding options and warrants to acquire common stock that are exercisable within 60 days of May 31,
2022.
74
(3)
Includes
(i) 124,750 shares directly held by Mr. Besser, of which: (a) 60,277 shares were received in exchange for Mr. Besser’s shares as
a result of our acquisition of Quasuras; (b) 29,630 shares purchased in a private placement in 2018 (the 2018 Placement) and (c) 34,843
shares were purchased in a private placement in 2020 (the 2020 placement); (ii) 2,218,077 held by Manchester Explorer, L.P. of which:
(a) 1,515,152 shares were purchased in a private placement in 2017 (the 2017 Placement), (b) 157,037 shares were purchased in the 2018
Placement, (c) 11,614 were purchased in the 2020 Placement, (d) 300,000 shares were purchased in a public offering in February 2022,
and (e) 234,274 shares were acquired upon the conversion of a convertible note in February 2022; (iii) 317,473 shares held by JEB Partners,
L.P. of which (a) 252,526 shares were purchased in the 2017 Placement, (b) 53,333 shares were purchased in the 2018 Placement and (c)
11,614 shares were purchased in the 2020 Placement; and (iv) 60,277 shares held by Mr. Frank, which shares were received in our acquisition
of Quasuras in exchange for Mr. Frank’s shares of Quasuras. Mr. Besser, as the managing member, and Mr. Frank, as the portfolio
manager and consultant of Manchester Management, LLC, (MMC) the general partner of Manchester Explorer, L.P. and JEB Partners, L. P.,
have shared voting and dispositive power over shares held by Manchester Explorer, L.P. and JEB Partners, L.P. The address for Manchester
Explorer, L.P is c/o MMC, 2 Calle Candina, No. 1701, San Juan, Puerto Rico 00907.
(4)
Consists
of the following shares of Common Stock acquired in the Offering: (i) 144,438 shares of Common Stock held by Sio Partners LP (“Partners”),
(ii) 85,000 shares of Common Stock held by Sio Partners Offshore LTD (Offshore), (iii) 81,000 shares of Common Stock held by Compass
MAV LLC (Compass), (iv) 49,000 shares of Common Stock held by Compass Offshore MAV LTD (Compass Offshore), (v) 27,000 shares of Common
Stock held by Walleye Manager Opportunities LLC (Walleye Manager) and (vi) 63,000 shares of Common Stock held by Walleye Opportunities
Master Fund Ltd. (Walleye Master). Sio Capital Management, LLC (Sio Management) is the investment manager of Partners, Offshore,
Compass, Compass Offshore, Walleye Manager and Walleye Master, and Michael Castor is the sole owner and Managing Member of Sio Management.
Sio Management and Mr. Castor may be deemed to beneficially own the securities held by Partners, Offshore, Compass, Compass Offshore,
Walleye Manager, and Walleye Master. Each of Sio Management and Mr. Castor disclaim beneficial ownership of any of the shares of our
Common Stock they may be deemed to beneficially own except to the extent of their respective pecuniary interest therein. The address
for Sio Management, Mr. Castor, Partners, Offshore, Compass, Compass Offshore, Walleye Manager and Walleye Master is 600 Third Avenue,
New York, New York 10016.
(5)
These
shares are issuable upon exercise of outstanding pre-funded warrants to purchase shares of our Common Stock. As of May 31, 2022, Sio
Management held 1,348,314 pre-funded warrants to purchase shares of Common Stock. Pursuant to the terms of the pre-funded
warrants, Sio Management cannot exercise such pre-funded warrants if Sio Management would beneficially own, after such exercise, more
than 9.99% of the outstanding shares of our Common Stock. Accordingly, pre-funded warrants to purchase 636,314 shares of our Common Stock
have been excluded from the table above.
(6)
Includes
(i) 2,000,000 shares directly held by the Paul DiPerna Irrevocable Trust, (ii) 333,334 shares directly held by Mr. DiPerna’s adult
daughters, Kelsie DiPerna and Alaria DiPerna, which shares Mr. DiPerna has sole voting power over; (iii) 207,906 shares directly held
by the Paul DiPerna Trust, of which 101,010 shares were purchased in the 2017 Placement and 23,429 shares were acquired upon the conversion
off a convertible note in February 2022 and (iv) 12,346 shares held by Mr. DiPerna. The 2,000,000 shares held by the Paul DiPerna Irrevocable
Trust, 333,334 shares held by Mr. DiPerna’s adult daughters and 73,480 shares held by the Paul DiPerna Trust that were issued in
2017 to Mr. DiPerna in the Control Block Acquisition and transferred to such persons in December 2020 by Mr. DiPerna. Mr. DiPerna is
the chairman of our board of directors, and also serves as our president, chief financial officer and treasurer. Mr. DiPerna is the trustee
of both the Paul DiPerna Irrevocable Trust and the Paul DiPerna Trust.
75
ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with Related Persons
As
disclosed elsewhere in this Annual Report on Form 10-K, Mr. DiPerna, is a party to related party transactions with us,
see Item 10. Mr. DiPerna’s daughter is
an employee of ours, and, during fiscal 2022, we paid her $169,589, which includes the aggregate grant date fair value, as
determined pursuant to FASB ASC Topic 718, of a stock option granted in November 2021.
In
February 2021, Mr. DiPerna and Manchester Explorer, L.P. (the Related Party Holders), which is represented by Mr. Frank on our board
of directors, purchased $100,000 and $1,000,000, aggregate principal amount of our convertible notes and received warrants to purchase
119,237 and 11,924 shares of our common stock (the Note Warrants), respectively. Effective April 30, 2021, the Related Party Holders
entered into revocation agreements with the Company pursuant to which their collective $1,100,000 aggregate principal amount of
convertible notes and accrued interest of $50,091 were replaced with new convertible notes. In connection with a public offering
of our equity securities in February 2022, the convertible notes and accrued interest held by the Related Party Holders were converted
into our equity securities and Mr. DiPerna received 23,429 shares of our common stock and a warrant to purchase 23,429 shares of our
common stock at an exercise price of $6.60 per share and Manchester Explorer, L. P. received 234,274 shares of our common stock and a
warrant to purchase 234, 274 shares of our common stock at an exercise price of $6.60 per share. In addition, the exercise prices of
the Note Warrants were reduced to $6.00 per share.
In
May 2021, Mr. Febbo purchased $200,000 aggregate principal amount of our convertible notes and received a warrant to purchase 23,229
shares of our common stock (the Director Warrant). In connection with a public offering of our equity securities in February 2022, the
convertible note held by Mr. Febbo was converted into our equity securities. Upon conversion, Mr. Febbo received 45,586 shares of our
common stock and a warrant to purchase 45,586 shares of our common stock at an exercise price of $6.60 per share. In addition, the exercise
price of the Director Warrant was reduced to $6.00 per share.
In
October 2021, we sold 12,346 shares of common stock to Mr. DiPerna and 18,519 shares to Ms. Vos at a price per share
of $8.10 in a private placement.
Director
Independence
Our board
of directors has determined that each of the current directors, with the exception of Mr. DiPerna, Mr. Frank and Ms. Vos, is “independent,”
as defined by the listing rules of the NASDAQ Stock Market, or Nasdaq, and the rules and regulations of the SEC. Our board of directors
has standing Audit, Compensation and Nominating and Governance Committees, each of which is comprised solely of independent directors
in accordance with the Nasdaq listing rules. No director qualifies as independent unless the board of directors affirmatively determines
that he has no direct or indirect relationship with us that would impair his independence. We independently review the relationship of
the Company to any entity employing a director or on whose board of directors he is serving currently .
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table
shows the fees billed to us by Farber Hass Hurley LLP, or Farber, our independent registered public accounting firm, for the audit of
our consolidated financial statements and other services provided.
Year ended March 31,
2022
2021
Audit fees(1)
$ 43,000
$ 34,500
Audit-related fees(2)
10,200
3,700
Total(3)
$ 53,200
$ 38,200
(1)
Audit fees consisted of fees for professional services rendered for the audit of our annual consolidated financial statements and reviews of our quarterly consolidated financial statements
(2)
Audit-related fees consisted of fees for services related to our issuance of SEC registration statements and sales of common stock under registration statements.
(3)
Farber did not provide any non-audit or other services other than those reported under “Audit fees” and “Audit-related fees.”
76
PART
IV
ITEM
15: EXHIBITS
(a)(1)
Consolidated financial statements .
See the audited consolidated financial statements for the year ended March 31, 2022 contained in Item 8 of this Report which
are incorporated herein by this reference.
(2)
Financial statement schedul es. Omitted
because they are not required, not applicable or because the required information is shown in the consolidated financial statements
or notes thereto.
(3)
Exhibits . Required exhibits are
incorporated by reference or are filed with this Report.
No.
Description
1.1(18)
Form of Underwriting Agreement
2.1(1)
Reorganization and Share Exchange Agreement
dated as of July 24, 2017, by and among the Registrant, Quasuras, Inc., Paul DiPerna and the other stockholders of Quasuras, Inc.
2.2(2)
Addendum No. 1 to Reorganization and Share Exchange Agreement dated as of July 24, 2017, by and among the Registrant, Quasuras, Inc., Paul DiPerna and the other Stockholders of Quasuras, Inc. dated May 3, 2021
3.1(3)
Third Amended and Restated Articles of Incorporation, as filed with the Secretary of State of Nevada on June 27, 2017
3.2(4)
Certificate of Amendment to the Amended and Restated Articles of Incorporation of Modular Medical, Inc., filed with the Secretary of State of the State of Nevada on November 24, 2021
3.3(5)
Amended Bylaws
4.1(6) +
2017 Equity Incentive Plan, as amended
4.2*
Description
of Securities
4.3(20)
Form of Pre-Funded Warrant dated May 2, 2022
4.4(20)
Form of Private Placement Warrant dated May 2, 2022
4.5(18)
Form
of Warrant to Purchase Common Stock dated May 2, 2022
10.1(7)
Common Stock Purchase Agreement, dated
as of April 5, 2017, by and among Bear Lake Recreation, Inc., Manchester Explorer, LP, a Delaware limited partnership, and
certain persons named therein
10.2(1)
Form of Common Stock Purchase Agreement,
dated as of July 24, 2017, by and between the Registrant and the purchaser named therein
10.3(8)
Form
of Common Stock Purchase Agreement dated as of November 19, 2018 among the Registrant and the Investors named
therein
10.4(9) +
Employment Agreement dated August 1, 2018,
by and between the Registrant and Paul DiPerna
10.5(1)
Intellectual Property Assignment Agreement
dated July 24, 2017, by and between the Registrant, Quasuras, Inc. and Paul DiPerna
10.6(1) +
Technology Royalty Agreement dated as of
July 24, 2017, by and between the Registrant, Quasuras, Inc. and Paul DiPerna
10.7(9)
Service Agreement effective January 16,
2019 between the Registrant and Liam Burns
10.8(9)
Standard Sublease Agreement, dated August
21, 2017, between the Registrant and Western Education Corporation
10.9(10)
Lease between MCP Socal Industrial –
Bernardo, LLC and the Registrant dated January 10, 2020
10.10(10)
Consulting Agreement between the Registrant
and Liam Burns dated April 15, 2019
10.11(10)
Consulting Agreement between the Registrant
and Liam Burns dated July 15, 2019
10.12(10)
Consulting Agreement between the Registrant
and Liam Burns dated September 3, 2019
10.13(10)
Service Agreement effective December 31,
2019 between the Registrant and Carmen Volkart
10.14(10)
Service Agreement effective January 23,
2020 between the Registrant and William Febbo
10.15(10)
Form of Indemnification Agreement between
the Registrant and each of its directors and officers used from January 23, 2020
10.16(10) +
Form of Notice of Stock Option Grant and
Stock Option Agreement under the Amended 2017 Equity Incentive Plan
10.17(11)
Form of Common Stock Purchase Agreement dated March 2020 by and between the Registrant and the Investors named therein
10.18(12) +
First Amendment to Employment Agreement
between the Registrant and Paul DiPerna effective as of May 12, 2020
Second Amendment to Employment Agreement between the Registrant and Paul DiPerna effective as of July 1, 2020
10.19(13)
U.S. Small Business Administration Paycheck
Protection Program Note dated April 23, 2020
10.20(14)
Form of Promissory Note dated February 8, 2021
10.21(2)
Form of Convertible Promissory Note issued in the 2021 Private Placement
10.22(2)
Form of Common Stock Purchase Warrant issued in the 2021 Private Placement
10.23(2)
Form of Securities Purchase Agreement for the 2021 Private Placement
10.24(2)
Form of Registration Rights Agreement for the 2021 Private Placement
77
10.25(15) +
Service Agreement effective May 18, 2021 between the Registrant and Ellen O’Connor Vos
10.26(16) +
Employment Agreement between the Registrant and Ellen O’Connor Vos dated August 11, 2021
10.27(17)
Promissory Note dated October 28, 2021 between the Registrant and Manchester Explorer, L.P.
10.28(17)
Security Agreement dated October 28, 2021 between the Registrant and Manchester Explorer, L.P.
10.29(17)
Form of Common Stock Purchase Agreement dated October 28, 2021 between the Registrant and Investors
10.30(18)
Form of Warrant Agency Agreement
10.31(19)
Form of Warrant Omnibus Amendment Agreement
10.32(20)
Form of Securities Purchase Agreement dated May 2, 2022
10.33(21) +
Severance and Release Agreement between the Registrant and Ellen O’Connor Vos dated February 23, 2022
21.1
Sole Subsidiary of the Registrant (as disclosed
in the Notes to Consolidated Financial Statements as of March 31, 2022 in Item 8 of this Report)
24.1
Power of Attorney (see signature page of this Report)
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
(1) As
filed with the Registrant’s Current Report on Form 8-K filed July 28, 2017, and
incorporated herein by reference.
(2) As filed with the Registrant’s Current Report on Form 8-K filed May 12, 2021, and incorporated herein by reference.
(3) As filed with the Registrant’s Current Report on Form 8-K filed June 29, 2017, and incorporated herein by reference.
(4) As filed with the Registrant’s Current Report on Form 8-K filed December 1, 2021, and incorporated herein by reference.
(5) As filed with the Registrant’s Annual Report on Form 10-K/A for the year ended June 30, 2008, and incorporated herein by reference.
(6) As filed with the Registrant’s Quarterly Report on Form 10-Q filed
November 12, 2018, and incorporated herein by reference.
(7) As filed with the Registrant’s Current Report on Form 8-K filed April 5, 2017, and incorporated herein by reference.
(8) As filed with the Registrant’s Current Report on Form 8-K filed November 20, 2018 and incorporated herein by reference.
(9) As filed with the Registrant’s Registration Statement on Form S-1, as amended, originally filed June 27, 2019, declared effective October 22, 2019 (Commission File No. 333-232377), and incorporated herein by reference.
(10) As filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, and incorporated herein by reference.
(11) As filed with the Registrant’s Registration Statement on Form S-1, as amended, originally filed April 9, 2020, declared effective May 11, 2020 (Commission File No. 333-237615), and incorporated herein by reference.
(12) As filed with the Registrant’s Current Report on Form 8-K filed May 27, 2020, and incorporated herein by reference.
(13) As filed with the Registrant’s Current Report on Form 8-K filed May 12, 2020, and incorporated herein by reference.
(14) As filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, and incorporated herein by reference.
(15) As filed with the Registrant’s Annual Report on Form 10-K filed June 29, 2021, and incorporated herein by reference.
(16) As filed with the Registrant’s Current Report on Form 8-K filed August 16, 2021, and incorporated herein by reference.
(17) As filed with the Registrant’s Current Report on Form 8-K filed October 29, 2021, and incorporated herein by reference.
(18) As filed with the Registrant’s Current Report on Form 8-K filed February 14, 2022, and incorporated herein by reference.
(19) As filed with the Registrant’s Registration Statement on Form S-1 filed February 9, 2022, and incorporated herein by reference.
(20) As filed with the Registrant’s Current Report on Form 8-K filed May 5, 2022, and incorporated herein by reference.
(21) As filed with the Registrant’s Registration Statement on Form S-1 filed June 6, 2022 (Commission File No. 333-265444), and incorporated herein by reference.
+
Management contract,
compensatory plan or arrangement.
* Filed herewith
Item 16. Form
10-K Summary
Not
applicable.
78
SIGNATURES
Pursuant to the requirements of Section 13
or 15(d) 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, on the 28th day of June, 2022.
MODULAR
MEDICAL, INC.
By:
/s/
James E. Besser
James
E. Besser
Chief
Executive Officer,
(Principal
Executive Officer)
POWER
OF ATTORNEY
KNOW ALL PERSONS
BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James E. Besser and Paul DiPerna as her/his
true and lawful attorneys-in-fact and agent, with full power of substitution and resubstitution, for her and him and in her or his name,
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in- fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name
Title
Date
/s/
James E. Besser
Chief Executive
Officer (Principal Executive Officer)
June 28, 2022
James E. Besser
/s/
Paul DiPerna
Chairman, President
and Chief Financial Officer (Principal Financial and Accounting Officer)
June 28, 2022
Paul DiPerna
/s/ William
Febbo
Director
June 28, 2022
William Febbo
/s/
Steven Felsher
Director
June 28, 2022
Steven Felsher
/s/
Morgan C. Frank
Director
June 28, 2022
Morgan C. Frank
/s/
Philip Sheibley
Director
June 28, 2022
Philip Sheibley
/s/
Carmen Volkart
Director
June 28, 2022
Carmen Volkart
/s/
Ellen O’Connor Vos
Director
June 28, 2022
Ellen O’Connor Vos
79
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.