What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-11 · 194 added, 175 removed, 18 unchanged (95% of the section changed)

Management’s Discussion 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 28, 2022 and in other reports that we file from time to time with the Securities

and Exchange Commission.

Any statements about our business, financial results, financial condition and operations contained in this Report

that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words

“believes,” “anticipates,” “expects,” “intends,” “plans,” “projects,”

or similar expressions are intended to identify forward-looking statements.

Our actual results could differ materially from those expressed

or implied by these forward-looking statements as a result of various factors, including the risk factors described under Item 1A of

our Annual Report on Form 10-K for the year ended March 31, 2022.

These forward-looking statements represent our intentions, plans, expectations,

assumptions and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation,

the direct and indirect effects of coronavirus disease 2019, or COVID-19, as well as inflationary risks, including the risk that the

cost of certain of the Company’s components is increasing, and related issues that may arise therefrom.

Many of those factors are

outside of our control and could cause actual results to differ materially from those expressed or implied by those forward-looking statements.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might

occur to a different extent or at a different time than we have described.

You are cautioned not to place undue reliance on these forward-looking

statements, which speak only as of the date of this Report.

All subsequent written and oral forward-looking statements concerning other

matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety

by the cautionary statements contained or referred to in this Report.

We undertake no obligation to update or revise any forward-looking

statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying

such statements, or otherwise.

Our fiscal year

ends on March 31 of each calendar year.

Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the

calendar year indicated (for example, fiscal 2023 refers to the fiscal year ending March 31, 2023).

Unless the context requires otherwise,

references to “we,” “us,” “our,” and the “Company” refer to Modular Medical, Inc.

its consolidated subsidiary .

We are a development-stage

medical device company focused on the design, development and commercialization of an innovative insulin pump using modernized technology

to increase pump adoption in the diabetes marketplace.

Through the creation of a novel two-part patch pump, our MODD1 product, we seek

to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of care that presently-available

insulin pumps provide.

By simplifying and streamlining the user experience from introduction, prescription, reimbursement, training and

day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated “super users” and

expand the category into the mass market.

The product seeks to serve both the type 1 and the rapidly growing, especially in terms of

device adoption, type 2 diabetes markets.

Historically, we have

financed our operations principally through private placements and public offerings of our common stock and sales of convertible promissory

Based on our current operating plan, we believe we have adequate cash for at least the next 12 months.

Our long-term 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 consolidated financial statements

in Item 1 of this Report and under Liquidity below.

and Other Macroeconomic Factors

The global outbreak

of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with

the accompanying condensed consolidated financial statements and notes included in this Quarterly Report on Form 10-Q (this Report).

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E

of the Securities Exchange Act of 1934, which include, without limitation, statements about the market for our technology, our

strategy, competition, expected financial performance and capital raising efforts, and other aspects of our business identified

in our most recent annual report on Form 10-K filed with the Securities and Exchange Commission on June 28, 2022 and in other

reports that we file from time to time with the Securities and Exchange Commission.

Any statements about our business, financial

results, financial condition and operations contained in this Report that are not statements of historical fact may be deemed

to be forward-looking statements.

Without limiting the foregoing, the words “believes,” “anticipates,”

“expects,” “intends,” “plans,” “projects,” or similar expressions are intended

to identify forward-looking statements.

Our actual results could differ materially from those expressed or implied by these forward-looking

statements as a result of various factors, including the risk factors described under Item 1A of our Annual Report on Form 10-K

for the year ended March 31, 2022.

These forward-looking statements represent our intentions, plans, expectations, assumptions

and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation, the direct

and indirect effects of coronavirus disease 2019, or COVID-19 as well as the Russian/Ukraine conflict and inflationary risks,

including the risk that the cost of certain of the Company’s materials and product components is increasing, and related

issues that may arise therefrom.

Many of those factors are outside of our control and could cause actual results to differ materially

from those expressed or implied by those forward-looking statements.

In light of these risks, uncertainties and assumptions, the

events described in the forward-looking statements might not occur or might occur to a different extent or at a different time

than we have described.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as

of the date of this Report.

All subsequent written and oral forward-looking statements concerning other matters addressed in this

Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements

contained or referred to in this Report.

We undertake no obligation to update or revise any forward-looking statements, whether

as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements,

or otherwise.

year ends on March 31 of each calendar year.

Each reference to a fiscal year in this Report, refers to the fiscal year ended March

31 of the calendar year indicated (for example, fiscal 2023 refers to the fiscal year ending March 31, 2023).

Unless the context

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

Modular Medical, Inc.

and its consolidated subsidiary .

a development-stage medical device company focused on the design, development and commercialization of an innovative insulin pump

using modernized technology to increase pump adoption in the diabetes marketplace.

Through the creation of a novel two-part patch

pump, our MODD1 product, we seek to fundamentally alter the trade-offs between cost and complexity and access to the higher standards

of care that presently-available insulin pumps provide.

By simplifying and streamlining the user experience from introduction,

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

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

The product seeks to serve both the

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

Historically,

we have financed our operations principally through private placements and public offerings of our common stock and sales of convertible

promissory notes.

Based on our current operating plan, substantial doubt about our ability to continue as a going concern for

a period of at least one year from the date that the financial statements included in Item 1 of this Report are issued exists.

Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt

securities, to support our future operations.

If we are unable to secure additional capital, we will be required to curtail our

research and development initiatives and take additional measures to reduce costs.

We have provided additional disclosure in Note

1 to the condensed consolidated financial statements in Item 1 of this Report and under Liquidity below.

COVID-19 and Macroeconomic Factors

outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency

government in March 2020.

This has negatively affected the U.S.

and global economy, disrupted global supply chains, significantly restricted

travel and transportation, resulted in mandated closures and orders to “shelter-in-place” and created significant disruption

of the financial markets.

The full extent of the COVID-19 impact on our operational and financial performance will depend on future developments,

including, without limitation, the duration and spread of the pandemic and related actions taken by U.S.

and foreign government agencies

to prevent disease spread, all of which are uncertain, out of our control, and cannot be predicted.

In March 2020,

San Diego County in California, where we are based, and the state of California issued “shelter-in-place” orders (the Orders).

We complied with the Orders and minimized business activities at our San Diego facility from March 2020 until May 2021.

During that time,

we implemented a teleworking policy for our employees and contractors to reduce on-site activity at our facility.

In May 2021, our employees

and certain contractors returned to work in our office.

We have and continue to experience longer lead times for certain components used

to manufacture initial quantities of our products for our submission to the U.S.

Food and Drug Administration (FDA) for approval to commercialize

our pump product.

We remain diligent in continuing to identify and manage risks to our business given the changing uncertainties related

While we believe that our operations personnel are currently in a position to build an adequate supply of products for our

FDA submission, we recognize that unpredictable events could create difficulties in the months ahead.

We may not be able to address these

difficulties in a timely manner, which could delay our submission to the FDA and negatively impact our business, results of operations,

financial condition and cash flows.

believe that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as

and global economy, disrupted global supply chains,

significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place”

and created significant disruption of the financial markets.

The full extent of the COVID-19 impact on our operational and financial

performance will depend on future developments, including, without limitation, the duration and spread of the pandemic and related

actions taken by U.S.

and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control,

and cannot be predicted.

Since March 2020, the jurisdiction

in which we operate has issued ’shelter-in-place” orders.

We have complied with these orders, and, when such orders

were in place, minimized business activities at our facility.

We have implemented a teleworking policy for our employees and contractors

to reduce on-site activity, as necessary.

We have and continue to experience longer lead times for certain components used to

manufacture initial quantities of our products for our submission to the U.S.

Food and Drug Administration (FDA) for approval

to commercialize our pump product.

We remain diligent in continuing to identify and manage risks to our business given the changing

uncertainties related to COVID-19.

While we believe that our operations personnel are currently in a position to build an adequate

supply of products for our FDA submission, we recognize that unpredictable events could create difficulties in the months ahead.

We may not be able to address these difficulties in a timely manner, which could delay our submission to the FDA and negatively

impact our business, results of operations, financial condition and cash flows.

that as the COVID-19 pandemic evolves, the direct and indirect impacts of the pandemic on global macroeconomic conditions, as

well as conditions specific to us, are becoming more difficult to isolate or quantify.

In addition, these direct and indirect factors

can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs arising from

factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary fears.

expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic has subsided.

The continued spread

of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in February 2022

has led to further economic disruptions.

Mounting inflationary cost pressures and recessionary fears have negatively impacted the global

Federal Reserve increased interest rates starting in March 2022 and additional increases are expected throughout the

In addition, these direct and indirect

factors can make it difficult to isolate and quantify the portion of our costs that are a direct result of the pandemic and costs

arising from factors that may have been influenced by the pandemic, such as supply chain constraints, rising inflation, and recessionary

We expect these factors and their effects on our operations may persist for a longer period, even after the COVID-19 pandemic

has subsided.

The continued

spread of COVID-19 has also led to disruption and volatility in the global capital markets.

The Russian invasion of Ukraine in

February 2022 has led to further economic disruptions.

Mounting inflationary costs pressures and recessionary fears have negatively

impacted the global economy.

During the third quarter of 2022, the U.S.

Federal Reserve continued to aggressively address elevated

inflation by increasing interest rates.

Federal reserve increased interest rates by 75 basis points in each of its meetings

held in July, September and November 2022, with an additional increase forecasted for December 2022, as inflation remains elevated.

We were recently able to raise additional capital through equity offerings in February 2022 and May 2022, however, we will need

to raise additional capital to commercialize our pump product candidate and support our operations in the future.

We may be unable to

access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental to our

existing stockholders and to our business.

We may be unable

to access the capital markets, and additional capital may only be available to us on terms that could be significantly detrimental

to our existing stockholders and to our business.

For additional

information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A of this Report.

information on risks that could impact our future results, please refer to “Risk Factors” in Part II, Item 1A of this

Accounting Policies and Estimates

The discussion

and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which

have been prepared in accordance with U.S.

The preparation of these condensed consolidated financial statements requires us to

make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses.

On an ongoing basis, we make

these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances.

Actual results

may differ from these estimates and reported results could differ under different assumptions or conditions.

Our significant accounting

policies and estimates are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for

the year ended March 31, 2022.

As of June 30, 2022, there have been no material changes to our significant accounting policies and estimates.

and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements,

which have been prepared in accordance with U.S.

The preparation of these condensed consolidated financial statements requires

us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses.

On an ongoing

basis, we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances.

Actual results may differ from these estimates and reported results could differ under different assumptions or conditions.

significant accounting policies and estimates are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our

Annual Report on Form 10-K for the year ended March 31, 2022.

As of September 30, 2022, there have been no material changes to

our significant accounting policies and estimates.

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 and initial production of our insulin

pump product.

September 30,

Research and development – Three months ended

Research and development – Six months ended

and development expenses include personnel, consulting, product prototyping and other costs associated with the development and

initial production of our insulin pump product.

We expense research and development costs as they are incurred.

development, or R&D, expenses increased for the three months ended June 30, 2022 compared with the same period of 2021, primarily

due to increased engineering and operations personnel and higher stock-based compensation and consulting costs.

Our full-time R&D

employee headcount increased to 23 at June 30, 2022 from 22 at June 30, 2021.

R&D expenses included stock-based compensation expenses

of $316,094 and $138,286 for the three-months ended June 30, 2022 and June 30, 2021, respectively.

We expect research and development

expenses to increase for the remainder of fiscal 2023, as we continue to advance the development of our pump product and hire additional

personnel to develop our manufacturing process.

and 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

administrative expenses, or G&A, decreased for the three months ended June 30, 2022 compared with the same period of 2021, primarily

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

expenses included stock-based compensation expenses of $422,475 and $517,635 for the quarters ended June 30, 2022 and June 30, 2021,

and development, or R&D, expenses increased for the three and six months ended September 30, 2022 compared with the same period

of fiscal 2021, primarily due to increased engineering and operations personnel costs, prototype and production component and

material costs and higher stock-based compensation expenses.

The increases in R&D expenses were partially offset by a decrease

in consulting costs, as we reduced our utilization of consultants, as we increased our employee headcount and completed development

of aspects of our pump design and features.

Our full-time R&D employee headcount increased to 28 at September 30, 2022 from

15 at September 30, 2021.

R&D expenses included stock-based compensation expenses of $361,829 and $116,742 for the three months

ended September 30, 2022 and 2021, respectively, and $677,923 and $255,027 for the six months ended September 30, 2022 and 2021,

respectively.

We expect G&A expenses to remain relatively flat for the remainder of fiscal 2023.

We expect research and development expenses to increase for the remainder of fiscal 2023, as we continue to advance

the development of our pump product and hire additional personnel to develop our manufacturing process.

and Administrative

September 30,

General and administrative – Three months ended

General and administrative – Six months ended

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

legal and general management.

and administrative expenses, or G&A, decreased for the three and six months ended September 30, 2022 compared with the same

period of 2021, primarily as a result of decreased personnel, stock-based compensation, professional services and marketing costs.

G&A expenses included stock-based compensation expenses of $380,611 and $745,689 for three months ended September 30, 2022

and 2021, respectively and $803,086 and $1,263,324 for the six months ended September 30, 2022 and 2021, respectively.

G&A expenses to remain flat for the remainder of fiscal 2023.

and Capital Resources

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

Since our inception,

we have incurred operating losses and negative cash flows in each year due to costs incurred in connection with R&D activities and

G&A expenses associated with our operations.

For the three months ended June 30, 2022, we incurred a net loss of approximately $3.5

For the years ended March 31, 2022 and 2021, we incurred net losses of approximately $18.6 million and $7.4 million, respectively.

At June 30, 2022, we had a cash balance of approximately $13.7 million and an accumulated deficit of approximately $38.1 million.

May 2022, we completed a registered direct offering of securities for net proceeds of approximately $7.4 million.

Our operating needs

include the planned costs to operate our business, including amounts required to fund research and development activities, including

clinical studies, working capital and capital expenditures.

Our future capital requirements and the adequacy of our available funds will

depend on many factors, including, without limitation, our ability to successfully commercialize our product, competing technological

and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to

enhance or complement our product offerings.

If we are unable to secure additional capital timely, we will be required to curtail our

research and development initiatives and take additional measures to reduce costs in order to conserve our cash.

We believe that

our cash will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months.

For the three

months ended June 30, 2022, we used $2,675,627 in operating activities, which primarily resulted from our net loss of $3,498,791, net

changes in operating lease assets and liabilities of $12,587, as adjusted for changes to operating assets and liabilities of $17,791,

stock-based compensation expenses of $738,569, $51,188

for issuances of shares of common stock in exchange for services, depreciation and amortization expenses of $28,202, and other immaterial

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, 2022, cash used in investing activities of $76,017 was for the purchase of property and equipment.

For the three

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

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

inception, we have incurred operating losses and negative cash flows in each year due to costs incurred in connection with R&D

activities and G&A expenses associated with our operations.

For the six months ended September 30, 2022, we incurred a net

loss of approximately $6.9 million.

For the years ended March 31, 2022 and 2021, we incurred net losses of approximately $18.6

million and $7.4 million, respectively.

At September 30, 2022, we had a cash balance of approximately $10.8 million and an accumulated

deficit of approximately $41.5 million.

When considered with our current operating plan,

these conditions raise substantial doubt about our ability to continue as a going concern for a period of at least one year from

the date that of issuance of the consolidated financial statements included in Item 1 of this Report.

Our consolidated financial

statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should

we be unable to continue as a going concern.

Our ability to continue as a going concern depends on our ability to raise additional

capital through the sale of equity or debt securities to support our future operations, and we are currently seeking such additional

In May 2022, we completed a registered direct offering of securities for net proceeds

of approximately $7.4 million.

operating needs include the planned costs to operate our business, including amounts required to fund research and development

activities, including clinical studies, working capital and capital expenditures.

Our future capital requirements and the adequacy

of our available funds will depend on many factors, including, without limitation, our ability to successfully commercialize our

product, competing technological and market developments, and the need to enter into collaborations with other companies or acquire

other companies or technologies to enhance or complement our product offerings.

If we are unable to secure additional capital

timely, we will be required to curtail our research and development initiatives and take additional measures to reduce costs in

order to conserve our cash.

six months ended September 30, 2022, we used $5,526,848 in operating activities, which primarily resulted from our net loss of

$6,949,198, net changes in operating lease assets and liabilities of $25,174 and operating assets and liabilities $194,465, as

adjusted for stock-based compensation expenses of $1,481,010, $100,800 for issuances

of shares of common stock in exchange for services, depreciation and amortization expenses of $60,180 and other immaterial adjustments.

For the six months ended September 30, 2021, we used $4,784,725 in operating activities, which

primarily resulted from our net loss of $9,216,848, increased for a non-cash gain on the PPP Note extinguishment of $368,780 and

net changes in operating lease assets and liabilities of $22,947, as adjusted for changes to operating assets and liabilities

of $791,746, a loss on debt extinguishment of $1,321,450 stock-based compensation expenses of $1,518,351, $314,265 for issuances

of shares of common stock in exchange for services, depreciation and amortization expenses of $53,599 and interest expense of

$824,439 for amortization of debt discount.

six months ended September 30, 2022 and 2021, cash used in investing activities of $81,274 and $22,779, respectively, was for

the purchase of property and equipment.

provided by financing activities of $7,372,347 for the six months ended September 30, 2022 was attributable to net proceeds from

the issuance of common stock upon completion of an equity offering, net of underwriting fees and issuance costs.

Cash provided

by financing activities of $7,372,347 for the three months ended June 30, 2022 was attributable to net proceeds from the issuance of

common stock in a registered direct offering, net of underwriting fees and issuance costs.

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.

by financing activities of $4,137,200 for the six months ended September 30, 2021 was attributable to net proceeds from the issuance

of our convertible promissory notes.

Issued Accounting Pronouncements

Recently Issued

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

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

in Item 1 of this Report.

Quantitative and Qualitative Disclosures about Market Risk

1 unchanged sentence

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