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, 2023, 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.
43
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, 2023.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal controls over financial reporting during the fourth fiscal quarter of 2023 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
44
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, 2023 are set forth below.
Name
Age
Position
James Besser
47
Chief Executive Officer
Paul DiPerna
64
President, Chief Financial Officer, Treasurer and Chairman of the Board of Directors
Kevin Schmid
63
Chief Operating Officer
William J. Febbo(1)
54
Director
Steven Felsher(2)(3)
74
Director
Morgan C. Frank
51
Director
Philip Sheibley(2)(3)
64
Director
Carmen Volkart(1)(2)
62
Director
Ellen O’Connor Vos
67
Director
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating and Governance Committee
There are no family relationships
among any of our directors or executive officers.
The principal occupations and
positions for at least the past five years of our directors and executive officers are described below.
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 in July 2017. He also served as our
chief executive officer from July 2017 until August 2021, and as our Secretary from July 2017 to October 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 approximately 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.
45
Kevin Schmid . Mr. Schmid
has served as our chief operating officer since July 21, 2022. He has over 19 years of experience in medical device senior management
and high-volume global manufacturing operations. He served as a consultant to the Company from March 2022 until his hire date. Mr. Schmid
has served as a member of the board of directors of Eitan Medical, an Israel based provider of connected infusion and wearable drug delivery
solutions, since 2018. From 2018 through June 2021, he served as the Chief Executive Officer and a board member of Common Sensing, Inc.,
a disposable injector pen dose monitoring and reporting technology company. From 2016 to 2017, Mr. Schmid was Vice President of Drug Delivery
Systems for the Stevanato Group, a provider of innovative packaging and drug delivery solutions for the pharmaceutical industry. From
2003 to 2015, Mr. Schmid was Vice President of Manufacturing, Operations, and Drug Delivery Systems for Insulet Corporation. He has a
BSME degree from Clarkson University and an MBA from Sacred Heart University.
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.
46
Morgan C. Frank. Mr. Frank
was appointed to our board of directors in April 2017. In August 2022, he was appointed as chairman of the board of directors of SANUWAVE
Health, Inc., a publicly-traded provider of wound-care products. 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.
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.
47
Involvement in Legal Proceedings
Except as described above 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 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
● 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, hereinafter referred to as the Share Agreement, dated as of July 24, 2017, by and among us, Quasuras, Mr.
DiPerna and the other stockholders of Quasuras, until July 24, 2022, our board of directors was required to consist of no more than five
and no less than two directors of which (i) Manchester Explorer, L.P. has the right to appoint two directors, pursuant to which Manchester
Explorer, L.P. appointed Mr. Frank and Ms. Volkart and (ii) Mr. DiPerna, in addition to being our chairman of the board, had the right
to appoint two additional directors, pursuant to which he appointed Liam Burns, who resigned from our board of directors in December 2021,
and Febbo. In May 2021, the parties amended the Share Agreement and removed Manchester Explorer L.P’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 Ms. Vos as a director to our board.
48
The DiPerna Employment and Related Agreements
We entered into an employment
agreement dated August 1, 2018, with Mr. DiPerna pursuant to which Mr. DiPerna is employed by us as our president. Mr. DiPerna’s
employment agreement had an initial two-year term and automatically renews for additional one-year terms. 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 we have 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.
If a change of control occurred on March 31, 2023,
under his employment agreement, Mr. DiPerna would be entitled to the following:
● payment of a lump sum of $300,000
within 60 days of the time at which such change of control takes place.
● accelerated vesting of 45,000
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 $1.45 on the Nasdaq Capital Market on March 31, 2023 over
the exercise price of the option. As of March 31, 2023, 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.
49
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, Ellen O’Connor Vos
informed our board of directors of 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 was 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 our common
stock, which was granted to Ms. Vos on August 11, 2021, ceased on May 24, 2022 and the remaining unvested shares were forfeited.
The Schmid Offer Letter
Pursuant to an offer letter with the Company (the
“Offer Letter”), Mr. Schmid shall receive an annual salary of $250,000 (the “Schmid Base Salary”). Additionally,
he is eligible for an annual discretionary target incentive bonus of up to 50% of his Base Salary. In connection with his appointment,
Mr. Schmid was granted a stock option to purchase 175,000 shares of our common stock. The stock option vests over a three-year period
with one-third of the shares subject to the stock option vesting on the one-year anniversary of the grant date and the remaining shares
vesting monthly thereafter, subject to Mr. Schmid’s continuous service with us. In the event of termination of his employment by
us other than for cause or good reason (as defined in the Offer Letter), Mr. Schmid will receive an amount equal to six months of his
then-current base salary as a severance payment.
James Besser
As compensation for his services
as our Chief Executive Officer, Mr. Besser is paid de minimis compensation of $1.00 per year.
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 board of directors
or any individual director, c/o Modular Medical, Inc., 10740 Thornmint Road, San Diego, California 92127. These communications will be
delivered to the board of directors, or any individual director, as specified.
50
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.
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 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 Mr. Felsher 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
the 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.
51
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.
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 2023 (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 2023, except that:
● Mr.
Felsher failed to timely file a Form 4 to report an option award under our director compensation plan;
● Mr.
Frank failed to timely file a Form 4 to report two option awards under our director compensation plan
● Mr.
Sheibley failed to timely file:
o a
Form 4 to report an open-market purchase of shares of our common stock;
o a
Form 4 to report a stock award under our director compensation plan; and
o
a
Form 4 to report a stock award under our director compensation plan.
● Mr.
Schmid failed to timely a Form 3 to report his initial beneficial ownership;
●
Ms.
Volkart failed to timely file a Form 4 to report an option award under our director compensation plan; and
●
Ms.
Vos failed to timely file a Form 4 to report an option award under our director compensation plan.
52
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information
for fiscal 2023 and 2022 for each of our named executive officers.
Name and Principal
Salary
Stock Awards
Option Awards
Non-Equity Incentive Plan
Compensation
All Other
Compensation
Total
Position
Year
($)
($)
($)(1)
($)
($)
($)
James E. Besser,
2023
—
—
—
—
—
—
Chief Executive Officer (2)
2022
—
—
—
—
—
—
Paul
DiPerna,
2023
300,000
—
189,413
—
—
489,413
President, President Chief Financial Officer,
Treasurer and Chairman
2022
370,833
(3)
—
—
—
—
370,833
Kevin Schmid,
2023
176,121
—
701,945
—
—
878,066
Chief Operating Officer
(4)
2022
—
—
—
—
—
—
Ellen O’Connor Vos,
2023
—
—
—
—
—
—
Chief Executive Officer (5)
2022
133,654
—
4,414,645
—
409,662
(6)
4,957,961
(1) Award amounts reflect the aggregate grant date fair value with
respect to awards granted, as determined pursuant to Financial Accounting Standards Board (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) Mr. Besser was appointed our chief executive officer in February
2022, and he is paid de minimis annual compensation of $1.00.
(3) Includes payment of $70,833 of deferred salary.
(4) Mr. Schmid was appointed our chief operating officer in July
2022 at an annual base salary of $250,000.
(5) Ms. Vos was appointed our chief executive officer in August
2021, and 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.
(6) 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 $300,000 that was
paid to Ms. Vos in fiscal 2023.
53
Outstanding Equity Awards at Fiscal Year-End
The following table shows certain information regarding
outstanding equity awards held by our named executive officers as of March 31, 2023.
Name
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Option
Exercise
Price($)
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
100,000 (25)
—
6.75
11/25/2029
45,000 (26)
—
4.24
4/14/2032
Kevin Schmid
175,000 (27)
—
4.24
7/21/2032
(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.
54
(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.
(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.
(26) The option was granted on April 14, 2022, and the shares subject
to this option vest one-third on the annual anniversary of the grant date and the remaining two-thirds vest monthly over the next two
years subject to continued service as an employee, director or consultant
(27) The option was granted on July 21, 2022, and the shares subject to
this option vest one-third on the annual anniversary of the grant date and the remaining two-thirds vest monthly over the next two years
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 articles
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.
55
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 $100,000 paid in quarterly installments in either options to purchase shares of our common stock or shares of our common
stock, as directed by each director based on an annual election.
In addition, upon appointment to our board
of directors, we award our non-employee directors a stock option grant under our Amended 2017 Equity Incentive Plan (the 2017 Plan). During
fiscal 2022, we awarded each of the new non-employee directors a stock option to purchase 16,667 shares of our common stock. These options
vest annually over three years from the date of appointment to our board of directors.
The following table summarizes the compensation earned by
our non-employee directors in fiscal 2023:
Fee
Compensation
Restricted
Stock
Awards
Option
Awards
All Other
Compensation
Total
Name
($)
($)
($)(1)(2)
(3)
($)
William Febbo
30,000
—
—
30,795
60,795
Steven Felsher
—
—
84,135
13,339
97,474
Morgan Frank
—
—
114,734
—
114,734
Philip Sheibley
30,000
—
—
30,795
60,795
Carmen Volkart
—
—
84,135
11,119
95,254
Ellen O’Connor Vos
6,250
—
59,530
—
65,780
(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, 2023, 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, 68,084; Morgan Frank, 139,958;
Philip Sheibley, 16,667; Carmen Volkart; 120,558 and Ellen O’Connor Vos, 136,021.
(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.
Equity Compensation Plan Information
The following table shows
the number of securities to be issued upon exercise or vesting of outstanding equity awards under the 2017 Plan as of March 31, 2023.
Number of
securities to be
issued upon
exercise or
vesting of
outstanding
equity awards
(a)
Weighted-
average
exercise price
of outstanding
options
(b)
Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column(a))
(c)
Equity compensation plans not approved by security holders
2,481,090
$ 5.19
2,132,292
56
ITEM 12: SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of
June 15, 2023 concerning the ownership of our common stock by:
● each stockholder 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 June 15, 2023 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 21,088,823 shares of common stock outstanding as of June 15, 2023.
Unless otherwise stated, the business
address of each of our directors and executive officers listed in the table is 10740 Thornmint Road, 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
15.52
Manchester Explorer, L.P.
2,720,577 (3)
653,511
15.52
Manchester Management Company, LLC
2,720,577 (3)
653,511
15.52
Sio Capital Management, LLC
689,352 (4)
1,348,314 (5)
9.08
Directors and Officers:
James Besser
2,720,577 (3)
653,511
15.52
Paul DiPerna
2,553,586 (6)
204,512
12.95
Kevin Schmid
—
—
*
William J. Febbo
89,105
135,482
1.06
Steven Felsher
123,177
56,973
*
Morgan C. Frank
2,720,577 (3)
793,469
16.06
Philip Sheibley
21,139
5,556
*
Carmen Volkart
7,085
120,558
*
Ellen O’Connor Vos
18,519
124,910
*
All current directors and executive officers as a group (9 persons)
5,533,188
1,441,459
32.33
* Represents less than 1%
(1) Excludes shares subject to outstanding options and warrants to acquire common stock that are exercisable
within 60 days of June 15, 2023.
57
(2) Represents the number of shares subject to outstanding options and warrants to acquire common stock that
are exercisable within 60 days of June 15, 2023.
(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 Company, 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) Based on information reported by Sio Capital
Management, LLC (“Sio”) on Schedule 13G filed with the SEC on February 15, 2023. Sio and Sio GP, LLC (the “GP”)
act as investment advisor and general partner, respectively, to various clients that are the record owners of the shares of our common
stock reported on this Schedule 13G. Because Sio’s investment discretion with respect to such clients is subject to oversight by
the GP, the GP may be deemed to be the beneficial owner of the common stock of the Issuer owned by such clients. In addition, both Sio
and the GP are controlled by Michael Castor. As such, he may be deemed to control the voting and dispositive decisions with respect to,
and therefore be the beneficial owner of, the shares of our common stock. The address for Sio, Sio GP and Mr. Castor 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 June 15, 2023, Sio held 1,348,314 pre-funded warrants to purchase shares
of our common stock. Pursuant to the terms of the pre-funded warrants, Sio cannot exercise such pre-funded warrants if Sio would beneficially
own, after such exercise, more than 9.99% of the outstanding shares of our common stock.
(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.
58
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
MMC as the general partner of Manchester Explorer,
L.P. (Explorer), combined with the holdings of its affiliates, JEB Partners LP, Mr. Besser and Mr. Frank, owned approximately 25% of
our outstanding shares of common stock at March 31, 2023. Mr. Besser is our chief executive officer and a managing member of MMC. Mr.
Frank is one of our directors and serves as the portfolio manager of Explorer and as a managing member of MMC.
Mr. DiPerna’s daughter is an employee of
ours, and, during fiscal 2023, we paid her $201,275, which includes the aggregate grant date fair value, as determined pursuant to FASB
ASC Topic 718, of a stock option granted to her.
In February 2021, Mr. DiPerna and Explorer (together,
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 Explorer 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.
See “Management” above
for other related-party transactions involving our executive officers and directors.
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,
2023
2022
Audit fees(1)
$ 52,500
$ 43,000
Audit-related fees(2)
6,100
10,200
Total(3)
$ 58,600
$ 53,200
(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 our securities 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.”
59
PART IV
ITEM 15: EXHIBITS
Exhibit
Reference
Filed
or Furnished
Number
Exhibit
Description
Form
Exhibit
Filing Date
Herewith
1.1
Form
of Underwriting Agreement dated May 15, 2023
8-K
1.1
05/17/2023
2.1
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.
8-K
2.1
07/28/2017
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
8-K
2.2
05/12/2021
3.1
Third
Amended and Restated Articles of Incorporation, as filed with the Secretary of State of Nevada on June 27, 2017
8-K
3.1
06/29/2017
3.2
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
8-K
3.1
12/01/2021
3.3
Amended Bylaws
10-SB
3.2
03/08/2002
4.1*
2017 Equity Incentive Plan, as amended
10-K
4.1
06/29/2018
4.2
Form
of Warrant to Purchase Common Stock dated February 14, 2022
8-K
4.1
02/14/2022
4.3
Form
of Pre-Funded Warrant to Purchase Common Stock dated May 2, 2022
8-K
4.1
05/05/2022
4.4
Form
of Private Placement Warrant dated May 2, 2022
8-K
4.2
05/05/2022
4.5
Form of Warrant
S-1/A
4.5
05/05/2023
4.6
Form of Underwriter’s Warrant
S-1/A
4.6
05/05/2023
4.7
Description of Registrant’s Securities
X
10.1
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
8-K
10
04/05/2017
10.2
Form
of Common Stock Purchase Agreement, dated as of July 24, 2017, by and between the Registrant and the purchaser named therein
8-K
10.2
07/28/2017
10.3
Form
of Common Stock Purchase Agreement dated as of November 19, 2018 among the Registrant and the Investors named therein
8-K
99.1
11/20/2018
10.4*
Employment
Agreement dated August 1, 2018, by and between the Registrant and Paul DiPerna
S-1
10.4
06/27/2019
10.5
Intellectual
Property Assignment Agreement dated July 24, 2017, by and between the Registrant, Quasuras, Inc. and Paul DiPerna
8-K
10.3
07/28/2017
10.6*
Technology
Royalty Agreement dated as of July 24, 2017, by and between the Registrant, Quasuras, Inc. and Paul DiPerna
8-K
10.4
07/28/2017
10.7
Lease
between MCP Socal Industrial – Bernardo, LLC and the Registrant dated January 10, 2020
10-Q
10.9
02/13/2020
10.8
Standard
Industrial/Commercial Agreement between the Registrant and Michael Summers dated January 5, 2023
S-1
10.28
04/24/2023
10.9*
Service
Agreement effective December 31, 2019 between Registrant and Carmen Volkart
10-Q
10.13
02/13/2020
10.10*
Service
Agreement effective January 23, 2020 between the Registrant and William Febbo
10-Q
10.14
02/13/2020
10.11*
Form
of Indemnification Agreement between the Registrant and each of its directors and officers used from January 23, 2020
10-Q
10.15
02/13/2020
10.12*
Form
of Notice of Stock Option Grant and Stock Option Agreement under the Amended 2017 Equity Incentive Plan
10-Q
10.16
02/13/2020
10.13*
First
Amendment to the Employment Agreement between the Registrant and Paul DiPerna effective as of May 12, 2020
8-K
10.18
05/27/2020
10.14
Second
Amendment to Employment Agreement between the Registrant and Paul DiPerna effective as of July 1, 2020
10-Q
10.20
08/12/2020
60
10.15
Form of Convertible Promissory Note issued in the 2021 Private Placement
8-K
10.21
05/12/2021
10.16
Form of Common Stock Purchase Agreement dated March 2020 by and between the Registrant and the Investors named therein
S-1
10.17
04/09/2020
10.17
Form of Securities Purchase Agreement for the 2021 Private Placement
8-K
10.23
05/12/2021
10.18
Form of Registration Rights Agreement for the 2021 Private Placement
8-K
10.24
05/12/2021
10.19
Form of Common Stock Purchase Warrant issued in the 2021 Private Placement
8-K
10.22
05/12/2021
10.20*
Service Agreement effective May 18, 2021 between the Registrant and Ellen O’Connor Vos
10-K
10.26
06/29/2021
10.21*
Employment Agreement between the Registrant and Ellen O’Connor Vos dated August 11, 2021
8-K
10.27
08/16/2021
10.22
Promissory Note dated October 28, 2021 between the Registrant and Manchester Explorer, L.P.
8-K
10.27
10/29/2021
10.23
Security Agreement dated October 28, 2021 between the Registrant and Manchester Explorer, L.P.
8-K
10.28
10/29/2021
10.24
Form of Warrant Agency Agreement dated February 14, 2023
8-K
10.1
02/14/2022
10.25
Form of Warrant Omnibus Amendment Agreement
S-1/A
10.31
02/07/2022
10.26
Form of Securities Purchase Agreement dated May 2, 2022
8-K
10.1
05/05/2022
10.27*
Severance and Release Agreement between the Registrant and Ellen O’Connor Vos dated February 23, 2022
S-1
10.33
07/06/2022
10.28*
Offer Letter Agreement between the Registrant and Kevin Schmid dated July 13, 2022
8-K
10.1
07/26/2022
10.29
Standard Industrial/Commercial Single-Tenant Lease between the Registrant and Michael Summers dated January 5, 2023
S-1
10.28
04/24/2023
10.30
Form of Warrant Agency Agreement
S-1/A
10.29
05/05/2023
10.31
Form of Common Stock Purchase Agreement dated October 28, 2021 between the Registrant and the Investors named therein
8-K
10.29
10/29/2021
21.1
List of Subsidiaries
X
23.1
Consent of Independent Registered Public Accounting Firm
X
24.1
Power of Attorney (see signature page of this Report)
X
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
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
X
101.INS
Inline
XBRL Instance Document.
X
101.SCH
Inline
XBRL Taxonomy Extension Schema Linkbase Document.
X
101.CAL
Inline
XBRL Taxonomy Extension Calculation Linkbase Document.
X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
X
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
X
*
Indicates
a management contract or compensatory plan or arrangement.
Item 16. Form 10-K Summary
Not applicable.
61
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 26 th day of June, 2023.
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
June 26, 2023
James E. Besser
(Principal Executive Officer)
/s/ Paul DiPerna
Chairman, President and Chief Financial Officer
(Principal Financial and Accounting Officer)
June 26, 2023
Paul DiPerna
/s/ William Febbo
Director
June 26, 2023
William Febbo
/s/ Steven Felsher
Director
June 26, 2023
Steven Felsher
/s/ Morgan C. Frank
Director
June 26, 2023
Morgan C. Frank
/s/ Philip Sheibley
Director
June 26, 2023
Philip Sheibley
/s/ Carmen Volkart
Director
June 26, 2023
Carmen Volkart
/s/ Ellen O’Connor Vos
Director
June 26, 2023
Ellen O’Connor Vos
62