What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-02-13 · 173 added, 220 removed, 9 unchanged (98% 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.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

This Management’s Discussion and Analysis

of Financial Condition and Results of Operations should be read in conjunction with the accompanying condensed consolidated financial

statements and notes included in this Quarterly Report on Form 10-Q (this Report).

This Report contains forward-looking statements within

the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, without

limitation, statements about the market for our technology, our strategy, competition, expected financial performance and capital raising

efforts, and other aspects of our business identified in our most recent annual report on Form 10-K filed with the Securities and Exchange

Commission on June 26, 2023 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.

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).

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

refer to Modular Medical, Inc.

“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, 2023.

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

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 2024 refers to the fiscal year ending March 31, 2024).

Unless the context requires otherwise, references to “we,” “us,”

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

and its consolidated subsidiary .

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

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

Through the creation of a novel two-part

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

standards of care that presently-available insulin pumps provide.

By simplifying and streamlining the user experience from introduction,

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

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

The product seeks to serve both the

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

Historically,

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

promissory notes.

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

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

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

securities, to support our future operations.

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

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

We have provided additional disclosure in Note

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

and Macroeconomic Factors

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.

Company Overview

We are a development-stage medical device company

focused on the design, development and commercialization of an innovative insulin pump using modernized technology to increase pump adoption

in the diabetes marketplace.

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

trade-offs between cost and complexity and access to the higher standards of care that presently-available insulin pumps provide.

By simplifying

and streamlining the user experience from introduction, prescription, reimbursement, training and day-to-day use, we seek to expand the

wearable insulin delivery device market beyond the highly motivated “super users” and expand the category into the mass market.

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

Historically, we have financed our operations

principally through private placements and public offerings of our common stock and sales of convertible promissory notes.

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.

Recent Economic Disruptions

The global outbreak of

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

government in March 2020.

This has negatively affected the U.S.

and global economy, disrupted global supply

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

and created significant disruption of the financial markets.

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

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

actions taken by U.S.

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

and cannot be predicted.

March 2020, the jurisdiction in which we operate has issued “shelter-in-place” orders from time to time.

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.

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

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

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

In addition, these direct and indirect

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

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

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, 50 basis points in its meeting held in December 2022, and 25

basis points in its meeting held in February 2023, as inflation remains elevated.

We were 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.

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

1A of this Report.

Accounting Policies and Estimates

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.

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 December 31, 2022, there have been no material

changes to our significant accounting policies and estimates.

This 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.

While the U.S.

national emergency expired in May 2023 and substantially all closures and “shelter-in-place”

orders have ended, there can be no assurance that the COVID-19 pandemic will not impact our operational and financial performance in the

future, as the duration and spread of the pandemic and related actions taken by U.S.

and foreign government agencies to prevent disease

spread are uncertain, out of our control, and cannot be predicted.

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

Since mid-2022, the U.S.

Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains

While we were able to access the capital markets in May 2023 and 2022, in the future, we may be unable to access the capital

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

and to our business.

For additional information

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

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition

and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with

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, 2023.

June 30, 2023, there have been no material changes to our significant accounting policies and estimates.

Results of Operations

Research and Development

Fiscal 2022 to

and development – Three months ended

and development – Nine months ended

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

and initial production of our insulin pump product.

We expense research and development costs as they are incurred.

and development, or R&D, expenses increased for the three and nine months ended December 31, 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 the consultants

completed development of aspects of our pump design and features.

Our full-time R&D employee headcount increased to 32 at

December 31, 2022 from 18 at December 31, 2021.

R&D expenses included stock-based compensation expenses of $356,752 and $204,962

for the three months ended December 31, 2022 and 2021, respectively, and $1,034,674 and $459,989 for the nine months ended December

31, 2022 and 2021, respectively.

We expect research and development expenses to remain comparable for the remainder of fiscal

2023, as we continue to advance the development of our pump product and develop our manufacturing

and Administrative

Fiscal 2022 to

Three months ended

(dollar amounts in thousands)

Research and development

Our research and development expenses include

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

We expense research

and development costs as they are incurred.

Research and development, or R&D, expenses

increased for fiscal 2024 compared with the same period of fiscal 2023, primarily due to increased employee-related costs of approximately

of $410,000, an increase of approximately $50,000 in stock-based compensation expense and in increase in materials costs of $177,000.

These increases were partially offset by an approximately $255,000 decrease in consulting costs, as we have increased our employee headcount

and completed development of our pump product.

Our full-time R&D employee headcount increased to 34 at June 30, 2023 from 23 at June

R&D expenses included stock-based compensation expenses of approximately $366,000 and $316,000 for the three-months ended

June 30, 2023 and June 30, 2022, respectively.

We expect research and development expenses to remain consistent for the remainder of fiscal

General and Administrative

Three months ended

General and administrative – Nine

$ (1,654,123 )

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

and general management.

and administrative, or G&A, expenses decreased for the three months ended December 31, 2022 compared with the same period

of 2021, primarily as a result of decreased stock-based compensation, personnel and benefit costs and legal fees, which in fiscal

2022 related to our public offering and listing on the Nasdaq that was completed in February 2022.

These decreases were partially

offset by increased consulting and professional services fees.

expenses decreased for the nine months ended December 31, 2022 compared with the same period of 2021, primarily as a result of

decreased stock-based compensation, personnel and benefit costs, consulting and legal fees and marketing costs.

These decreases

were partially offset by increased accounting fees, travel costs and office-related expenses.

Our full-time G&A employee headcount

increased to 3 at December 31, 2022 from 2 at December 31, 2021.

G&A expenses included stock-based compensation expenses of

$282,753 and $1,016,774 for the three months ended December 31, 2022 and 2021, respectively and $1,085,839 and $2,280,098 for

the nine months ended December 31, 2022 and 2021, respectively.

We expect G&A expenses to remain flat for the remainder of

and Capital Resources

a 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 nine months ended December 31, 2022, we incurred a net

loss of approximately $10.3 million.

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

(dollar amounts in thousands)

General and administrative

General and administrative expenses consist primarily

of personnel and related overhead costs for finance, human resources, marketing and general management.

General and administrative expenses, or G&A,

decreased for the three months ended June 30, 2023 compared with the same period of 2022, primarily as a result of a decrease in stock-based

compensation expenses of approximately $305,000 and consulting and professional services expenses of approximately $70,000, partially

offset by increases in facility-related costs of approximately $137,000, employee-related costs of $80,000 and other administrative expenses.

G&A expenses included stock-based compensation expenses of approximately $117,000 and $422,000 for the quarters ended June 30, 2023

and June 30, 2022, respectively.

We expect G&A expenses to remain consistent for the remainder of fiscal 2024.

Liquidity and Going

As a development-stage

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

Since our inception, we have incurred

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

associated with our operations.

For the three months ended June 30, 2023 and year ended March 31, 2023, we incurred net losses of $3.7

million and $13.9 million, respectively.

At December 31, 2022, we had a cash balance of approximately $7.7 million and an accumulated

deficit of approximately $44.9 million.

When considered with our current operating plan, these conditions raise substantial doubt

about our ability to continue as a going concern for a period of at least one year from the date that of issuance of the consolidated

financial statements included in Item 1 of this Report.

Our consolidated financial statements do not include adjustments to the

amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

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

securities to support our future operations, and we are currently seeking such additional financing.

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.

During the nine months ended December 31, we

made capital expenditures of approximately $574,000, as we have begun procuring equipment to develop a low-volume manufacturing

production line to build our pump product to demonstrate and develop our manufacturing process.

We expect to incur increased capital

expenditures for the remainder of fiscal 2023.

At December 31, 2022, we had outstanding, non-cancelable purchase orders for production

equipment totaling $735,000, and we expect to receive and pay for this equipment over the following six months.

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.

the nine months ended December 31, 2022, we used $8,184,696 in operating activities, which primarily resulted from our net loss of $10,307,682,

as adjusted for stock-based compensation expenses of $2,120,513, $150,412 for issuances of shares of common stock in exchange for services

and depreciation and amortization expenses of $92,616, and increased by net changes in operating lease assets and liabilities of $37,761

and operating assets and liabilities $202,794 and other immaterial adjustments.

For the nine months ended December 31, 2021, we used

$7,128,787 in operating activities, which primarily resulted from our net loss of $14,058,154, increased for a non-cash gain on

the PPP Note extinguishment of $368,780 and net changes in operating lease assets and liabilities of $34,422, as adjusted for changes

to operating assets and liabilities of $1,197,988, a loss on debt extinguishment of $1,321,450 stock-based compensation expenses of $2,740,086,

$388,021 for issuances of shares of common stock in exchange for services, $149,994 for issuable shares of common stock in exchange for

services, depreciation and amortization expenses of $80,268 and interest expense of $1,454,762 for amortization of debt discount.

the nine months ended December 31, 2022 and 2021, cash used in investing activities of $573,066 and $22,779, respectively, was

for the purchase of property and equipment.

provided by financing activities of $7,372,347 for the nine months ended December 31, 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 $5,887,199 for the nine months ended December 31, 2021 was primarily attributable to $4,137,199 of

net proceeds from the issuance of our convertible promissory notes, $250,000 from the sale of shares of common stock to officers

of the Company and $1,500,000 from the issuance of a promissory bride note.

Recently Issued Accounting

Pronouncements

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

in Item 1 of this Report.

and Qualitative Disclosures about Market Risk

At June 30, 2023, we had a cash balance of approximately $10.0 million and an accumulated deficit

of $52.2 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 the financial statements included in Item 8 of this Report are

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

should we be unable to continue as a going concern.

Our 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.

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.

In May 2023, we completed a public offering of units, comprising shares of our common stock and warrants to purchase

shares of our common stock, for net proceeds of $9.7 million.

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 may be required to curtail R&D

initiatives, reduce headcount and take additional measures to reduce costs in order to conserve our cash.

For the three months ended June 30, 2023, we used

approximately $3,207,000 in operating activities, which primarily resulted from our net loss of approximately $3,737,000 and net changes

in operating assets and liabilities of approximately $17,000, as adjusted for stock-based compensation

expenses of approximately $484,000, depreciation and amortization expenses of approximately $58,000 and other immaterial adjustments.

For the three months ended June 30, 2022, we used $2,675,000 in operating activities, which primarily resulted from our net loss of $3,499,000,

as adjusted for changes to operating assets and liabilities of approximately $5,000, stock-based

compensation expenses of approximately $739,000, approximately $51,000 for issuances of shares of common stock in exchange for

services, depreciation and amortization expenses of approximately $29,000 and other immaterial adjustments.

three months ended June 30, 2023 and 2022, cash used in investing activities of approximately $373,000 and $76,000 ,

respectively, was for the purchase of property and equipment.

Cash provided by financing activities of $9.7

million for the three months ended June 30, 2023 was attributable to net proceeds from the issuance of common stock and warrants in a

public offering, net of underwriting fees and issuance costs.

Cash provided by financing activities of $7.4 million for the three months

ended June 30, 2022 was attributable to net proceeds from the issuance of common stock and warrants in a registered direct offering, net

of placement agent fees and issuance costs.

Purchase Obligations

Our primary purchase

obligations include purchase orders for machinery and equipment.

At June 30, 2023, we had outstanding purchase orders for machinery and

equipment and related expenditures of approximately $566,000.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements are

detailed in Note 1 in the Notes to the Condensed Consolidated Financial Statements included in Item 1 of this Report.

Quantitative and Qualitative Disclosures

about Market Risk

Not required.

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