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Item 2. Management’s Discussion and Analysis

2023-11-13 compared with 2023-08-14 · 160 added, 140 removed, 42 unchanged (88% of the section changed)

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, 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 .

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.

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

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, 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.

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

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

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

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

All subsequent written and oral forward-looking statements concerning other

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

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

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

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

such statements, or otherwise.

Our fiscal year ends on

March 31 of each calendar year.

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

year indicated (for example, fiscal 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

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

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 this Report are issued exists.

Our ability to continue as a going concern depends

on our ability to raise additional capital, likely through the sale of equity or debt securities, to support our future operations.

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.

1 unchanged sentence

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.

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

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.

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.

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.

Wars and acts of terrorism have led to further

economic disruptions.

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

Since mid-2022,

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

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

9 unchanged sentences

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.

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

Results of Operations

Research and Development

Three months ended

September 30,

(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

Research and development – Three months ended

Research and development – Six months ended

Our research and development expenses

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

research and development costs as they are incurred.

Research and development, or R&D,

expenses increased for the three months ended September 30, 2023 compared with the same period of 2022, primarily due to increased

employee-related costs of approximately $377,000, increased material costs of approximately $165,000 and increased consulting

expenses of approximately $41,000.

The increases in material and consulting costs were primarily attributable to pre-submission

activities, as we are producing units and incurring testing costs in anticipation of the 510(k) submission of our pump product to

Food and Drug Administration, or FDA.

R&D expenses increased for the six months

ended September 30, 2023 compared with the same period of 2022, primarily due to increased employee-related costs of approximately of

$786,000, an increase of approximately $61,000 in stock-based compensation expense and an increase in materials costs of $342,000.

increases were partially offset by an approximately $213,000 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

The increase in material costs were primarily attributable to pre-submission activities,

as we are producing units and incurring testing costs in anticipation of our 510(k) submission to the FDA.

Our R&D employee headcount increased to 35

at September 30, 2023 from 28 at September 30, 2022.

R&D expenses included stock-based compensation expenses of approximately $373,000

and $362,000 for the three-months ended September 30, 2023 and 2022, respectively, and $739,000 and $678,000 for the six months ended

September 2023 and 2022, respectively.

We expect research and development expenses to increase for the remainder of fiscal 2024, as we

expect to incur increased costs in connection with our pre-submission testing for submission of our MODD-1 insulin pump to the FDA.

General and Administrative

Three months ended

September 30,

(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.

General and administrative – Three months ended

General and administrative – Six months ended

General and administrative expenses consist primarily of personnel

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

General and administrative, or G&A, expenses

increased for the three months ended September 30, 2023 compared with the same period of the prior year, primarily as a result of increases

in facility-related expenses of approximately $120,000, marketing-related expenses of approximately $85,000, depreciation expense of approximately

$72,000, and employee-related costs of approximately $70,000, as partially offset by a decrease in expenses for stock-based compensation

of approximately $190,000 and consulting and professional services of approximately $90,000.

G&A expenses increased for the six

months ended September 30, 2023 compared with the same period of the prior year, primarily as a result increases in facility-related

costs of approximately $230,000, employee-related costs of approximately $150,000, depreciation expense of approximately $110,000,

and marketing-related expenses of approximately $80,000, as partially offset by decreases in stock-based compensation expenses of

approximately $495,000 and consulting and professional services expenses of approximately $238,000.

Our G&A employee headcount increased to four

at September 30, 2023 from two at September 30, 2022.

G&A expenses included stock-based compensation expenses of approximately $191,000

and $381,000 for the three months ended September 30, 2023 and 2022, respectively, and $308,000 and $803,000 for the six months ended

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

of $52.2 million.

Liquidity and Going Concern

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 from operations in each year due to costs incurred in connection with R&D activities and G&A expenses associated with

our operations.

For the six months ended September 30, 2023 and year ended March 31, 2023, we incurred net losses of $7.9 million and

$13.9 million, respectively.

At September 30, 2023, we had a cash balance of approximately $6.3 million and an accumulated deficit of

$56.4 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.

as a going concern for a period of at least one year from the date that the financial statements included in this Report are issued.

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

10 unchanged sentences

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

For the six months ended September 30, 2023, we

used approximately $6,484,000 in operating activities, which primarily resulted from our net loss of approximately $7,920,000 and net

changes in operating assets and liabilities of approximately $224,000, as adjusted for non-cash items, including stock-based compensation

expenses of approximately $1,048,000, depreciation and amortization expenses of approximately $153,000 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.

For the six months ended September 30, 2022, we used $5,527,000 in operating activities, which primarily resulted from our net loss of

$6,949,000, as adjusted for changes to operating assets and liabilities of approximately $194,000, as adjusted for non-cash items, including

stock-based compensation expenses of approximately $1,481,000, approximately $101,000 for issuances of shares of common stock in exchange

for services, depreciation and amortization expenses of approximately $60,000 and other immaterial adjustments.

For the six months ended September 30,

2023 and 2022, cash used in investing activities of approximately $718,000 and $81,000, respectively, was for the purchase of property

and equipment.

Cash provided by financing activities

of $9.7 million for the six months ended September 30, 2023 was attributable to net proceeds from the issuance of common stock and warrants

in a public offering, which closed in May 2023.

Cash provided by financing activities of $7.4 million for the six months ended September

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

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.

Our primary purchase obligations include purchase orders for

machinery and equipment.

At September 30, 2023, we had outstanding purchase orders for machinery and equipment and related expenditures

of approximately $996,000.

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.

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

As a smaller reporting company, we are not required

to provide the information required by this item.

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