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, 2024, 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, 2024.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal controls over financial reporting during the fourth fiscal quarter of 2024 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, 2024 are set forth below.
Name
Age
Position
James Besser
48
Chief Executive Officer
Paul DiPerna
65
President, Chief Financial
Officer, Treasurer and Chairman of the Board of Directors
Kevin Schmid
64
Chief Operating Officer
Duane DeSisto (1)
69
Director
Steven Felsher(2)(3)
75
Director
Morgan C. Frank
52
Director
Philip Sheibley(2)(3)
65
Director
Carmen Volkart(1)(2)
63
Director
Ellen O’Connor Vos
68
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 2022 and combines over 25 years of
experience in alternative investments, strategic advisory, corporate strategy and corporate governance. Since 1999, he has been a Managing
Member at Manchester Management Company, LLC (“Manchester”), an investment management firm. Mr. Besser is also currently
a director of River Stone Biotech, a development stage specialty bioprocessing company. He holds a B.A. in history from Brown University.
We believe that Mr. Besser is qualified to serve as member of our board of directors due to his extensive prior experience conducting
financial analysis of public companies (certain of which were in the development stage), including such public companies’ management
teams, products, including products in the development stage, the potential markets for such products and other factors that could affect
the likelihood and timing of success and market penetration of such entities’ products as well as his capital raising activities.
We believe this provides us with valuable insights into the financial markets and investment criteria of institutional and other investors
as well as capital raising activities.
Paul
DiPerna. Mr. DiPerna has been our chairman, chief financial officer, president and treasurer since we acquired Quasuras, Inc. (“Quasuras”)
in July 2017. He also served as our chief executive officer from July 2017 until August 2021, 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.
Duane
DeSisto. Mr. DeSisto was appointed to our board of directors in July 2023. He has over 45 years of progressive management experience
and over 25 years of experience in the medical device industry as a member of senior management and as a board member at multiple public
companies. From 2001 to 2014, he served as the chief executive officer of Insulet Corporation, manufacturer of the world’s first
patch insulin pump. Prior to 2001, he held executive positions with Paper Exchange, an e-business solution for the pulp and paper industry,
AAI-Foster Grant, a sunglass and eyeglass provider to point-of-purchase retail, and Zoll Medical, a defibrillator manufacturer. He has
an undergraduate degree from Providence College and a masters of business administration degree from Bryant University. We believe that
Mr. DeSisto is qualified to serve on our board of directors because of his extensive background in operational leadership and commercialization
of advanced medical devices and therapies, including insulin pumps. In addition, he has served as an executive officer and member of
the board of directors at multiple public companies.
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 served as a member of the board
of directors of Signal Hill Acquisition Corp., a special purpose acquisition company, from March 2021 to February 2023. 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. Since January 2023, she has served as a member of the board of directors of Tactile Systems
Technology, Inc. (Tactile Medical), a Nasdaq-listed, medical technology company developing and marketing at-home therapies for people
suffering from underserved, chronic conditions. Ms. Volkart served as chief financial officer of Natureworks LLC, an advanced materials
company offering a portfolio of renewably-sourced polymers, from October 2018 to September 2023. She 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, Ms. Volkart 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 endourological conditions. She 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, Ms. Volkart held various executive and financial
positions at American Medical Systems, Inc., Medtronic, Inc. and Honeywell, Inc. She 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.
Family
Relationships.
There
are no family relationships between any of our directors or executive officers.
47
Involvement
in Legal Proceedings
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
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.
Corporate
Governance
Board
Leadership Structure and Role in Risk Oversight
Due to our small size and early stage, 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 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.
Mr.
Felsher, Mr. Sheibley and Ms. Volkart 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 (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. DeSisto
and Ms. Volkart are the current members of the compensation committee, and Mr. DeSisto 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 Governance Committee
Our
board of directors established the nominating and governance committee (the Nominating and Governance Committee) for the purpose of (i)
carrying out the responsibilities delegated by the board of directors relating to our director nominations process, (ii) developing and
assessing our corporate governance policies, (iii) review our strategies, activities, and policies regarding environmental, social, and
governance, or ESG, matters and (iv) provide oversight for the evaluation of the performance of the board of directors and its committees.
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 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.
49
The
Nominating and Governance Committee will consider persons recommended by stockholders for inclusion as nominees for election to our board
of directors if the information required by our bylaws is submitted in writing in a timely manner addressed and delivered to our secretary
at the address of our executive offices. The Nominating and Governance Committee will identify and evaluate nominees for our board of
directors, including nominees recommended by stockholders, based on numerous factors it considers appropriate, some of which may include
strength of character, mature judgment, career specialization, relevant technical skills, diversity, and the extent to which the nominee
would fill a present need on our board of directors.
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 such director is serving currently.
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 beneficially own 10% or more of a class of securities
registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the
SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish
us with copies of all reports filed by them in compliance with Section 16(a).
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during fiscal 2024, including
those reports that we filed on behalf of our directors and executive officers, no director, executive officer, beneficial owner of more
than 10% of the outstanding common stock, or any other person subject to Section 16 of the Exchange Act, failed to file with the SEC
on a timely basis during the fiscal year ended March 31, 2024, except that in July 2023 Mr. DeSisto failed to timely file a Form
3 to report his initial beneficial ownership and a Form 4 to report a restricted stock unit award.
50
ITEM
11. EXECUTIVE COMPENSATION
SUMMARY
COMPENSATION TABLE
The following
table sets forth compensation information for fiscal 2024 and 2023 for each of our named executive officers.
Salary
Stock Awards
Option Awards
Non-Equity
Incentive Plan
Compensation
All Other
Compensation
Total
Name and
Principal Position
Year
($)
($)
($)(1)
($)
($)
($)
James E. Besser,
2024
—
—
130,480
—
—
130,480
Chief Executive Officer
(2)
2023
—
—
—
—
—
—
Paul DiPerna,
2024
300,000
—
182,792
—
—
482,792
President, President Chief
Financial Officer, Treasurer and Chairman
2023
300,000
—
189,413
—
—
489,413
Kevin Schmid,
2024
250,000
—
160,510
—
—
410,510
Chief Operating Officer
(4)
2023
176,121
—
701,945
—
—
878,066
(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.
(4) Mr.
Schmid was appointed our chief operating officer in July 2022 at an annual base salary of
$250,000.
51
Outstanding
Equity Awards at Fiscal Year-End
The
following table shows certain information regarding outstanding equity awards held by our named executive officers as of March 31, 2024.
Name
Number
of Securities Underlying Unexercised Options (#) Exercisable
Number
of Securities Underlying Unexercised Options (#) Unexercisable
Option
Exercise Price($)
Option
Expiration Date(1)
James E. Besser
135,136 (2)
—
1.11
10/2/2033
Paul DiPerna
1,155 (3)
—
9.48
6/1/2030
1,169 (4)
—
9.48
5/1/2030
1,170 (5)
—
9.48
4/1/2030
1,660 (6)
—
7.44
3/2/2030
1,745 (7)
—
7.44
2/1/2030
1,727 (8)
—
7.44
1/1/2030
1,809 (9)
—
6.75
12/1/2029
1,811 (10)
—
6.75
11/1/2029
1,721 (11)
—
6.75
10/1/2029
1,662 (12)
—
6.75
9/15/2029
1,666 (13)
—
6.75
8/15/2029
1,660 (14)
—
6.75
7/15/2029
1,650 (15)
—
6.75
6/15/2029
1,677 (16)
—
6.75
5/15/2029
1,624 (17)
—
6.75
4/15/2029
1,694 (18)
—
6.75
3/15/2029
1,641 (19)
—
6.75
2/15/2029
1,603 (20)
—
6.75
1/15/2029
1,775 (21)
—
6.75
12/15/2028
1,775 (22)
—
6.75
11/15/2028
6,005 (23)
—
1.98
10/15/2028
6,005 (24)
—
1.98
09/15/2028
6,005 (25)
—
1.98
08/15/2028
100,000 (26)
—
6.75
11/25/2029
28,750 (27)
16,250 (27)
4.24
4/14/2032
—
50,000 (28)
1.65
4/3/2033
90,091 (29)
—
1.11
10/2/2033
—
45,046 (30)
1.11
10/2/2033
Kevin Schmid
97,222 (31)
77,778 (31)
4.24
7/21/2032
—
100,000 (32)
1.50
4/3/2033
37,538 (33)
—
1.11
10/2/2033
—
18,769 (34)
1.11
10/2/2033
(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 October 2, 2023, and the shares subject to this option vested in January
2024 upon the Company’s 510(k) premarket submission to the FDA for its initial pump
product.
(3) The
option was granted on June 1, 2020, and the shares subject to this option were fully vested
on the grant date.
(4) The
option was granted on May 1, 2020, and the shares subject to this option were fully vested
on the grant date.
(5) The
option was granted on April 1, 2020, and the shares subject to this option were fully vested
on the grant date.
(6) The
option was granted on March 2, 2020, and the shares subject to this option were fully vested
on the grant date.
(7) The
option was granted on February 1,2020, and the shares subject to this option were fully vested
on the grant date.
52
(8) The
option was granted on January 1, 2020, and the shares subject to this option were fully vested
on the grant date.
(9) The
option was granted on December 1, 2019, and the shares subject to this option were fully
vested on the grant date.
(10) The
option was granted on November 1, 2019, and the shares subject to this option were fully
vested on the grant date.
(11) The
option was granted on October 1, 2019, and the shares subject to this option were fully vested
on the grant date.
(12) The
option was granted on September 15, 2019, and the shares subject to this option were fully
vested on the grant date.
(13) The
option was granted on August 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(14) The
option was granted on July 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(15) The
option was granted on June 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(16) The
option was granted on May 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(17) The
option was granted on April 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(18) The
option was granted on March 15, 2019, and the shares subject to this option were fully vested
on the grant date.
(19) The
option was granted on February 15, 2019, and the shares subject to this option were fully
vested on the grant date.
(20) The
option was granted on January 15, 2019, and the shares subject to this option were fully
vested on the grant date.
(21) The
option was granted on December 15, 2018, and the shares subject to this option were fully
vested on the grant date.
(22) The
option was granted on November 15, 2018, and the shares subject to this option were fully
vested on the grant date.
(23) The
option was granted on October 15, 2018, and the shares subject to this option were fully
vested on the grant date.
(24) The
option was granted on September 15, 2018, and the shares subject to this option were fully
vested on the grant date.
(25) The
option was granted on August 15, 2018, and the shares subject to this option were fully vested
on the grant date.
(26) The
option was granted on November 25, 2019, and the shares subject to this option vested monthly
over three years commencing January 1, 2020, subject to continued service as an employee,
director or consultant.
(27) The
option was granted on April 14, 2022, and the shares subject to this option vest: i) one-third
on the annual anniversary of the grant date and ii) the remaining two-thirds monthly over
the next two years, subject to continued service as an employee, director or consultant
(28) The
option was granted on April 3, 2023, and the shares subject to this option vest: i) one-third
on the annual anniversary of the grant date and ii) the remaining two-thirds monthly over
the next two years subject to continued service as an employee, director or consultant.
(29) The
option was granted on October 2, 2023, and the shares subject to this option vested in January
2024 upon the Company’s 510(k) premarket submission to the U.S. Food and Drug Administration
(“FDA”) for its initial pump product.
(30) The
option was granted on October 2, 2023, and the shares subject to this option vest if the
Company receives notification of FDA clearance of the 510(k) premarket submission on or before
August 1, 2024, subject to continued service as an employee, director or consultant.
(31) The
option was granted on July 21, 2022, and the shares subject to this option vest: i) one-third
on the annual anniversary of the grant date and ii) the remaining two-thirds monthly over
the next two years subject to continued service as an employee, director or consultant.
(32) The
option was granted on April 3, 2023, and the shares subject to this option vest: i) one-third
on the annual anniversary of the grant date and ii) the remaining two-thirds vest over the
next two years subject to continued service as an employee, director or consultant.
53
(33) The
option was granted on October 2, 2023, and the shares subject to this option vested in January
2024 upon the Company’s 510(k) premarket submission to the FDA for its initial pump
product.
(34) The
option was granted on October 2, 2023, and the shares subject to this option vest if the
Company receives notification of FDA clearance of the 510(k) premarket submission on or before
August 1, 2024, 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.
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, 2024, 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 111,296 shares of common stock under unvested stock options. 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 $1.85 on the Nasdaq Capital Market on March 28, 2024 over the exercise price of the option.
As of March 31, 2024, the intrinsic value of the shares subject to accelerated vesting was
approximately $67,000.
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.
54
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”) for his services as our chief operating officer. 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.
Director
Compensation
In
the first quarter of fiscal 2022, 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; and
● $5,000
for service as chair of a committee of the board of directors.
The
annual retainers are 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 receives 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 July 2022, the Board amended the Director Plan to provide that a minimum price of $10.00 per share of common
stock would be used to calculate the number of shares subject to options or share awards.
In
addition, upon appointment to our board of directors, we award our non-employee directors an equity award under our Amended 2017 Equity
Incentive Plan (the 2017 Plan), and such awards vest over three years.
The following
table summarizes the compensation earned by our non-employee directors in fiscal 2024:
Fee
Compensation
Restricted
Stock
Awards
Option
Awards
All Other
Compensation
Total
Name
($)
($)(1)(2)
($)(2)(3)
($)(2)(4)
($)
Duane DeSisto
22,170
227,500
—
12,103
261,773
William Febbo(5)
7,500
—
—
2,328
9,828
Steven Felsher
—
—
36,312
4,377
40,689
Morgan Frank
—
—
45,390
—
45,390
Philip Sheibley
30,000
—
—
14,550
60,795
Carmen Volkart
—
—
36,312
3,658
39,970
Ellen O’Connor Vos
25,000
—
36,312
—
42,562
(1) Mr.
DeSisto was appointed to our board of directors in July 2023, and, upon his appointment,
was granted a restricted stock unit (the “DeSisto RSU”) for 250,000 shares of
our common stock. As of March 31, 2024, 187,499 shares of our common stock remained unvested
under the DeSisto RSU.
(2) 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.
55
(3) As
of March 31, 2024, our non-employee directors each held outstanding options to purchase the
following number of shares of our common stock: Steven Felsher, 98,084; Morgan Frank, 177,458;
Philip Sheibley, 16,667; Carmen Volkart; 150,558, Ellen O’Connor Vos, 166,020.
(4) Represents
stock awards under the Director Plan; we calculated the estimated fair value of the stock
awards issued to Messrs. DeSisto, Felsher and Sheibley and Ms. Volkart using the closing
price per share of our common stock on the day prior to the grant date in accordance with
the Director Plan.
(5) Mr.
Febbo resigned from our board of directors in July 2023.
ITEM
12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information as of May 31, 2024 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, 2024 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 32,463,670 shares of common stock outstanding as of May 31, 2024.
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
Equity Awards and
Warrants)(1)
Number
of
Shares Issuable on Exercise of
Outstanding
Equity Awards and
Warrants(2)
Percent
of
Class
JEB Partners, L.P.
330,473 (3)
—
1.02
Manchester Explorer, L.P.
3,118,077 (3)
653,511
11.36
Manchester Management Company, LLC
3,448,550 (3)
653,511
12.36
683 Capital Management, LLC
1,570,000 (4)
641,999
6.67
Sio Capital Management, LLC
689,352 (5)
2,786,516 (5)
9.84
Directors and Officers:
James Besser
3,593,300 (3)
788,647
13.15
Paul DiPerna
2,553,586 (6)
330,436
8.77
Kevin Schmid
—
195,871
*
Duane DeSisto
69,891
20,833
*
Steven Felsher
126,177
92,528
*
Morgan C. Frank
3,324,303 (3)
830,969
12.45
Philip Sheibley
51,139
11,112
*
Carmen Volkart
9,585
10,558
*
Ellen O’Connor Vos
18,519
199,353
*
All current directors and executive officers
as a group (9 persons)
6,153,200
1,831,661
24.77
* Represents
less than 1%
(1) Excludes
shares subject to outstanding options, restricted stock units and warrants to acquire common
stock that are exercisable within 60 days of May 31, 2024.
56
(2) Represents
the number of shares subject to outstanding options, restricted stock units and warrants
to acquire common stock that are exercisable within 60 days of May 31, 2024.
(3) Includes
(i) 144,750 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”)
and (d) 20,000 shares were purchased in the open market; (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, (e) 234,274 shares were acquired upon the conversion of a convertible
note in February 2022 and (f) 900,000 shares were purchased in the Company’s February
2024 public offering; (iii) 330,473 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) 206,226 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 683 Capital Management, LLC (“683 Management”) on
Schedule 13G filed with the SEC on February 16, 2024. 683 Management, as the investment manager
of 683 Capital Partners, LP (“683 Capital”), may be deemed to have beneficially
owned the shares of Common Stock and warrants to purchase shares of Common Stock
beneficially owned by 683 Capital. Ari Zweiman as the Managing Member of 683 Management may
be deemed to have beneficially owned the shares of common stock and warrants to purchase
shares of common stock beneficially owned by 683 Management. The address for 683 Management,
683 Capital and Mr. Zweiman is 1700 Broadway, Suite 4200, New York, NY 10019.
(5) Based
on information reported by Sio Capital Management, LLC (“Sio”) on Schedule 13G
filed with the SEC on February 6, 2024. 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, the GP and
Mr. Castor is 600 Third Avenue, New York, New York 10016.
(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.
Changes
in Control
We
are not aware of any arrangement that may result in a “changes in control,” as that term is defined by the provisions of
Item 403(c) of Regulation S-K.
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, 2024.
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
3,689,341
$ 3.70
3,648,651
57
ITEM
13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with Related Persons
Below
we describe any transactions to which we have been a participant, in which the amount involved in the transaction exceeds or will exceed
the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years and
in which any of our directors, director nominees, executive officers, or holders of more than 5% of our capital stock, or any immediate
family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest
since April 1, 2022.
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 13% of our outstanding shares of common stock at March 31, 2024. Mr. Besser is our chief executive
officer and a managing member of MMC. Mr. Frank is one of our directors, and he serves as the portfolio manager of Explorer and as a
managing member of MMC. In February 2024, we closed a public offering of our common stock (the 2024 Offering), and Explorer purchased
900,000 shares in the 2024 Offering for aggregate gross proceeds to us of $990,000.
Mr.
DiPerna’s daughter is an employee of ours, and, during fiscal 2024 and fiscal 2023, we paid her approximately $137,000 and $201,000,
respectively, which includes the aggregate grant date fair value, as determined pursuant to FASB ASC Topic 718, of stock options granted
to her.
See
“Management” above for other related-party transactions involving our executive officers and directors.
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 (in thousands).
Year
ended March 31,
2024
2023
Audit fees(1)
$ 63
$ 53
Audit-related fees(2)
38
6
Total(3)
$ 101
$ 59
(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.”
The
Audit Committee meets with our independent registered public accounting firm at least four times a year. At such times, the Audit Committee
reviews and approves both audit and non-audit services performed by the independent registered public accounting firm, as well as the
fees charged for such services. The Audit Committee is responsible for pre-approving all auditing services and non-auditing services
(other than non-audit services falling within the de minimis exception set forth in Section 10A(i)(1)(B) of the Exchange
Act and non-audit services that independent auditors are prohibited from providing to us) in accordance with the following guidelines:
(1) pre-approval policies and procedures must be detailed as to the particular services provided; (2) the Audit Committee must be informed
about each service; and (3) the Audit Committee may delegate pre-approval authority to one or more of its members, who shall report to
the full committee, but shall not delegate its pre-approval authority to management. Among other things, the Audit Committee examines
the effect that performance of non-audit services may have upon the independence of the auditors.
58
PART
IV
ITEM
15: EXHIBITS
(a)
Financial Statements and Financial Statement Schedules are set forth under Part II, Item 8 of this report.
(b)
Other
Schedules may omitted because they are not applicable, not required, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
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
1.2
Underwriting
Agreement dated as of February 15, 2024 between the Registrant and Titan Partners Group LLC
8-K
1.1
02/16/2024
1.3
Sales
Agreement, dated as of November 22, 2023, between Modular Medical, Inc. and Leerink Partners LLC
8-K
1.1
11/22/2023
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
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 February 15, 2024
8-K
3.1
02/15/2024
3.4
Amended
Bylaws
10-SB
3.2
03/08/2002
4.1*
2017
Equity Incentive Plan, as amended and restated
X
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
10-K
4.7
06/26/2023
10.1*
Employment
Agreement dated August 1, 2018, by and between the Registrant and Paul DiPerna
S-1
10.4
06/27/2019
10.2
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
10.3*
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
10.4
Standard
Industrial/Commercial Agreement between the Registrant and Michael Summers dated January 5, 2023
S-1
10.28
04/24/2023
10.5*
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
10.6*
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
10.7*
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
10.8*
Second
Amendment to Employment Agreement between the Registrant and Paul DiPerna effective as of July 1, 2020
10-Q
10.20
08/12/2020
59
10.9
Form
of Convertible Promissory Note issued in the 2021 Private Placement
8-K
10.21
05/12/2021
10.10
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
10.11
Form
of Securities Purchase Agreement for the 2021 Private Placement
8-K
10.23
05/12/2021
10.12
Form
of Registration Rights Agreement for the 2021 Private Placement
8-K
10.24
05/12/2021
10.13
Form
of Common Stock Purchase Warrant issued in the 2021 Private Placement
8-K
10.22
05/12/2021
10.14
Promissory
Note dated October 28, 2021 between the Registrant and Manchester Explorer, L.P.
8-K
10.27
10/29/2021
10.15
Warrant
Agency Agreement between the Registrant and Colonial Stock Transfer Company, Inc., dated February 14, 2022
8-K
10.1
02/14/2022
10.16
Form
of Warrant Omnibus Amendment Agreement
S-1/A
10.31
02/07/2022
10.17
Form
of Securities Purchase Agreement dated May 2, 2022
8-K
10.1
05/05/2022
10.18*
Severance
and Release Agreement between the Registrant and Ellen O’Connor Vos dated February 23, 2022
S-1
10.33
07/06/2022
10.19*
Offer
Letter Agreement between the Registrant and Kevin Schmid dated July 13, 2022
8-K
10.1
07/26/2022
10.20 *
Form of Notice of Grant of Restricted Stock Unit Award and Agreement under the Amended and Restated Modular Medical, Inc. 2017 Equity Incentive Plan
10-Q
4.11
08/14/2023
10.21
Form
of Warrant Agency Agreement
S-1/A
10.29
05/05/2023
10.22
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
10.23
Modular
Medical, Inc. Two-Part FDA Submission and Clearance Milestone Bonus Program
8-K
10.1
10/05/2023
10.24*
Third
Amendment to Employment Agreement between the Company and Paul DiPerna
8-K
10.1
04/10/2024
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
97.1
Compensation
Recovery Policy
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.
60
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 21 st day of June, 2024.
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 21, 2024
James E. Besser
(Principal Executive Officer)
/s/
Paul DiPerna
Chairman, President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
June 21, 2024
Paul DiPerna
/s/ Duane
DeSisto
Director
June 21, 2024
Duane DeSisto
/s/ Steven
Felsher
Director
June 21, 2024
Steven Felsher
/s/ Morgan
C. Frank
Director
June 21, 2024
Morgan C. Frank
/s/ Philip
Sheibley
Director
June 21, 2024
Philip Sheibley
/s/ Carmen
Volkart
Director
June 21, 2024
Carmen Volkart
/s/ Ellen
O’Connor Vos
Director
June 21, 2024
Ellen O’Connor Vos
61