Modular Medical, Inc. 10-Q

Item 2. 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 21, 2024 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, 2024. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors including, without limitation, the direct and indirect effects of coronavirus disease 2019, or COVID-19, as well as inflationary risks, including the risk that the cost of certain of the Company’s components is increasing, and related issues that may arise therefrom. Many of those factors are outside of our control and could cause actual results to differ materially from those expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. Our fiscal year ends on March 31 of each calendar year. Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2025 refers to the fiscal year ending March 31, 2025). 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 pre-revenue medical device company focused on the design, development and commercialization of innovative insulin pumps using modernized technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our initial product, the MODD1, 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. In January 2024, we submitted a 510(k) premarket notification to the United States Food and Drug Administration (“FDA”) for our MODD1 insulin pump. In March 2024, we received comments from the FDA, and we submitted a response to the FDA’s comments in August 2024. In February 2024, we completed a firm commitment underwritten offering and sold to the underwriter 9,090,910 shares of our common stock at a price of $1.10 per share (the 2024 Offering). We received aggregate proceeds of approximately $10.0 million before deducting underwriting discounts and commissions and other offering expenses. We also granted the underwriter a 30-day option to purchase up to an additional 1,321,989 shares of common stock to cover over allotments, if any. In March 2024, the underwriter exercised this option in full and purchased the additional securities for additional aggregate proceeds to us of approximately $1.5 million, before deducting underwriting discounts and commissions and other offering expenses. Historically, we have financed our operations principally through private placements and public offerings of our common stock and sales of convertible promissory notes. Based on our current operating plan, substantial doubt about our ability to continue as a going concern for a period of at least one year from the date that the financial statements included in Item 1 of this Report are issued exists. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities, to support our future operations. If we are unable to secure additional capital, we will be required to curtail our research and development initiatives and take additional measures to reduce costs. We have provided additional disclosure in Note 1 to the consolidated financial statements in Item 1 of this Report and under Liquidity below. 14 Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we make these estimates based on our historical experience and on assumptions that we consider reasonable under the circumstances. Actual results may differ from these estimates and reported results could differ under different assumptions or conditions. Our significant accounting policies and estimates are disclosed in Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended March 31, 2024. As of June 30, 2024, there have been no material changes to our significant accounting policies and estimates. Results of Operations Research and Development Three months ended June 30, Change 2024 2023 2023 to 2024 (dollar amounts in thousands) Research and development $ 3,205 $ 2,768 $ 437 15.8 % Our research and development, or R&D, expenses include personnel, consulting, testing, materials and supplies, depreciation and amortization and other operational costs associated with the pre-FDA clearance production of our insulin pump product. We expense R&D costs as they are incurred. Research and development, or R&D, expenses increased for fiscal 2025 compared with the same period of fiscal 2024, primarily due to increased employee-related costs of approximately $0.2 million, an increase of approximately $0.2 million in consulting costs, an increase in travel-related costs of approximately $0.1 million and an increase in depreciation expense of approximately $0.1 million. These increases were partially offset by an approximately $0.2 million decrease in material and supplies costs. Our full-time R&D employee headcount increased to 36 at June 30, 2024 from 34 at June 30, 2023. R&D expenses included stock-based compensation expenses of approximately $0.4 million for each of the three-month periods ended June 30, 2024 and June 30, 2023, respectively. We expect research and development expenses to remain consistent and then increase in the second half of fiscal 2025. 15 General and Administrative Three months ended June 30, Change 2024 2023 2023 to 2024 (dollar amounts in thousands) General and administrative $ 1,015 $ 983 $ 32 3.3 % General and administrative, or G&A, expenses consist primarily of personnel and related overhead costs for facilities, finance, human resources, legal, marketing and general management. G&A expenses increased for the three months ended June 30, 2024 compared with the same period of 2023, primarily as a result of an increase in legal and professional services expenses of approximately $0.1 million, partially offset by decreases in facility-related costs of and other administrative expenses. G&A expenses included stock-based compensation expenses of approximately $0.2 million and $0.1 million for the three months ended June 30, 2024 and June 30, 2023, respectively. We expect G&A expenses to remain consistent and then begin to increase in the second half of fiscal 2025. Liquidity and Capital Resources; Changes in Financial Condition 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, 2024 and year ended March 31, 2024, we incurred net losses of approximately $4.1 million and $17.5 million, respectively. At June 30, 2024, we had a cash balance of $5.1 million and an accumulated deficit of approximately $70 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 1 of this Report are issued. Our financial statements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our operating needs include the planned costs to operate our business, including amounts required to fund continued research and development activities, working capital and capital expenditures. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities to support our future operations. Recently, during the three months ended March 31, 2024, we completed an offering of shares of common stock for net proceeds of approximately $10.3 million, which includes the proceeds from the underwriter’s exercise of the overallotment. In November 2023, we entered into a Sales Agreement (the “ATM Agreement”) with Leerink Partners LLC (“Leerink”) under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, for aggregate gross proceeds of up to $6.5 million (subject to availability on our shelf registration statement) through an “at the market offering” program under which Leerink will act as sales agent or principal. In January 2024, we sold 153,879 shares of common stock for net proceeds of approximately $0.3 million under the ATM Agreement. Subject to market conditions, we expect to resume sales under the ATM during the remainder of fiscal 2025, subject to market conditions. In addition, since December 2023, we received a total of approximately $1.0 million of proceeds from the exercise of common stock purchase warrants issued in a public offering we completed in May 2023. Our future capital requirements and the adequacy of our available funds will depend on many factors, including, without limitation, our ability to successfully commercialize our product, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product offerings. If we are unable to secure additional capital timely, we may be required to curtail R&D initiatives, reduce headcount and take additional measures to reduce costs in order to conserve our cash. For the three months ended June 30, 2024, we used approximately $3.5 million of cash in operating activities, which primarily resulted from our net loss of approximately $4.1 million and net changes in operating assets and liabilities of approximately $0.1 million, as adjusted for stock-based compensation expenses of approximately $0.5 million, depreciation and amortization expenses of approximately $0.2 million and other immaterial adjustments. For the three months ended June 30, 2023, we used approximately $3.2 million in operating activities, which primarily resulted from our net loss of approximately $3.7 million, as adjusted for stock-based compensation expenses of approximately $0.5 million and depreciation and amortization expenses of approximately $0.1 million, which was partially offset by other immaterial adjustments. For the three months ended June 30, 2024 and 2023, cash used in investing activities of approximately $0.8 million and $0.4 million , respectively, was for the purchase of property and equipment. 16 Cash provided by financing activities of approximately $0.2 million for the three months ended June 30, 2024 was attributable to proceeds from the exercise of common stock purchase warrants. 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 common stock purchase warrants in a public offering, net of underwriting fees and issuance costs. Purchase Obligations Our primary purchase obligations include purchase orders for machinery and equipment. At June 30, 2024, we had outstanding purchase orders for machinery and equipment and related expenditures of approximately $0.8 million. In December 2023, we signed a device integration agreement with a provider of connected-care and remote monitoring diabetes technology solutions. As of June 30, 2024, we had a remaining obligation under the device integration agreement of approximately $0.4 million over three years for technology license fees. 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. Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required.