Modular Medical(MODD) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial information of Modular Medical, Inc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Modular Medical, Inc. for the period ended December 31, 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, financial instrument fair values, leases, stockholders' equity, stock-based compensation, income taxes, and commitments and contingencies Condensed Consolidated Balance Sheets This table provides a summary of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------ | :-------------------- | | Cash and cash equivalents | $3,799 | $2,047 | $(1,752) | | Total Current Assets | $4,046 | $2,342 | $(1,704) | | Property and equipment, net | $1,721 | $2,634 | $913 | | Total Assets | $7,245 | $6,199 | $(1,046) | | Accounts payable | $285 | $704 | $419 | | Total Current Liabilities | $979 | $1,439 | $460 | | Total Liabilities | $2,169 | $2,354 | $185 | | Total Stockholders' Equity | $5,076 | $3,845 | $(1,231) | Condensed Consolidated Statements of Operations This table outlines the Company's financial performance, including revenues, expenses, and net loss for the specified periods Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $3,619 | $2,197 | $9,204 | $6,804 | | General and administrative | $1,650 | $1,161 | $4,006 | $3,502 | | Total operating expenses | $5,269 | $3,358 | $13,210 | $10,306 | | Loss from operations | $(5,269) | $(3,358) | $(13,210) | $(10,306) | | Net loss | $(5,269) | $(3,358) | $(13,189) | $(10,308) | | Net loss per share (Basic and diluted) | $(0.23) | $(0.27) | $(0.64) | $(0.86) | | Shares used in computing net loss per share | 22,540 | 12,274 | 20,708 | 12,045 | Condensed Consolidated Statements of Stockholders' Equity This table details changes in the Company's equity, including common stock, additional paid-in capital, and accumulated deficit Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | March 31, 2023 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Common Stock (Shares) | 10,949 | 21,299 | | Common Stock (Amount) | $11 | $21 | | Additional Paid-In Capital | $53,524 | $65,472 | | Accumulated Deficit | $(48,459) | $(61,648) | | Total Stockholders' Equity | $5,076 | $3,845 | Condensed Consolidated Statements of Cash Flows This table presents the Company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Nine Months Ended Dec 31, 2023 | Nine Months Ended Dec 31, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net loss | $(13,189) | $(10,308) | | Stock-based compensation expense | $2,043 | $2,121 | | Net cash used in operating activities | $(10,449) | $(8,184) | | Purchases of property and equipment | $(1,217) | $(573) | | Net cash used in investing activities | $(1,217) | $(573) | | Proceeds from issuance of common stock and warrants, net | $9,733 | $7,372 | | Exercise of common stock warrants | $181 | — | | Net cash provided by financing activities | $9,914 | $7,372 | | Net decrease in cash and cash equivalents | $(1,752) | $(1,385) | | Cash and cash equivalents at end of period | $2,047 | $7,691 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes Modular Medical, Inc.'s business, development stage, and key accounting policies, including going concern considerations and recent accounting pronouncements - Modular Medical, Inc. is a development-stage medical device company focused on designing, developing, and commercializing an innovative two-part patch insulin pump (MODD1) to increase pump adoption in the diabetes marketplace for both type 1 and type 2 diabetes[20] - The Company expects to continue incurring operating losses and cash outflows, raising substantial doubt about its ability to continue as a going concern within one year, dependent on raising additional capital through equity or debt securities[22][23] - The Company changed its computation of weighted-average shares of common stock outstanding (WASO) to include pre-funded warrants, which reduced the previously reported loss per share by $0.04 and $0.09 for the three and nine months ended December 31, 2022, respectively[42][43] - The Company adopted ASU No. 2016-13 (CECL model) effective April 1, 2023, with no impact on its results of operations and financial position, and is currently evaluating the impact of recently issued ASUs on Segment Reporting and Income Tax Disclosures[48][49][50] NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL This note provides detailed breakdowns of specific balance sheet accounts, including property and equipment, and accrued expenses Consolidated Balance Sheet Detail (in thousands) | Metric (in thousands) | March 31, 2023 | December 31, 2023 | | :-------------------- | :------------- | :---------------- | | Machinery and equipment | $820 | $2,509 | | Construction-in-process | $1,003 | $499 | | Total property and equipment, net | $1,721 | $2,634 | | Accrued wages and employee benefits | $267 | $304 | | Total Accrued expenses | $339 | $373 | NOTE 3 – LEASES This note details the Company's operating lease commitments, including a new facility lease and future payment obligations - The Company commenced a new 48-month operating lease for a facility on Thornmint Road, San Diego, CA, on February 1, 2023, with an initial base monthly rent of $36,000 and annual increases of approximately 4%[53] - Cash paid for lease liabilities was approximately $365,000 for the nine months ended December 31, 2023, a significant increase from $119,000 for the same period in 2022[55] Operating Lease Commitments (in thousands) | Annual Fiscal Years | Operating Lease (in thousands) | | :------------------ | :----------------------------- | | 2024 | $111 | | 2025 | $452 | | 2026 | $470 | | 2027 | $405 | | Total future lease payments | $1,438 | | Present value of lease liability | $1,277 | NOTE 4 – STOCKHOLDERS' EQUITY This note outlines changes in stockholders' equity, including common stock issuances, public offerings, and warrant activities - On November 22, 2023, the Company entered into an "at the market" (ATM) agreement with Leerink Partners LLC to sell up to $6,500,000 of common stock, with no shares sold as of December 31, 2023[57] - In May 2023, the Company completed a public offering, selling 8,816,900 shares of common stock and warrants, generating aggregate gross proceeds of approximately $9,390,000, plus an additional $1,408,000 from an over-allotment option[58][59] Common Stock Warrants Activity (in thousands) | Type | Number of Shares (in thousands) | Exercise Price | Expiration | | :--- | :------------------------------ | :------------- | :--------- | | Balance as of March 31, 2023 | 7,565 | | | | Issuance of common stock warrants | 605 | $1.32 | May 2027 | | Issuance of common stock warrants | 5,070 | $1.22 | May 2028 | | Warrants exercised | (148) | $1.22 | May 2028 | | Balance as of December 31, 2023 | 13,092 | | | NOTE 5 – STOCK-BASED COMPENSATION This note details the Company's stock-based compensation plans, including share reserves, unamortized costs, and option activity - Stockholders approved an increase of 2,000,000 shares reserved for issuance under the Amended 2017 Equity Incentive Plan in January 2023[64] - As of December 31, 2023, the unamortized compensation cost related to stock options was approximately $2,512,000, expected to be recognized over a weighted-average period of approximately 1.4 years[65] Non-Vested Stock Options Activity | Metric | Number of Shares | Weighted Average Grant Date Fair Value | | :----- | :--------------- | :------------------------------------- | | Granted | 250,000 | $0.91 | | Vested | (41,668) | $0.91 | | Non-vested shares at December 31, 2023 | 208,332 | $0.91 | Stock Option Activity | Range of Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life (in Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | Aggregate Intrinsic Value | | :---------------------- | :----------------- | :----------------------------------------------------- | :------------------------------ | :----------------- | :------------------------------ | :------------------------ | | $0.93 - $2.00 | 2,246,118 | 8.55 | $1.48 | 653,549 | $1.83 | $62,794 | | $3.95 - $7.51 | 943,145 | 7.45 | $5.29 | 734,459 | $5.59 | — | | $8.61 - $17.70 | 509,130 | 7.48 | $10.53 | 448,562 | $10.35 | — | | Total | 3,698,393 | 8.12 | $3.70 | 1,836,570 | $5.47 | $62,794 | NOTE 6 – INCOME TAXES This note discusses the Company's income tax position, including deferred tax assets and valuation allowances - The Company has recorded a full valuation allowance against its federal and state net deferred tax assets, as management believes it is more likely than not that these assets will not be fully realized[74] - All tax returns for fiscal 2016 to fiscal 2023 may be subject to examination by U.S. federal and state tax authorities[75] NOTE 7 – COMMITMENTS AND CONTINGENCIES This note addresses the Company's legal proceedings, purchase obligations, and other contractual commitments - The Company is not currently involved in any legal proceedings, claims, or assessments that are expected to have a material adverse effect on its financial condition or results of operations[76] - As of December 31, 2023, the Company had outstanding purchase orders for machinery and equipment totaling approximately $592,000[78] - In December 2023, the Company signed a device integration agreement with a provider of connected-care and remote monitoring diabetes technology solutions for an obligation of approximately $575,000 over three years[78] NOTE 8 – SUBSEQUENT EVENTS This note discloses significant events occurring after the balance sheet date, including capital raises and plan approvals - In January 2024, the Company sold 153,879 shares of common stock for net proceeds of approximately $278,000 under its ATM Agreement[79] - In January 2024, the Company received approximately $550,000 from the exercise of warrants to purchase 445,744 shares of common stock[79] - On February 13, 2024, stockholders approved increases in the shares reserved for the Equity Incentive Plan by 3,000,000 shares and the authorized shares of common stock to 100,000,000[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting its status as a development-stage medical device company focused on the MODD1 insulin pump. It discusses the ongoing operating losses, liquidity concerns, and the need for additional capital, alongside detailed analysis of research and development and general and administrative expenses, and cash flow activities Company Overview This section provides an overview of Modular Medical, Inc.'s business, product development, and going concern status - Modular Medical, Inc. is a development-stage medical device company focused on designing, developing, and commercializing the MODD1, a novel two-part patch insulin pump, to expand the wearable insulin delivery device market for both type 1 and type 2 diabetes[83] - In January 2024, the Company made the premarket 510(k) submission of its MODD1 insulin pump to the U.S. Food and Drug Administration (FDA) and expects initial feedback during the quarter ending June 30, 2024[83] - The Company's current operating plan and historical losses raise substantial doubt about its ability to continue as a going concern, necessitating additional capital through equity or debt securities[84] Economic Disruptions This section discusses potential impacts of economic factors like COVID-19, inflation, and interest rates on the Company's operations and capital access - While the U.S. national emergency for COVID-19 expired in May 2023, there is no assurance that the pandemic will not impact the Company's operational and financial performance in the future[85] - Mounting inflationary cost pressures and rising interest rates by the U.S. Federal Reserve since mid-2022 have negatively impacted the global economy and could affect the Company's future access to capital markets[86] Critical Accounting Policies and Estimates This section confirms no material changes to the Company's critical accounting policies and estimates as of December 31, 2023 - As of December 31, 2023, there have been no material changes to the Company's significant accounting policies and estimates previously disclosed in its Annual Report on Form 10-K for the year ended March 31, 2023[88] Results of Operations This section analyzes the Company's financial performance, focusing on key expense categories and their drivers Research and Development Expenses This section details the increase in R&D expenses, driven by employee costs, stock-based compensation, and pre-submission testing for FDA 510(k) - R&D expenses increased by $1,422 thousand (64.7%) to $3,619 thousand for the three months ended December 31, 2023, primarily due to higher employee-related costs, stock-based compensation, and consulting costs for pre-submission testing for FDA 510(k)[89][90] - For the nine months ended December 31, 2023, R&D expenses rose by $2,400 thousand (35.3%) to $9,204 thousand, driven by increases in employee-related costs, consulting costs, stock-based compensation, and materials costs for MODD1 pump production[89][91] - R&D employee headcount increased to 36 from 32, and expenses are expected to decrease for the remainder of fiscal 2024 following the FDA 510(k) submission in January 2024[92] General and Administrative Expenses This section analyzes the rise in G&A expenses, attributed to legal, facility, marketing, and employee-related costs - G&A expenses increased by $489 thousand (42.1%) to $1,650 thousand for the three months ended December 31, 2023, mainly due to higher legal/professional services, rent/facility, marketing, employee-related costs, and depreciation, partially offset by decreased consulting[94][95] - For the nine months ended December 31, 2023, G&A expenses increased by $504 thousand (14.4%) to $4,006 thousand, primarily due to higher facility-related costs, employee-related costs, depreciation, marketing, and legal/professional services, partially offset by reduced stock-based compensation and consulting services[94][96] - G&A employee headcount increased to four from three, and expenses are expected to decrease for the remainder of fiscal 2024[97] Liquidity and Going Concern This section discusses the Company's cash position, accumulated deficit, and the need for additional capital to address going concern doubts - As of December 31, 2023, the Company had a cash balance of approximately $2.0 million and an accumulated deficit of $61.4 million, with net losses of $13.2 million for the nine months ended December 31, 2023[98] - These financial conditions raise substantial doubt about the Company's ability to continue as a going concern for at least one year, necessitating additional capital[98] - Recent capital raising efforts include $9.7 million net proceeds from a May 2023 public offering, $278,000 net proceeds from ATM sales in January 2024, and $550,000 from warrant exercises in January 2024[98] - Cash used in operating activities increased to approximately $10.5 million for the nine months ended December 31, 2023, from $8.2 million in the prior year, primarily due to increased net losses[100] Purchase Obligations This section outlines the Company's outstanding purchase orders for equipment and commitments under a device integration agreement - As of December 31, 2023, the Company had outstanding purchase orders for machinery and equipment and related expenditures totaling approximately $0.6 million[103] - A device integration agreement signed in December 2023 creates an obligation of approximately $0.6 million over three years for technology integration and license fees[103] Recently Adopted and Issued Accounting Pronouncements This section refers to Note 1 for details on recently adopted and issued accounting pronouncements - Details regarding recently adopted and issued accounting pronouncements are provided in Note 1 of the Notes to the Condensed Consolidated Financial Statements[104] Item 4. Controls and Procedures Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2023, and reported no material changes in internal control over financial reporting during the three months ended December 31, 2023 - Management concluded that the Company's disclosure controls and procedures were effective as of December 31, 2023[107] - There were no material changes in the Company's internal control over financial reporting during the three months ended December 31, 2023[108] PART II — OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The Company is not currently involved in any litigation that is believed to have a material adverse effect on its financial condition or results of operations - The Company is not currently involved in any litigation, claims, or assessments that are expected to have a material adverse effect on its financial condition or results of operations[110] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2023 - The Company reports no material changes to the risk factors set forth in its Annual Report on Form 10-K filed on June 26, 2023[111] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Repurchases of Equity Securities The Company issued unregistered common stock in December 2023, including 6,375 shares to non-employee directors under the Outside Director Compensation Plan and 20,834 shares to a non-employee director upon vesting of a restricted stock unit award - On December 29, 2023, the Company issued 6,375 shares to four non-employee directors and 20,834 shares to one non-employee director upon RSU vesting, all as unregistered common stock under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act[112] Item 3. Defaults Upon Senior Securities The Company reported no defaults in the payment of principal, interest, or other material defaults with respect to any of its indebtedness - There has been no default in the payment of principal, interest, or any other material default with respect to any of the Company's indebtedness[113] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable to the Company[114] Item 5. Other Information No other information is reported under this item - No other information is provided under this item[115] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Sales Agreement, FDA Submission and Clearance Milestone Bonus Program, certifications from executive officers, and Inline XBRL documents - Key exhibits include the Sales Agreement (ATM Agreement) dated November 22, 2023, the Two-Part FDA Submission and Clearance Milestone Bonus Program, and certifications from the Principal Executive Officer and Principal Financial Officer[116] Signatures The report is duly signed on behalf of Modular Medical, Inc. by James E. Besser, Chief Executive Officer, and Paul DiPerna, Chairman, President, Chief Financial Officer, and Treasurer, on February 13, 2024 - The report was signed by James E. Besser (Chief Executive Officer) and Paul DiPerna (Chairman, President, Chief Financial Officer, and Treasurer) on February 13, 2024[120]