10-K
1
modular_10k.htm
FORM 10-K
UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM10-K
(Mark One)
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2021
or
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File
Number: 000-49671
MODULAR
MEDICAL, INC.
(Exact name of
registrant as specified in its charter)
(Address of Principal Executive Offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered
pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, par value $0.001
(Title of class)
(Title of class)
Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes o No x
Indicate by
check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by
check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No x
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
Emerging growth company x
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The aggregate market value of the voting common stock held by non-affiliates of the registrant, based on the average of the bid and asked price of the common stock on the OTC Pink Open Market of $0.24 per share, was $1,134,520 as of September 30, 2020.
The number of shares of the registrant’s common stock outstanding, par value $0.001 per share, as of June 25, 2021, was 18,966,148.
ANNUAL REPORT
ON FORM 10-K
FOR
THE YEAR ENDED MARCH 31, 2021
TABLE
OF CONTENTS
Part I
Item 1. Business 4
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 23
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Mine Safety Disclosures 23
Part II
Item 6. Selected Financial Data 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9A. Controls and Procedures 46
Item 9B. Other Information 47
Part III
Item 10. Directors, Executive Officers and Corporate Governance 48
Item 11. Executive Compensation 53
Item 14. Principal Accountant Fees and Services 57
Part IV
Signatures 60
FORWARD-LOOKING
STATEMENTS
This Annual
Report on Form 10-K (this Report) contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements discuss
matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include,
without limitation, words such as “anticipate,” “believe,” “estimate,” “intend,”
“could,” “should,” “would,” “may,” “seek,” “plan,” “might,”
“will,” “expect,” “predict,” “project,” “forecast,” “potential,”
“continue,” negatives thereof, or similar expressions. These forward-looking statements are found at various places
throughout this Report and include, without limitation, information concerning possible or assumed future results of our operations;
business strategies; dates; future cash flows; financing plans; plans and objectives of management; any other statements regarding
future operations, future cash needs, business plans and future financial results, and any other statements that are not historical
facts. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made
by us are not guarantees of future performance and may turn out to be inaccurate. 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, 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.
PART I
ITEM 1. BUSINESS
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 2021 refers to the fiscal year ended March 31, 2021). Unless the context
requires otherwise, references to “we,” “us,” “our,” and the “Company” refer to
Modular Medical, Inc. and its consolidated subsidiary.
Overview
We are a development
stage, medical device company focused on the design, development, and eventual commercialization of an innovative insulin pump
to address shortcomings and problems represented by the relatively limited adoption of currently available pumps for insulin-requiring
people with diabetes.
Diabetes is
typically classified as either type 1 or type 2:
Glucose,
the primary source of energy for cells, must be maintained at certain levels in the blood in order to permit optimal cell function
and health. In people with diabetes, blood glucose levels fluctuate between very high, a condition known as hyperglycemia, and
very low, a condition called hypoglycemia. Hyperglycemia can lead to serious long-term complications, including blindness, kidney
disease, nervous system disease, occlusive vascular diseases, lower-limb amputation, stroke and cardiovascular disease, and death.
Hypoglycemia can lead to confusion or loss of consciousness, often requiring a visit to the emergency room or, in certain cases,
result in seizures, coma, and death.
The International
Diabetes Federation, or IDF, estimates that, in 2019, approximately 460 million people had diabetes worldwide, and, that by 2045,
this number will increase to 700 million people. According to the Seagrove 2021 Diabetes Blue Book, approximately 27 million people
in the United States have diagnosed diabetes, of which type 1 diabetes accounts for approximately 7%, or approximately 1.8 million
people. All people with type 1 diabetes, which is our primary market, require daily insulin. According to the Seagrove 2021 Diabetes
Blue Book, approximately 18% of people with type 2 diabetes in the United States, or 4.7 million people, require insulin (basal
alone represent 3.1 million and basal plus mealtime represent 1.6 million) to manage their diabetes. In this Report, we refer
to people with type 1 diabetes and people with type 2 diabetes who require mealtime insulin as “insulin-requiring people
with diabetes.”
Currently, there
are two primary therapies available for insulin-requiring people with diabetes: multiple daily insulin injections directly into
the body through syringes or insulin pens, referred to as Multiple Daily Injection, or MDI therapy, or the use of an insulin pump
to deliver a continuous subcutaneous insulin infusion, or CSII therapy, into the body. Generally, CSII therapy is considered to
provide a number of advantages over MDI therapy, primarily an improvement in glycemic control, as measured by certain diabetes
management tests. Use of CSII has proven to improve clinical outcomes while, importantly, reducing emergency room visits associated
with low glucose.
Notwithstanding
these advantages, the difficulty in use resulting from the complexity and cumbersome design of available insulin pumps, as well
as high and often prohibitive costs for both the patient and insurance provider, has resulted not only in dissatisfaction among
many existing pump users, but also has severely limited the adoption rate of insulin pumps by a segment of the diabetes population,
who we refer to in this Report as “almost pumpers.”
We generally
define almost pumpers as persons with insulin-requiring diabetes who are aware of pumps and the potential benefits but, because
of the shortcomings, cost, and complexity-of-use problems prevalent in available insulin pumps, continue to receive their daily
insulin through MDI therapy.
Our initial
target market for our insulin pump is the almost pumper population located in the United States.
Based
upon our knowledge of the diabetes industry and information available and/or obtained by us, we believe that an estimated 31%
of Americans with type 1 diabetes use insulin pump therapy and an estimated 30% of Americans with type 1 diabetes are whom we
classify as almost pumpers. The remainder of the population treat their diabetes via MDI therapy.
Our design
and development team is led by Paul DiPerna, our chairman, chief executive officer, and our largest shareholder. Mr. DiPerna has
over 30 years of high-level experience in developing, designing, and obtaining U.S. Food and Drug Administration, or FDA, approval
for and managing the commercialization of medical devices, including consumer and hospital-based insulin pumps, while working
for such industry leading medical device companies as Baxter Healthcare, Inc., or Baxter, a supplier of drug therapies and associated
pumping technologies, and Tandem Diabetes Care, Inc., or Tandem, a leading supplier of pumping technology to the existing insulin
pumping marketplace, Mr. DiPerna was the founder of Tandem and designer of its initial product.
Our
Insulin Pump Prototype
We have
designed and developed working prototypes of our low-cost insulin pump that are now undergoing the testing required to submit
for FDA approval. During this period, we have, and continue to devote, substantial time and resources to better understand the
needs and preferences of almost pumpers to enable us to modify and refine our insulin pump to the needs and preferences of this
target market. To help us better understand their needs and preferences, we obtained information about our target market and their
care givers through one on one interviews, human factors testing, on-line and in person surveys, and focus groups at industry
related tradeshows and conferences.
Pre-Commercialization
Steps
While we have
substantially completed the general engineering and mechanical aspects of our insulin pump prototype, prior to commercializing,
we still must successfully complete a number of material steps including:
· Continue to modify, refine and finalize our prototype so that it meets:
As with any
medical device attempting to enter and successfully compete with existing products in an established and competitive marketplace,
we will face significant hurdles to accomplish the above steps to commercialization including:
We believe
that there are a number of shortcomings and issues with currently available insulin pumps that prevent a substantial number of
people who require insulin on a daily basis from choosing an insulin pump to treat their diabetes. We believe, that by tailoring
our insulin pump to address such factors, we can expand the scope and adoption rate of insulin pump usage. We believe that to
achieve broader market acceptance, an insulin pump must be easier to learn to use, be less time consuming to operate, more intuitive
to both patients and physicians,and meet the standards for coverage by insurance providers so that co-payments required
from patients are affordable and the hurdles to insurance coverage are significantly reduced.
Among
the more prominent issues are:
Our team
has substantial knowledge of the diabetes space and experience in developing, winning approval for, and bringing insulin pumps
to market. Based on this experience, we believe that our innovative insulin pump, using a new and proprietary method of pumping
insulin, can address most or all of these shortcomings. It provides a state-of-the-art insulin pump capable of both basal (steady
flow) and bolus (mealtime dosing) insulin disbursement. It also has been designed considering a natural migration path to multi-chamber/multi-liquid
pumps, potentially offering an exciting array of new therapies to patients with diabetes and other conditions. Our goal is to
become the leader in expanding access to insulin pump technology to a wider portion of diabetes sufferers and provide not just
care for the super users, but “diabetes care for the rest of us.”
Mr. DiPerna,
our founder, chairman and chief executive officer, chief financial officer, secretary and treasurer, began his career in approximately
1980 as a mechanical design engineer in the automated test equipment industry before moving in approximately 1989 to a start-up
company in the blood separation sciences industry. This company was acquired in approximately 1991 by Baxter. Following such acquisition,
he became employed by Baxter and held various positions for approximately 12 years. While at Baxter, Mr. DiPerna led significant
projects and initiatives, including leading a team of approximately 50 engineers in developing equipment in the blood separation
sciences industry. In approximately 1996, he was promoted to General Manager of Baxter’s business development group to identify
expansion opportunities in the medical device industry for Baxter. While holding such position, Mr. DiPerna led a team of approximately
20 personnel responsible for researching custom orthopedics, digital dentistry, and rapid prototyping. In such role, one of his
assignments was identifying opportunities in the diabetes industry. As a result, Mr. DiPerna developed an expertise and knowledge
and became well known in the diabetes industry and led attempts by Baxter to acquire three then-leading insulin pump manufacturers.
In 2003, Mr. DiPerna, using his knowledge and experience acquired at Baxter in the diabetes industry and in the “pump”
product business in particular, left Baxter and founded what subsequently became Tandem. While at Tandem, Mr. DiPerna held various
positions, including member of the board of directors, chief executive officer, and chief technology officer. Tandem is a medical
device company that designs, develops and commercializes products for people with insulin-dependent diabetes. Tandem was founded
by Mr. DiPerna to design, develop and commercialize a “state of the art” user-friendly insulin pump. He was the person
primarily responsible for the design concept and development of Tandem’s insulin pump, which, after commercial introduction,
it is estimated by Mr. DiPerna such insulin pump had a quick ramp up to 5,000 purchasers. In 2011, Mr. DiPerna resigned from his
executive officer position and board seat at Tandem and continued to advise the company through 2013. He co-invented a medical
device used for blood-borne infection control called the “Curos Cap.” Curos Cap was owned by a private company which
was acquired by 3M Corporation in 2015 for $150,000,000. Thereafter, Mr. DiPerna founded Fuel Source Partners, LLC to incubate
early stage medical-device products and accumulate technical talent. One of such proposed products was spun-out to Quasuras, Inc.,
or Quasuras, in March 2015, which we acquired in July 2017. Mr. DiPerna holds a number of issued and pending patents and is a
member of the American Diabetes Association. Mr. DiPerna received a Master’s in Engineering Management from Northeastern
University and a BS in Mechanical Engineering from the University of Lowell. From January 2017 until July 2019, Mr. DiPerna served
at National Cardiac Incorporated as its Chief Executive Officer and as a board member to leverage their technology in the cardiac
monitoring space.
The Market
Generally, there
are two primary therapies used by people with insulin-requiring diabetes: insulin injections and insulin pumps. Each is designed
to supplement or replace the insulin-producing function of the pancreas. MDI therapy involves the use of syringes or insulin pens
to inject insulin into the body, as required. Insulin pumps are used to provide a steady flow of insulin (often referred to as
continuous subcutaneous insulin infusion or basal rate insulin) and bursts of mealtime insulin (boluses). Insulin pump therapy
has been shown to provide people with insulin-requiring diabetes with numerous advantages compared to MDI therapy. The steady
flow of insulin and the easier application of mealtime boluses has been shown by numerous clinical studies to result in lower
HbA1c (a measure of the amount of glucose in the bloodstream) when compared to MDI therapy. This results in lower rates of hospitalization
and a reduction in overall adverse events for people with diabetes.
We believe
that the greater efficacy of pumps compared to MDI makes insulin pumps a more optimal choice for persons in managing diabetes,
but that the shortcomings and challenges around existing pumps have held back adoption rates.
According to
the U.S. Centers for Disease Control and Prevention, or CDC, 2020 National Diabetes Statistics Report in the United States, in
2018, 88 million people, or 1 out of 3 adults, had pre-diabetes, approximately 27 million people had been diagnosed with diabetes
and an additional 7 million people had diabetes that was undiagnosed. The CDC also indicated that diabetes was the seventh leading
cause of death in the United States in 2017, which according to the CDC, may be underreported. Diabetes was the leading cause
of kidney failure, lower-limb amputations, and adult-onset blindness and represented more than $327 billion in medical costs in
2017.
We believe that
due to a number of factors, including the large consumption of processed foods and the growing obesity problem in the United States,
the number of persons requiring daily administration of insulin will continue to grow at rapid rates.
The category
of persons with diabetes requiring daily insulin administration is our target market, and we believe our proposed product has
the potential to substantially improve the day to day quality of life of such persons.
The Opportunity
We believe the
insulin pump market is large and growing, but, generally, has been poorly served by existing products that have limited the adoption
of insulin pumps. We believe an insulin pump having the correct mix of efficiency, reliability, features that are easy to understand
and use, and offered at an affordable price point will drive a substantial percentage of “almost-pumpers” to use insulin
pumps and persons currently using available, but less than optimal pumps, to switch to such a more desirable product. We believe
that such an insulin pump can improve glucose control, and, therefore, the user’s quality of life while substantially mitigating
adverse diabetes-related health risks and many, if not all, of the challenges and shortcomings discussed herein.
We believe there
is a substantial opportunity to penetrate the type 2 MDI marketplace, whether through this new insulin pump or further simplification
of pumps for the type 2 marketplace.
As set forth in general terms herein,
we believe existing pumps have numerous shortcomings and challenges including:
Outdated
style. Consumer electronics devices have evolved in both form and function. Diabetes pumps have not experienced similar
progress. We believe that consumers will be more receptive of products designed with the user experience in mind and that many
have low tolerance for complex, difficult procedures for use and maintenance of products.
Bulky
size. We believe that consumers view traditional pumps, especially those with tubing, to be large, bulky, and inconvenient
to carry or wear, especially when compared to modern consumer electronic devices. The size of the pump further contributes to
users being embarrassed by the pump. We believe a simple patch style of pump will drive adoption.
Pump mechanism
limitations. Traditional pumps generally utilize a syringe and plunger mechanism to deliver insulin. We believe this
design limits the ability to reduce the size of the pump, and also potentially exposes the user to the unintended delivery of
the full volume of insulin within the pump, which can cause hypoglycemia or death. We believe that the fear of adverse health
events due to technical malfunctions related to traditional pump mechanism limitations deters the adoption of insulin pump therapy.
Costs. Existing
pumps are expensive, with the more popular models having purchase prices exceeding $4,000 for individuals without health insurance
and often require significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health insurance
plans, forcing some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for pumps
for any but their best and most compliant patients and places pumps out of reach for many patients who cannot afford such out
of pocket expenses.
Our
Solution
Our proposed
pump is being designed and developed to address the above shortcomings and to appeal to: (i) the substantial group of “almost-pumpers”
who are currently interested in using an insulin pump, but have not done so because of the complexity, cost or cumbersome nature
of existing products, and (ii) people who are using one of the currently available insulin pumps but are dissatisfied with such
products. We believe that, owing to our new proprietary technology, our proposed insulin pump will be the simplest and least expensive
product on the market and the easiest for providers to prescribe.
Our current
pump prototype of our proposed pump has been built to test what we believe to be our novel approach to insulin pumps. By providing
a pump that we believe will establish industry standards in terms of technology, simplicity to understand, ease of use and price,
we believe our proposed pump will offer the vast majority of benefits afforded by more expensive and complex pumps but remain
accessible to a substantially greater percentage of diabetes sufferers requiring daily insulin therapy.
We believe people
generally will not use technology that intimidates them and physicians are hesitant to prescribe such technology. We believe mass
market products, such as is intended for our proposed pump, must be “user friendly” and affordable. We believe this
approach is fundamentally different from that applied to the existing pump market today where most pumps are continuously adding
complex features and are “user friendly” to only the most technically astute.
Our current
goal is to successfully design, develop and obtain all required regulatory approvals for our proposed insulin pump, and, thereafter,
commercialize the finished product. Our long-term goal is to become a leading provider of insulin pump therapy by focusing on
both consumer and clinical needs.
To achieve our above stated immediate
and current goals, we intend to pursue the following business strategies:
Use of
innovative proprietary technology.
Based upon Mr.
DiPerna’s substantial experience in engineering design and innovative technology in the medical device industry and, in
particular, with insulin pumps, we have generated proprietary technology that has been incorporated into our proposed insulin
pump. Generally, this technology is involved in the delivery of insulin to the user at the appropriate and necessary times. We
believe this technology will greatly assist us in creating a simpler, user-friendly pump. We believe the proposed design, engineering
and technology being incorporated into our proposed pump will make it substantially simpler and more affordable than those currently
available. These features, together with the safety and reliability of our proposed pump, are designed to create the next generation
of insulin pumps that will feature important and well-differentiated attributes compared to those currently available and make
it available to consumers across mostly all socioeconomic groups in the United States and around the world.
Keep costs
low during our design and development process.
To attempt to
ensure that we have sufficient funds to design, develop, and obtain all required regulatory approvals for our proposed insulin
pump without having to sacrifice quality and efficiency, we intend to maintain a tight budget and limit expenditures where possible.
We believe this will be possible because of the extensive knowledge and experience of Mr. DiPerna, not only in the diabetes industry
and more specifically in the insulin pump device market, but also his experience in designing and developing insulin pumps and
other medical devices and his ability to manage a small, focused development team. We currently expect that various other expenses,
such as product scale up, and sales and marketing costs, will not be incurred until such time as development work is completed
and regulatory approvals obtained.
Employ
experienced engineers selected, supervised, and led by Mr. DiPerna, a highly experienced and respected engineer and executive
in the insulin pump industry.
To attempt to
ensure our proposed insulin pump is “state of the art,” functional, and efficient, as well as to conserve funds, substantially
all of our employees will initially be hand-picked engineers under the leadership of Mr. DiPerna. We believe that there is a strong
pool of engineers with significant applicable experience and knowledge who we will be able to initially employ on a contract and/or
outsource basis to help us design and develop our proposed insulin pump. We believe by hiring such persons on an out-source basis,
we will save substantial resources and by having Mr. DiPerna lead and focus the team on technological and mechanical aspects of
our proposed insulin pump, we believe our team will be well guided, focused, cost efficient, and able to efficiently design and
develop our product that we believe can eventually be a competitive and popular choice for people with insulin requiring diabetes.
Government
Regulation
The medical
device industry is regulated extensively by governmental authorities, principally the FDA and corresponding state regulatory agencies.
The regulations are very complex and are subject to rapid change and varying interpretations. Regulatory restrictions or changes
could limit our ability to bring our proposed product to the commercialization stage as a result of higher than anticipated costs
to obtain regulatory approval. The FDA and other U.S. governmental agencies regulate numerous elements of our proposed product
at various stages, including:
· product design and development;
· pre-clinical and clinical testing and trials;
· product safety;
· establishment registration and product listing;
· labeling and storage;
· marketing, manufacturing, sales and distribution;
· pre-market clearance or approval;
· servicing and post-market surveillance;
· advertising and promotion; and
· recalls and field safety corrective actions.
Even if we obtain
all regulatory approvals, before we can market or sell our proposed product, we must obtain either clearance under Section 510(k)
of the FDCA or approval of a pre-market approval application, a PMA, from the FDA, unless an exemption from pre-market review
applies. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent”
to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety
and effectiveness, in order to clear the proposed device for marketing. Clinical data is sometimes required to support a determination
of substantial equivalence. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based
on extensive data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices, such as our proposed insulin pump. Products that are approved through a PMA application
generally need FDA approval before they can be modified. Similarly, some modifications made to products cleared through a 510(k)
may require a new 510(k). The process of obtaining regulatory clearances or approvals to market a medical device, such as our
proposed insulin pump, can be costly and time-consuming, and we may not be able to obtain such clearances or approvals on a timely
basis or at all for our proposed product.
If the FDA requires
us to go through a more rigorous examination for our proposed product than we currently expect, we will require substantial additional
funding sooner than anticipated and/or our product could be severely delayed, or our efforts ceased. We anticipate that our proposed
product will require the 510(k) clearance process.
The FDA can
delay, limit or deny clearance or approval of our proposed pump device for many reasons, including:
In addition,
the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other
actions which may prevent or delay approval or clearance of our proposed product.
Any delay in,
or failure to receive or maintain, clearance or approval for our proposed product under development could prevent us from generating
revenue therefrom or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers.
Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some customers from using our proposed
product and adversely affect our reputation and the perceived safety and efficacy of our proposed product.
Failure to comply
with applicable regulations could jeopardize our ability to commercialize and sell our proposed pump and result in enforcement
actions such as fines, civil penalties, injunctions, warning letters, recalls of products, delays in the introduction of products
into the market, refusal of the FDA or other regulators to grant future clearances or approvals, and the suspension or withdrawal
of existing approvals by the FDA or other regulators. Any of these sanctions could result in higher than anticipated costs and
have a material adverse effect on our reputation, business and financial condition.
Employees
As of March 31,
2021, we had 20 employees all of whom are located in the United States, consisting of 16 in research and development and manufacturing
operations and 4 in marketing and general and administrative functions.
Competition
Medtronic, Inc.,
Tandem Diabetes Care, Inc. and Insulet Corporation are all much larger companies with substantially greater resources than us
that make similar products for the more sophisticated, technically capable person with diabetes. We do not intend to directly
compete for those individuals with diabetes, instead we intend to offer a simple to use more cost-effective solution to attract
the more mainstream patients.
Intellectual Property
Our success
depends in part on our ability to obtain patents and trademarks, maintain trade secret and know-how protection, enforce our proprietary
rights against infringers, and operate without infringing on the proprietary rights of third parties. Because of the length of
time and expense associated with developing new products and bringing them through the regulatory approval process, the health
care industry places considerable emphasis on obtaining patent protection and maintaining trade secret protection for new technologies,
products, processes, know-how, and methods.
As of May
31, 2021, we had six pending U.S. utility patent applications, two pending foreign patent applications and
two pending international PCT patent applications on various aspects of our technology, including our proprietary fluid
movement technology. There can be no assurance that the pending patent applications will result in the issuance of patents,
that patents issued to or licensed by us will not be challenged or circumvented by competitors, or that these patents will be
found to be valid or sufficiently broad to protect our technology or provide us with a competitive advantage.
Corporate History and Background
We were formed
as a corporation under the laws of the State of Nevada in October 1998 under the name Bear Lake Recreation Inc. We had no material
business operations from 2002 until July 2017, when we acquired Quasuras, Inc., a Delaware corporation (Quasuras), in the Acquisition
(as defined below). Prior to the Acquisition, and, since at least 2002, we were a shell company, as defined in Rule 12b-2 promulgated
under the Securities Exchange Act of 1934 (the Exchange Act).
The Control
Block Acquisition.On April 26, 2017, pursuant to a Common Stock Purchase Agreement, dated as of April 5,
2017, by and among Manchester Explorer, LP, a Delaware limited partnership (Manchester Explorer), the Company and certain persons
named therein, Manchester Explorer purchased from us 2,900,000 shares of our common stock representing in excess of a majority
of our then issued and outstanding common stock, for a purchase price of $375,000 (the Control Block Acquisition), resulting in
a change in control of the Company. In connection with the Control Block Acquisition, James E. Besser was appointed president
and a director and Morgan C. Frank was appointed the chief executive officer, chief financial officer, secretary, treasurer and
a director of ours and immediately following such appointments, our then officers and directors resigned. Mr. Besser is the managing
member of and Mr. Frank is the portfolio manager and a consultant to Manchester Management Company, LLC, a Delaware limited liability
company MMC). MMC is the general partner of Manchester Explorer and Jeb Partners, L.P. (Jeb Partners, and together with Manchester
Explorer, collectively, the Purchasing Funds).
The Acquisition. On
July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among the Company, Paul M. DiPerna, the sole
officer, director and a controlling stockholder of Quasuras, Messrs. Besser and Frank (Messrs. Besser, Frank and DiPerna, collectively,
the 3 Quasuras Shareholders), and Quasuras (the Share Exchange Agreement), we acquired all of the issued and outstanding shares
of Quasuras owned by the 3 Quasuras Shareholders, resulting in Quasuras becoming our wholly-owned subsidiary (the Acquisition).
Simultaneously with the closing of the Acquisition, Manchester Explorer cancelled the 2,900,000 shares of our common stock purchased
in the Control Block Acquisition, Mr. Besser resigned as our president and a director and Mr. Frank resigned as our chief executive
officer, chief financial officer, secretary, and treasurer, but remained a director, and Mr. DiPerna was appointed our chairman
of the board of directors, chief executive officer, chief financial officer, secretary and treasurer.
In anticipation
of the closing of the Acquisition, on June 27, 2017, we changed our name from “Bear Lake Recreation, Inc.” to “Modular
Medical, Inc.” and changed our trading symbol from “BLKE” to “MODD.”
On July 28,
2017, we filed a Current Report on Form 8-K, as amended (the Super 8-K), with the Securities and Exchange Commission (the SEC)
disclosing the Acquisition and related transactions, and, upon such filing, we ceased being a shell company.
Smaller Reporting Company
We are subject
to the reporting requirements of Section 13 of the Exchange Act and to the disclosure requirements of Regulation S-K of the SEC,
as a “smaller reporting company.” Such designation relieves us of some of the disclosure requirements of Regulation
S-K.
Available Information
Our website address is www.modular-medical.com.
The information in our website is not incorporated by reference into this report.
We file reports
with the SEC and make available, free of charge, on or through our website, our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to these reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. All SEC filings are also available at the SEC’s website at www.sec.gov.
ITEM 1A.
RISK FACTORS
We are
a developmental stage medical device company and have a history of significant operating losses; we expect to continue to incur
operating losses, and we may never achieve or maintain profitability.
As a development-stage
enterprise, we do not currently have revenues to generate cash flows to cover operating expenses. Since our inception, we have
incurred operating losses in each year due to costs incurred in connection with research and development activities and general
and administrative expenses associated with our operations. For the years ended March 31, 2021 and 2020, we incurred net losses
of approximately $7.4 million and $5.3 million, respectively. At March 31, 2021, we had an accumulated deficit of approximately
$15.9 million. As a result, we will need to raise additional capital in the future, which may or may not be available to us at
all or only on unfavorable terms.
We expect to
incur losses for the foreseeable future, as we continue the development of, and seek regulatory clearance and approvals for, our
insulin pump. As our prototype insulin pump is currently our only product, if it fails to gain regulatory approval and market
acceptance, we will not be able to generate any revenue, or explore other opportunities to enhance shareholder value, such as
through a sale. If we fail to generate revenue and eventually become profitable, or if we are unable to fund our continuing losses,
our shareholders could lose all or a substantial part of their investment.
We might
not be able to continue as a going concern which would likely cause our stockholders to lose most or all of their investment.
Our audited
financial statements for the year ended March 31, 2021 were prepared under the assumption that we would continue as a going concern.
However, our independent registered public accounting firm included a “going concern” explanatory paragraph in its
report on our financial statements for the year ended March 31, 2021, indicating that, without additional sources of funding,
our cash at March 31, 2021 is not sufficient for us to operate as a going concern for a period of at least one year from the date
that the financial statements included in this Report are issued. Management’s plans concerning these matters, including
our need to raise additional capital, are described in Management’s Discussion and Analysis of Financial Conditions and
Results of Operations included in Item 7 of this Report and in Note 1 to our consolidated financial statements included in Item
8 of this Report. However, we cannot assure you that our plans will be successful. In light of the foregoing, there is substantial
doubt about our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders would likely
lose most or all of their investment in us.
We have no revenues and substantial
indebtedness, which could adversely affect our business and financial position and, among other things, our ability to raise additional
capital and our ability to satisfy our financial obligations.
Because we are
a development stage company, we have not and do not anticipate generating any revenues for the foreseeable future. As a result,
we are dependent upon our ability to raise capital through sales of our debt and equity securities.
In connection
with our private placement completed in May 2021 (the 2021 Placement), we issued $6,560,000 aggregate principal amount of our
12% unsecured convertible promissory notes (the 2021 Notes), with each 2021 Note due 12 months from the issuance date. As a result,
we have substantial outstanding debt, which could adversely affect our business and financial position, and, among other things,
our ability to raise additional capital and our ability to satisfy our financial obligations, including interest and principal
payments on the 2021 Notes. The impact of the indebtedness may include, but may not be limited to, the following:
· increase our cost of borrowing.
The
full effects of COVID-19 and other potential future public health crises, epidemics, pandemics or similar events are uncertain
and could have a material and adverse effect on our business, financial condition, operating results and cash flows.
The global
outbreak of the coronavirus disease 2019, or COVID-19, was declared a pandemic by the World Health Organization and a national
emergency by the U.S. government in March 2020. This has negatively affected the world economy, disrupted global supply chains,
significantly restricted travel and transportation, resulted in mandated closures and orders to “shelter-in-place”
and created significant disruption of the financial markets. The extent of the impact on our operational and financial performance
will depend on future developments, including the duration and spread of the pandemic and related actions taken by U.S.
and foreign government agencies to prevent disease spread, all of which are uncertain, out of our control and cannot be predicted.
We have
been complying with county and state orders and, until May 2021, had implemented a teleworking policy for our employees and contractors
and significantly minimized the number of employees who visit our office. However, a facility closure, work slowdowns or temporary
stoppage at one of our manufacturing suppliers could occur, which could have a longer-term impact and could delay our prototype
production and ability to conduct business.
If our
workforce is unable to work effectively, including because of illness, quarantines, absenteeism, government actions, facility
closures, travel restrictions or other restrictions in connection with the COVID-19 pandemic, our operations will be negatively
impacted. We may be unable to develop our product, and our costs may increase as a result of the COVID-19 outbreak. The impacts
could worsen if there is an extended duration of any COVID-19 outbreak or a resurgence of COVID-19 infection in affected regions
after they have begun to experience improvement.
We rely
on other companies to provide components and to perform services for us. An extended period of supply chain disruption caused
by the response to COVID-19 could impact our ability to produce our initial product quantities, and, if we are not able to implement
alternatives or other mitigations, product deliveries would be adversely impacted and negatively impact our business, financial
condition, operating results and cash flows. Limitations on government operations can also impact regulatory approvals that are
necessary for us to operate our business.
The continued
spread of COVID-19 has also led to disruption and volatility in the global capital markets. We were recently able to raise additional
capital in a private placement that commenced in February 2021, however, we will need to raise additional capital to support our
operations in the future. We may be unable to access the capital markets, and additional capital may only be available to us on
terms that could be significantly detrimental to our existing stockholders and to our business.
We will
need substantial additional funding to complete subsequent phases of our insulin pump product and to operate our business and
such funding may not be available or, if it is available, such financing is likely to substantially dilute our existing shareholders.
The discovery,
development, and commercialization of new medical devices, such as our insulin pump, entails significant costs. While we believe
that we have generally completed the engineering and mechanical aspects of our insulin pump prototype, we still must modify, refine
and finalize our insulin pump to, among other things, meet the general needs and preferences of the almost pumper marketplace
and the guidelines of third-party payors. To enable us to accomplish these and other related items and continue to operate our
business, we will need to raise substantial additional capital and/or enter into strategic partnerships or joint ventures to enable
us to:
· fund clinical studies and seek regulatory approvals;
· build or access manufacturing and commercialization capabilities;
· develop, test, and, if approved, market our product;
· acquire or license additional internal systems and other infrastructure; and
· hire and support additional management, engineering and scientific personnel.
Until we can
generate a sufficient amount of product revenue to finance our cash requirements, which we may never achieve, we expect to finance
our cash needs primarily through public or private equity offerings, debt financings or through the establishment of possible
strategic alliances. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are
not able to secure additional equity funding when needed, we may have to delay, reduce the scope of, or eliminate one or more
of our clinical studies, development programs or future commercialization initiatives. In addition, any additional equity funding
that we do obtain will dilute the ownership held by our existing equity holders. The amount of this dilution may be substantially
increased if the trading price of our common stock is lower at the time of any financing. Regardless, the economic dilution to
shareholders will be significant if our stock price does not increase significantly, or if the effective price of any sale is
below the price paid by a particular shareholder. Any debt financing that we obtain in the future could involve substantial restrictions
on activities and creditors could seek a pledge of some or all of our assets. We have not identified potential sources for such
financing that we will require, and we do not have commitments from any third parties to provide any future debt financing. If
we fail to obtain funding as needed, we may be forced to cease or scale back operations, and our results, financial condition
and stock price would be adversely affected.
We have a limited operating
history and historical financial information upon which you may evaluate our performance.
You should consider,
among other factors, our prospects for success in light of the risks and uncertainties encountered by companies that, like us,
are in their early stages of development. We may not successfully address these risks and uncertainties or successfully complete
our studies and/or implement our existing and new products. If we fail to do so, it could materially harm our business and impair
the value of our common stock. Unanticipated problems, expenses and delays are frequently encountered in establishing a new business,
conducting research, and developing new products. These include, but are not limited to, inadequate funding, failure to obtain
regulatory approval, unforeseen research issues, lack of consumer acceptance, competition, sluggish product development, and inadequate
sales and marketing. The failure by us to meet any of these conditions would have a materially adverse effect upon us and may
force us to reduce or curtail operations. No assurance can be given that we can or will ever operate profitably.
We may
not be able to meet our future capital needs.
To date, we
have no revenue and we have limited cash liquidity and capital resources. We will need additional capital in the near future.
Any equity financings will result in dilution and may contain other terms that are not favorable to our then-existing stockholders.
We currently have debt financing, and any additional sources of debt financing that we may obtain in the future may result in
a high interest expense. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we will
be required to reduce or curtail operations.
The amount
of financing we require will depend on a number of factors, many of which are beyond our control. Our results of operations, financial
condition and stock price are likely to be adversely affected if our funding requirements increase or are otherwise greater than
we expect.
Our future funding