{"url_path":"/sec/modd/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 MANAGEMENT’S DISCUSSIONANDANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-06-29","source_url":"https://www.sec.gov/Archives/edgar/data/1074871/0001213900-26-073223-index.html","accession_number":"0001213900-26-073223","cik":"0001074871","ticker":"MODD","issuer_name":"Modular Medical, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1074871/0001213900-26-073223-index.html","primary_entity_key":"0001074871","primary_entity_name":"Modular Medical, Inc."},"word_count":3161,"has_tables":true,"body_markdown":"ITEM 7. MANAGEMENT’S DISCUSSIONANDANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS\n\n \n\nThe following discussion of our financial condition\nand results of operations should be read in conjunction with the financial statements and related notes included in this Annual Report\non Form 10-K, or the Report. *Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain\nstatements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties\nand other factors. These statements are often identified by the use of words such as “may,” “will,” “expect,”\n“believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,”\nand similar expressions or variations. Actual results could differ materially because of the factors discussed in Part I, Item 1A,*\nThese risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.\n\n \n\nOur fiscal year ends on March 31 of each calendar\nyear. Each reference to a fiscal year in this Report, refers to the fiscal year ended March 31 of the calendar year indicated (for example,\nfiscal 2026 refers to the fiscal year ending March 31, 2026). Unless the context requires otherwise, references to “we,”\n“us,” “our,” and the “Company” refer to Modular Medical, Inc. and its consolidated subsidiary.\n\n \n\n*Overview*\n\n \n\nWe are a commercial-stage medical device company focused on the design,\ndevelopment and commercialization of innovative insulin pumps using modernized technology to increase pump adoption in the diabetes marketplace.\nThrough the creation of a novel two part patch pump, we seek to fundamentally alter the trade-offs between cost and complexity and access\nto the higher standards of care that presently-available insulin pumps provide. By simplifying and streamlining the user experience from\nintroduction, prescription, reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device market\nbeyond the highly motivated “super users” and expand the category into the mass market. The product seeks to serve both the\ntype 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets. In January 2024, we submitted a 510(k)\npremarket notification to the United States Food and Drug Administration (the “FDA”) for our initial product, our MODD1, and,\nin September 2024, we received FDA clearance to market and sell our MODD1 pump in the United States. In August 2025, we announced the\nfirst human use of our MODD1 pump delivering insulin to a human patient. In addition, in August 2025, we announced our next-generation\npatch pump, branded as Pivot. We submitted a 510(k) premarket notification to the FDA for our Pivot product on November 13, 2025, and\nwe received regulatory approval on April 9, 2026. In June 2026, we announced commercial availability of our Pivot product and commenced\ninitial shipments. We are actively working to i) expand commercial activities for our Pivot product across metropolitan markets, ii) obtain\nregulatory clearance to market and sell our Pivot product in foreign jurisdictions, iii) improve the manufacturability and usability of\nour Pivot product and iv) develop new pump products.\n\n \n\nOn April 19, 2026, we entered into a placement\nagency agreement with Maxim Group LLC (“Maxim”), relating to a registered direct offering (the “April 2026 Offering”)\nof 750,000 shares of our common stock, par value $0.001 per share. The gross proceeds to us from the April 2026 Offering were approximately\n$3.375 million, before deducting offering expenses. The April 2026 Offering closed on April 21, 2026.\n\n \n\nHistorically, we have financed our operations principally through private placements\nand public offerings of our common stock and warrants and sales of convertible promissory notes. Based on our current operating plan,\nthere is substantial doubt about our ability to continue as a going concern for a period of at least one year from June 29, 2026. Our\nability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities,\nto support our future operations. If we are unable to secure additional capital, we will be required to curtail our research and development\ninitiatives and take additional measures to reduce costs. We do not currently have revenues to generate cash flows to cover operating\nexpenses. Since our inception, we have incurred operating losses and negative cash flows in each year due to operating expenses and capital\nexpenditures incurred to conduct our operations. We incurred net losses of approximately $28.2 million and $18.8 million for the years\nended March 31, 2026 and 2025, respectively, and we had an accumulated deficit of approximately $113.0 million as of March 31, 2026. These\nand prior year losses have resulted in significant negative cash flows and have necessitated that we raise substantial amounts of additional\ncapital during this period. This raises significant doubt about our ability to continue as a going concern, which was also expressed by\nour independent registered public accounting firm in its report on our consolidated financial statements for the year ended March 31,\n2026. Our ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt\nsecurities to support our future operations.\n\n \n\nWorld Unrest\n\n \n\nWorld unrest due to wars and terrorist attacks\nhave led to economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the global economy.\nSince mid-2022, at times, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates. Market conditions may\nprevent us from accessing the capital markets, and additional capital may only be available to us on terms that could be significantly\ndetrimental to our existing stockholders and to our business.\n\n \n\n42 \n\n \n\n \n\nResults of Operations\n\n \n\nThe following discussion should be read in conjunction\nwith our consolidated financial statements and related notes included elsewhere in this Report.\n\n \n\n*Research and Development*\n\n* *\n\n  \nYear ended March 31,  \nYear-over-Year\n\nChange \n\n  \n2026  \n2025  \n2025 to 2026 \n\nResearch and development \n$19,973  \n$14,697  \n$5,276  \n  35.9%\n\n \n\nOur research and development, or R&D, expenses\ninclude personnel, consulting, testing, materials and supplies, depreciation and amortization and other operational costs associated with\nthe production of our insulin pump products. We expense R&D costs as they are incurred. R&D expenses increased in fiscal 2026\ncompared with fiscal 2025 primarily due to increases in engineering and operations personnel costs of $2.9 million, consulting expenses\nof $1.2 million, depreciation and amortization of $0.6 million, shipping expenses $0.5 million and materials and supply expenditures of\napproximately $0.4 million. The increase in personnel costs was attributable to increased average headcount year over year, salary increases\neffected during fiscal 2026 and higher payroll taxes. The increase in consulting expenditures and material and supply expenditures was\nprimarily due to an increase in utilization of consultants and material and job supplies, in support of our FDA submission of our new\nPivot product in fiscal year 2026. The increase in depreciation and amortization expenses was primarily due to an increase in machinery\nand equipment purchased and placed in service to further develop and expand our manufacturing capabilities. The increases in R&D expense\nwere partially offset by a decrease in stock-based compensation expenses of $0.5 million. R&D expenses included stock-based compensation\nexpenses of approximately $1.3 million and $1.8 million for fiscal 2026 and fiscal 2025, respectively.\n\n \n\nWe expect R&D expenses will increase in fiscal\n2027, as we continue to hire additional engineering, quality assurance, and operations personnel, optimize our manufacturing process at\nour medical device contract manufacturer and continue to advance the product development roadmap for our pump products.\n\n* *\n\n*General and Administrative*\n\n* *\n\n  \nYear ended March 31,  \nYear-over-Year\n\nChange \n\n  \n2026  \n2025  \n2025 to 2026 \n\nGeneral and administrative \n$7,587  \n$4,351  \n$3,236  \n 74.4%\n\n* *\n\nGeneral and administrative, or G&A, expenses\nconsist primarily of personnel and related overhead costs for facilities, finance, human resources, general management and marketing.\n\n \n\nG&A expenses increased in fiscal 2026 compared with fiscal 2025 primarily\ndue to increases in general and administrative personnel costs of $1.5 million, consulting expenses of $1.3 million, sales and marketing\nactivities of $0.5 million, The increase in personnel costs was attributable to increased average headcount year over year, salary increases\neffected during fiscal 2026 and higher payroll taxes. The increases in G&A expense were partially offset by a decrease in stock-based\ncompensation expenses of $0.2 million. G&A expenses included stock-based compensation expenses of approximately $0.4 million and $0.6\nmillion for fiscal 2026 and fiscal 2025, respectively. We expect G&A expenses to increase in fiscal 2027, as we expect to increase\nheadcount, as we continue to expand our limited sales and marketing organization, add finance and administration personnel and implement\nadditional systems to support our anticipated growth and commercialization of our product during fiscal 2027.\n\n \n\nLiquidity and Capital Resources; Changes in\nFinancial Condition\n\n \n\n*Going Concern*\n\n \n\nWe do not currently have revenues to generate cash flows to cover operating\nexpenses. Since our inception, we have incurred operating losses and negative cash flows in each year due to costs incurred associated\nwith our operations. For the years ended March 31, 2026 and 2025, we incurred net losses of approximately $28.2 million and $18.8 million,\nrespectively. At March 31, 2026, we had a cash balance of $6.9 million and an accumulated deficit of approximately $113.0 million. When\nconsidered with our current operating plan, these conditions raise substantial doubt about our ability to continue as a going concern\nfor a period of at least one year from the date that the financial statements included in Item 8 of this Report are issued. Our financial\nstatements do not include adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable\nto continue as a going concern. Our operating needs include the planned costs to operate our business, including amounts required to fund\ncontinued research and development activities, working capital and capital expenditures. Our ability to continue as a going concern depends\non our ability to raise additional capital, through the sale of equity or debt securities to support our future operations.\n\n \n\n43 \n\n \n\n \n\nIn March 2026, the Company completed a\nsecurities purchase agreement public offering of its common stock and pre-funded warrants for gross proceeds of approximately $12.0\nmillion. Our future capital requirements and the adequacy of our available funds will depend on many factors, including, without\nlimitation, our ability to successfully commercialize our product, competing technological and market developments, and the need to\nenter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product\nofferings. If we are unable to secure additional capital timely, we may be required to curtail R&D initiatives, reduce headcount\nand take additional measures to reduce costs in order to conserve our cash.\n\n \n\n*Purchase Obligations*\n\n \n\nOur primary purchase obligations include purchase\norders for machinery and equipment. At March 31, 2026, we had outstanding purchase orders for machinery and equipment and related expenditures\nof approximately $1.6 million. At March 31, 2026, we had outstanding purchase orders for supplies and inventory components of approximately\n$431,000.\n\n \n\n*Liquidity*\n\n \n\nIn fiscal 2026, we used approximately $23.8 million in operating activities,\nwhich primarily resulted from our net loss of approximately $28.2 million, as increased by changes to operating assets and liabilities\nof approximately $0.2 million, and as adjusted for non-cash charges and gains, which included approximately $1.8 million of stock-based\ncompensation expenses, depreciation and amortization expenses of approximately $1.7 million, change in fair value of warrant liabilities\nof approximately $0.8 million and other immaterial adjustments. The changes in operating assets and liabilities primarily related to the\ntiming of payments to vendors.\n\n \n\nIn fiscal 2025, we used approximately $15.7 million\nin operating activities, which primarily resulted from our net loss of approximately $18.8 million, less changes to operating assets\nand liabilities of approximately $0.4 million, as adjusted for non-cash charges and gains, which included stock-based compensation expenses\nof approximately $2.4 million, depreciation and amortization of approximately $1.1 million and other immaterial adjustments. The changes\nin operating assets and liabilities primarily related to the timing of payments to vendors.\n\n \n\nFor fiscal 2026 and fiscal 2025, cash used in investing\nactivities of approximately $3.9 million and $2.5 million, respectively, was for the purchase of property and equipment.\n\n \n\nCash provided by financing activities for fiscal\n2026 totaled approximately $21.5 million and was primarily attributable to net proceeds of approximately $15.7 million from a public offering\nof common stock and warrants, which closed in March 2026, net proceeds of approximately $4.0 million from the issuance of common stock\nand warrants in a warrant inducement offering in September 2025 and proceeds of approximately $1.9 million from the sale of shares under\nthe ATM Agreement\n\n \n\nCash provided by financing activities for fiscal\n2025 totaled approximately $22.1 million and was primarily attributable to proceeds of approximately $11.4 million from a private placement\nof common stock and warrants, which closed in March 2025, net proceeds of approximately $7.3 million from the issuance of common stock\nand warrants in a public offering, which closed in November 2024, proceeds of approximately $1.3 million for the exercise of common stock\npurchase warrants and approximately $2.1 million from the sale of shares under the ATM Agreement.\n\n \n\nCritical Accounting Policies and Estimates\n\n \n\nOur consolidated financial statements are prepared\nin conformity with accounting principles generally accepted in the United States of America (“GAAP”). Note 1 to the consolidated\nfinancial statements in Item 8 of this Report describes the significant accounting policies and methods used in the preparation of our\nconsolidated financial statements. We have identified the accounting policies below as some of the more critical to our business and\nthe understanding of our results of operations. These policies may involve estimates and judgments that affect the reported amounts of\nassets, liabilities, revenues and expenses. Although we believe our judgments and estimates are appropriate, actual future results may\ndiffer from our estimates, and if different assumptions or conditions were to prevail, the results could be materially different from\nour reported results.\n\n \n\n*Use of estimates*\n\n \n\nThe preparation of financial statements in conformity\nwith GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of\ncontingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the\nreporting periods. Estimates may include those pertaining to accruals, stock-based compensation and income taxes. Actual results could\nmaterially differ from those estimates.\n\n \n\n44 \n\n \n\n \n\n*Stock-based compensation*\n\n \n\nWe periodically issue stock options, restricted\nstock units and stock awards to employees and non-employees. We account for such awards based on Financial Accounting Standards Board\nAccounting Standards Codification (“ASC”) 718, whereby the value of the award is measured on the date of grant and recognized\nas compensation expense on a straight-line basis over the requisite service period, usually the vesting period. With respect to performance-based\nawards, we assess the probability of achieving the requisite performance criteria before recognizing compensation expense. We estimate\nthe fair value of stock options on the date of grant using the Black-Scholes-Merton Option Pricing (“Black Scholes”) model\nwhich uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the options, and future dividends.\nCompensation expense is recorded based upon the value derived from the Black-Scholes model. The assumptions used in the Black-Scholes\nmodel could materially affect compensation expense recorded in future periods.\n\n \n\n*Income taxes*\n\n \n\nWe determine deferred tax assets and liabilities\nbased upon the differences between the financial statement and tax bases of our assets and liabilities using tax rates in effect for\nthe year in which we expect the differences to affect taxable income. A valuation allowance is established for any deferred tax assets\nfor which it is more likely than not that all or a portion of the deferred tax assets will not be realized. Based on the available information\nand other factors, management believes it is more likely than not that our federal and state net deferred tax assets will not be fully\nrealized, and we have recorded a full valuation allowance.\n\n \n\nWe account for uncertain tax positions in accordance\nwith ASC Topic 740, *Income Taxes*. When tax returns are filed, it is likely that some positions taken would be sustained upon examination\nby the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position\nthat would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period\nduring which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon\nexamination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with\nother positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit\nthat is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits\nassociated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized\ntax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to\nthe taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties\nare classified in general and administrative expenses in the consolidated statements of operations.\n\n \n\n*Leases*\n\n \n\nWe account for our leases under ASC 842, *Leases*(“ASC 842”), and related ASUs, which provide supplementary guidance and clarifications. Under ASC 842, all significant\nlease arrangements are generally recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and lease\nliabilities are recognized at the commencement date. ROU assets and corresponding lease liabilities are not recorded for leases with\nan initial term of 12 months or less (short-term leases), and we recognize lease expense for these leases as incurred over the lease\nterm.\n\n \n\nROU assets represent our right to use an underlying\nasset during the reasonably certain lease terms, and lease liabilities represent our obligation to make lease payments arising from the\nlease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that\noption. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease\npayments over the lease term. We use our incremental borrowing rate, based on the information available at commencement date in determining\nthe present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and\nprepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.\n\n \n\nOff-Balance Sheet Arrangements\n\n \n\nWe do not maintain any off-balance sheet arrangements\nor obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations,\nliquidity or capital resources.\n\n \n\nContractual Obligations\n\n \n\nAs a “smaller reporting company,” as\ndefined by Item 10 of Regulation S-K, we are not required to provide the information requested by paragraph (a)(5) of this Item.\n\n \n\nRecent Accounting Pronouncements\n\n \n\nSee Note 1 to the consolidated financial statements\nin Item 8 of this Report for a full description of relevant recent accounting pronouncements."}