DEF: Modular Medical Faces Delisting, Seeks Reverse Split & Capital

Modular Medical, Inc. will hold its fiscal 2026 Annual Meeting to address Nasdaq compliance, approve a reverse stock split, increase authorized shares, and amend its equity incentive plan amidst going concern doubts.

Summary

• The fiscal 2026 Annual Meeting of Shareholders will be held virtually on January 23, 2026, at 11:00 a.m. Pacific time, with a record date of December 24, 2025.
• Shareholders will vote on electing eight directors, approving a reverse stock split (1:5 to 1:40 ratio) at the Board's discretion, increasing authorized common stock from 100,000,000 to 250,000,000 shares, and amending the 2017 Equity Incentive Plan to add 3,000,000 shares.
• Other proposals include a non-binding advisory vote on named executive officer compensation and ratification of Farber Hass Hurley LLP as the independent registered public accounting firm for fiscal year ending March 31, 2026.
• The company received a Nasdaq deficiency letter on June 30, 2025, for not meeting the $1.00 minimum bid price requirement and did not regain compliance by December 29, 2025, requesting a 180-day extension.
• As of the record date, 77,676,339 shares of common stock were issued and outstanding, with a current deficit of 6,795,580 authorized shares needed for existing reservations.
• The 2017 Equity Incentive Plan currently authorizes 10,666,668 shares, with 7,403,248 shares subject to existing awards and 2,961,464 shares available for future issuance.
• Salaries for President, CFO, Treasurer, and Chairman Paul DiPerna increased from $300,000 to $360,000, and for Chief Operating Officer Kevin Schmid from $250,000 to $300,000, effective April 1, 2024.
• The company reported a net loss of $18,824,126 for fiscal 2025, compared to $17,470,489 for fiscal 2024.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the explicit 'substantial doubt about our ability to continue as a going concern,' the Nasdaq delisting threat, and the anticipated significant dilution from future capital raises. While management is taking steps to address these issues, the underlying financial health and market position are precarious.

Positives

• The company received FDA clearance for its MODD1 product, which triggered the vesting of certain executive stock options on August 22, 2024.
• The Board is actively addressing Nasdaq listing compliance issues through proposed corporate actions like the reverse stock split.
• The proposed amendment to the 2017 Equity Incentive Plan aims to provide adequate shares for at least the next two years to attract, motivate, and retain employees, consultants, and non-employee directors.

Negatives

• The company received a Nasdaq deficiency letter for failing to meet the $1.00 minimum bid price requirement and did not regain compliance by the initial deadline.
• There is substantial doubt about the company's ability to continue as a going concern within one year due to operating losses and negative cash flows.
• The company expects significant additional dilution from future capital raises required to commercialize its initial pump product.
• The company currently has a deficit of 6,795,580 authorized shares needed for existing warrants and equity awards.
• Compensation actually paid to the Principal Executive Officer and non-PEO named executive officers is not directly correlated with Total Shareholder Return (TSR).

Risks

• Failure to regain or maintain compliance with Nasdaq's minimum bid price requirement could lead to delisting of common stock.
• Delisting from Nasdaq could adversely affect stock liquidity, increase volatility, reduce analyst coverage, diminish institutional investor interest, and harm business prospects by eroding confidence among collaborators, vendors, and employees.
• If delisted, the common stock may trade on less efficient over-the-counter markets, making it harder to raise capital or for investors to dispose of shares.
• Delisted common stock may be classified as a 'penny stock,' imposing additional sales practice requirements on broker-dealers and potentially reducing trading activity.
• There is no assurance that a reverse stock split will proportionally increase the stock price or maintain it above the $1.00 minimum bid, and it may not attract institutional investors.
• A reverse stock split could decrease the liquidity of common stock and result in higher transaction costs for shareholders holding odd lots.
• The effective increase in authorized shares resulting from a reverse stock split or the direct increase in authorized shares could have anti-takeover implications by enabling the Board to dilute ownership or oppose hostile takeover attempts.
• The issuance of additional shares for capital raising or other corporate purposes could have a dilutive effect on book value per share, earnings per share, and shareholders' percentage voting power.
• The company's challenges and substantial doubt about its ability to continue as a going concern make it more difficult to attract and hire employees.
• If the amendment to the 2017 Equity Incentive Plan is not approved, the company may struggle to retain employees and non-employee directors, potentially increasing reliance on cash-settled awards and thus increasing cash burn.

Future Outlook

The company anticipates needing to raise additional capital through debt or equity arrangements in the foreseeable future, expecting significant additional dilution to commercialize its initial pump product. Management expects to increase equity award levels in the first half of 2026 and believes the proposed increase in the 2017 Plan's share pool will provide adequate shares for at least the next two years. The Board may implement a reverse stock split within one year of the Annual Meeting to address Nasdaq compliance. The company also expects to grow its business, increase headcount, and potentially expand the size of the Board, which may necessitate future amendments to the 2017 Plan or new equity compensation plans.

Management Comments

• "Your vote is very important. We encourage you to read all of the information in the proxy statement and vote your shares as soon as possible."
• "The Board of Directors believes that the proposed Reverse Split is a potentially effective means for us to maintain compliance with the minimum bid requirement and to avoid, or at least mitigate, the likely adverse consequences of our common stock being delisted from the Nasdaq Capital Market."
• "The Board of Directors believes that maintaining the current number of authorized shares of our common stock, irrespective of the Reverse Split, is necessary to provide us with the flexibility to act in the future with respect to raising additional financing, potential strategic collaborations and other corporate purposes."
• "We recognize the need to balance shareholder concerns over the potentially dilutive effects of the increased number of shares authorized for issuance under the 2017 Plan with our ability to attract, motivate, reward and retain our employees and non-employee directors, who are critical to driving our business plan and increasing shareholder value."
• "We believe that shareholder approval of the proposed amendment to the 2017 Plan to authorize for issuance 3,000,000 additional shares thereunder pursuant to this Proposal No. 4 is necessary in order for us to have a sufficient number of shares available for issuance under the 2017 Plan to allow us to continue to motivate, reward and retain the services of our non-employee directors, employees and consultants."

Industry Context

Modular Medical operates in the highly competitive medical device industry, specifically focusing on insulin pump products. The challenges faced, such as maintaining Nasdaq listing and securing capital, are common for smaller, development-stage companies in this sector. The emphasis on equity incentives reflects a broader industry trend to attract and retain specialized talent in a field requiring significant R&D and regulatory navigation. The company's history, with its founder's involvement in Tandem Diabetes Care and the acquisition of Curos Cap by 3M, highlights the competitive landscape and the importance of innovation and market penetration in the diabetes care segment.

Comparison to Industry Standards

• Paul DiPerna, the company's Chairman and President, founded Tandem Diabetes Care, Inc., and was responsible for the design concept and development of Tandem's initial insulin pump, a notable competitor in the diabetes device market.
• Duane DeSisto, a director, previously served as CEO of Insulet Corporation, manufacturer of the world's first patch insulin pump, providing direct experience with a leading product in the same market segment.
• Mr. DiPerna was also a co-inventor of the Curos Cap, a medical device for blood-borne infection control, which was acquired by 3M Corporation, demonstrating experience with successful medical device development and exits.
• The company engaged San Diego Human Resources Consulting (SDHRC) to provide comparative data from other companies in its industry to assess executive and director compensation, indicating an effort to benchmark against industry standards.

Management Changes

Corporate Governance

Legal Proceedings

• Mr. DeSisto failed to timely file a Form 4 to report an option granted to him on December 31, 2024, which is a delinquency under Section 16(a) of the Exchange Act.

Related Party Transactions

• Manchester Management Company, LLC (MMC), as the general partner of Manchester Explorer, L.P. and JEB Partners, L.P., combined with affiliates, owned approximately 9% of outstanding shares at March 31, 2025.
• James E. Besser (CEO) is a managing member of MMC, and Morgan C. Frank (director) is portfolio manager of Manchester Explorer and a managing member of MMC.
• Manchester Explorer purchased 166,666 shares in a public offering in November 2024 for $250,000.
• Manchester Explorer purchased 260,416 units (comprising two shares of common stock and one warrant) in a private placement in March 2025 for $500,000.
• Mr. Besser purchased 78,125 units in the March 2025 private placement for approximately $150,000.
• Mr. DiPerna's daughter is an employee and was paid approximately $169,000 during fiscal 2025, including the aggregate grant date fair value of stock options.
• The company has a royalty agreement with Mr. DiPerna, capping at $10,000,000, based on future sales of products related to intellectual property he transferred; no payments have been made to date.

Stakeholder Impact

• Shareholders face potential significant dilution from future capital raises and the proposed increase in authorized shares and equity incentive plan shares.
• Shareholders may experience reduced stock price, decreased liquidity, and higher transaction costs if the reverse stock split does not achieve its intended effect or if the stock is delisted.
• Employees and consultants are impacted by the company's ability to offer competitive equity incentives, which is crucial for attraction and retention, especially given the 'going concern' doubt.
• Customers, suppliers, and creditors could lose confidence in the company if its common stock is delisted from Nasdaq, potentially harming business relationships and future prospects.
• Investment professionals and analysts may reduce coverage or interest in the company if its stock is delisted or remains a 'low-priced stock,' affecting market visibility and investor access.

Next Steps

• Shareholders will vote on the proposed actions at the Annual Meeting on January 23, 2026.
• The Board of Directors will decide whether to implement a reverse stock split, and at what ratio, within one year of the Annual Meeting, if approved by shareholders.
• If approved, the company will file Certificates of Amendment to its Articles of Incorporation to effect the reverse stock split and increase authorized shares.
• The company anticipates increasing equity award levels during its next performance review cycle in the first half of 2026.
• The company expects to raise additional capital through debt or equity arrangements in the foreseeable future to commercialize its initial pump product.
• Future amendments to the 2017 Plan or new equity compensation plans are expected as the company grows, increases headcount, and potentially expands the Board.
• Shareholders wishing to submit proposals for the fiscal 2027 annual meeting must do so by September 25, 2026 (Rule 14a-8) or between September 25, 2026, and October 25, 2026 (outside Rule 14a-8).

Key Dates

Recommendation

The filing reveals critical red flags that warrant a 'strong sell' recommendation for a seasoned investor. The explicit disclosure of 'substantial doubt about our ability to continue as a going concern' is a severe warning sign of fundamental financial instability. Furthermore, the company is facing a Nasdaq delisting threat due to its low bid price, which, if realized, would severely impair liquidity and investor interest. The anticipated 'significant additional dilution' from future capital raises, necessary to commercialize its product, will further erode existing shareholder value. While management is attempting to address these issues through a reverse stock split and increased authorized shares, these are reactive measures to dire circumstances and carry their own risks, with no guarantee of success. The overall picture points to a highly speculative investment with significant downside risk.

Keywords

Proxy Statement, Nasdaq Listing, Reverse Stock Split, Authorized Shares, Equity Incentive Plan, Corporate Governance, Executive Compensation, Medical Device, Insulin Pump, Going Concern, Shareholder Meeting, Capital Raise, Dilution