Modular Medical(MODD) - 2020 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The unaudited condensed consolidated financial statements for the period ended September 30, 2019, reveal a development-stage company with no revenue, reporting a net loss of $2.27 million for the six-month period, a decrease in cash and cash equivalents to $4.78 million, and increased operating expenses primarily from research and development Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | September 30, 2019 ($) | March 31, 2019 ($) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,775,706 | $6,553,768 | | Total Current Assets | $4,793,458 | $6,576,858 | | Total Assets | $4,885,668 | $6,652,986 | | Liabilities & Equity | | | | Total Liabilities | $330,592 | $178,929 | | Total Stockholders' Equity | $4,555,076 | $6,474,057 | | Accumulated deficit | $(5,517,925) | $(3,248,161) | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Unaudited) | Metric | Three Months Ended Sep 30, 2019 ($) | Three Months Ended Sep 30, 2018 ($) | Six Months Ended Sep 30, 2019 ($) | Six Months Ended Sep 30, 2018 ($) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $633,241 | $367,550 | $1,337,025 | $503,340 | | General and administration | $524,100 | $181,448 | $958,556 | $300,848 | | Loss From Operations | $(1,157,341) | $(548,998) | $(2,295,581) | $(804,188) | | Net Loss | $(1,147,566) | $(543,774) | $(2,269,764) | $(793,340) | | Net Loss Per Share (Basic & Diluted) | $(0.06) | $(0.03) | $(0.13) | $(0.05) | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity decreased from $6.47 million at March 31, 2019, to $4.56 million at September 30, 2019, primarily driven by a net loss of $2.27 million for the six-month period, partially offset by stock-based compensation[14] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended September 30 (Unaudited) | Cash Flow Activity | 2019 ($) | 2018 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,747,462) | $(576,101) | | Net cash used in investing activities | $(30,600) | $(32,753) | | Net decrease in cash | $(1,778,062) | $(608,854) | | Cash at beginning of period | $6,553,768 | $4,296,676 | | Cash at end of period | $4,775,706 | $3,687,822 | Notes to Condensed Consolidated Financial Statements - The company is a development-stage medical device company focused on designing and commercializing an innovative insulin pump, and has not yet generated any revenue from its operations[20] - Under the 2017 Equity Incentive Plan, the company granted options to purchase 100,485 shares of common stock during the six months ended September 30, 2019, with unamortized stock-based compensation cost of $352,936 as of September 30, 2019[46][49][50] - The company has a royalty agreement with its founder, obligating it to pay royalties on future product sales up to a maximum of $10 million, with the royalty being the lesser of $0.75 per unit or 5% of the gross sale price[56] - Management believes it is more likely than not that the net deferred tax assets will not be fully realizable and has recorded a full valuation allowance against them[55] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, highlighting significantly increased operating expenses due to accelerated product development and administrative costs, reporting a net loss of $2.2 million for the six months ended September 30, 2019, and noting that its current working capital of $4.5 million is insufficient to meet operating requirements for the next twelve months, necessitating additional capital raising Company Overview - The company is a development-stage entity that has not yet obtained FDA clearance for its insulin pump and has not generated any revenue from product sales[59][60] - As of September 30, 2019, the company had working capital of $4.5 million and an accumulated deficit of $5.5 million[60] - The company does not have sufficient cash to meet its projected operating requirements for the next twelve months and will need to raise additional capital[61] Results of Operations Comparison of Operating Expenses | Expense Category | Six Months Ended Sep 30, 2019 ($) | Six Months Ended Sep 30, 2018 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Research and development | $1,337,025 | $503,340 | +$833,685 | | General and administrative | $958,557 | $300,848 | +$657,709 | - The increase in R&D expenses was primarily due to increased product development, personnel, consulting, and stock-based compensation expenses to accelerate product development[64] - The increase in G&A expenses was mainly attributable to increases in personnel, professional services, stock-based compensation, and expenses for preparing a selling shareholders registration statement[65] Liquidity and Capital Resources - Net cash used in operating activities increased significantly to $1,747,462 for the six months ended September 30, 2019, compared to $576,101 in the prior-year period, driven by a higher net loss from increased R&D activities[67][69] - The company expects to continue raising capital through future equity or debt offerings to finance its operations[67][68] Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Modular Medical is not required to provide this disclosure - This disclosure is not required for the company[72] Controls and Procedures Management concluded that the company's disclosure controls and procedures were ineffective as of September 30, 2019, due to material weaknesses in internal control over financial reporting, including inadequate controls and a lack of segregation of duties, with remediation efforts initiated through hiring an accounting manager and a contract CFO - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[74] - Material weaknesses were identified related to inadequate internal controls over financial reporting and a lack of segregation of duties[75] - To remediate these weaknesses, the company hired a full-time accounting manager and engaged a contract CFO during the six months ended September 30, 2019[76] Part II - Other Information Legal Proceedings The company reported no legal proceedings during the period - The company reports that there are no legal proceedings[78] Risk Factors The company refers investors to the risk factors disclosed in its Annual Report on Form 10-K for the year ended March 31, 2019 - The company directs readers to its Annual Report on Form 10-K filed with the SEC on June 27, 2019, for a discussion of material risks[79] Unregistered Sales of Equity Securities and Use of Proceeds During the six-month period, the company issued 30,000 shares of common stock to a consultant for services, which were exempt from registration under the Securities Act - The company issued 30,000 shares of common stock to a consultant for services, which were deemed exempt from registration under Rule 701 or Section 4(a)(2) of the Securities Act[80] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[81] Mine Safety Disclosures This item is not applicable to the company - Not applicable[82] Other Information The company reported no other information - None reported[83] Exhibits This section lists the exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data files - The report lists certifications from the principal executive officer pursuant to Sarbanes-Oxley Act Sections 302 and 906, as well as XBRL data files, as exhibits[84]