Modular Medical(MODD) - 2024 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial information for Modular Medical, Inc., including statements, notes, and management's discussion Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of Modular Medical, Inc. for the period ended September 30, 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies and financial statement components Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of September 30, 2023, and March 31, 2023 Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2023 (Unaudited) | March 31, 2023 | | :-------------------------------- | :--------------------------------------- | :-------------------------- | | Cash and cash equivalents | $6,330 | $3,799 | | Total Current Assets | $6,463 | $4,046 | | Total Assets | $10,059 | $7,245 | | Total Current Liabilities | $1,112 | $979 | | Total Liabilities | $2,121 | $2,169 | | Total Stockholders' Equity | $7,938 | $5,076 | - Total assets increased by approximately $2.8 million from March 31, 2023, to September 30, 2023, primarily driven by an increase in cash and cash equivalents[10] - Total stockholders' equity increased by approximately $2.8 million, reflecting new equity issuances[10] Condensed Consolidated Statements of Operations This section outlines the company's financial performance, presenting revenues, expenses, and net loss for the three and six months ended September 30, 2023, and 2022 Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :---------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Research and development | $2,980 | $2,385 | $5,584 | $4,607 | | General and administrative | $1,210 | $1,064 | $2,357 | $2,341 | | Total operating expenses | $4,190 | $3,449 | $7,941 | $6,948 | | Net loss | $(4,183) | $(3,450) | $(7,920) | $(6,949) | | Net loss per share (Basic and diluted) | $(0.19) | $(0.28) | $(0.40) | $(0.58) | - Net loss increased for both the three-month and six-month periods ended September 30, 2023, compared to the prior year, primarily due to increased operating expenses[12] - Research and development expenses increased by 24.9% for the three months and 21.2% for the six months ended September 30, 2023, reflecting continued investment in product development[12] Condensed Consolidated Statements of Stockholders' Equity (Deficit) This section details changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit, for the period ended September 30, 2023 Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric | March 31, 2023 | June 30, 2023 | September 30, 2023 | | :---------------------- | :------------- | :------------ | :----------------- | | Common Stock (Amount) | $11 | $21 | $21 | | Additional Paid-In Capital | $53,524 | $63,731 | $64,296 | | Accumulated Deficit | $(48,459) | $(52,196) | $(56,379) | | Total Stockholders' Equity | $5,076 | $11,556 | $7,938 | - Total stockholders' equity increased significantly from March 31, 2023, to June 30, 2023, primarily due to the issuance of common stock and warrants in an equity offering, with net proceeds of $9.733 million[15] - The accumulated deficit continued to grow, reaching $(56.379) million as of September 30, 2023, reflecting ongoing net losses[15] Condensed Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the six months ended September 30, 2023, and 2022 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Net cash used in operating activities | $(6,484) | $(5,526) | | Net cash used in investing activities | $(718) | $(81) | | Net cash provided by financing activities | $9,733 | $7,372 | | Net increase in cash and cash equivalents | $2,531 | $1,765 | | Cash and cash equivalents at end of period | $6,330 | $10,841 | - Operating activities continued to consume cash, with a net use of $6.48 million for the six months ended September 30, 2023, an increase from $5.53 million in the prior year[18] - Financing activities provided significant cash inflows of $9.73 million in 2023, primarily from a public offering of common stock and warrants, enabling a net increase in cash despite operating and investing outflows[18] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies and specific account breakdowns NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note provides an overview of Modular Medical, Inc., its business as a development-stage medical device company focused on insulin pumps, and a summary of its significant accounting policies. It also highlights the company's liquidity challenges and going concern risk, emphasizing the need for additional capital - Modular Medical, Inc. is a development-stage medical device company focused on designing and commercializing an innovative two-part patch insulin pump (MODD1) for both Type 1 and Type 2 diabetes markets[22] - The company expects to incur operating losses and cash outflows for the foreseeable future, raising substantial doubt about its ability to continue as a going concern without securing additional capital[24][25] - The condensed consolidated financial statements are unaudited and prepared in accordance with GAAP and SEC rules for interim reporting, with certain disclosures condensed or omitted[28] NOTE 2 – CONSOLIDATED BALANCE SHEET DETAIL This note provides a detailed breakdown of specific balance sheet accounts, including property and equipment, net, and accrued expenses, showing changes between March 31, 2023, and September 30, 2023 Property and equipment, net (in thousands) | Property and equipment, net | September 30, 2023 | March 31, 2023 | | :--------------------------------------- | :----------------- | :------------- | | Machinery and equipment | $2,372 | $820 | | Construction-in-process | $161 | $1,003 | | Total property and equipment, net | $2,286 | $1,721 | Accrued expenses (in thousands) | Accrued expenses | September 30, 2023 | March 31, 2023 | | :------------------------------ | :----------------- | :------------- | | Accrued wages and employee benefits | $191 | $267 | | Other | $25 | $72 | | Total Accrued expenses | $216 | $339 | - Machinery and equipment significantly increased from $820 thousand to $2.372 million, while construction-in-process decreased from $1.003 million to $161 thousand, indicating assets moving from construction to in-service[53] NOTE 3 – LEASES This note details the Company's lease arrangements, including the expiration of a previous lease and the commencement of a new 48-month operating lease for its Thornmint Road facility, along with future minimum lease payments - The Company's 39-month lease at W. Bernardo Drive expired on June 30, 2023, and a $100,000 security deposit was refunded[54] - A new 48-month operating lease for the Thornmint Road facility commenced on February 1, 2023, with an initial base monthly rent of $36,000 and annual increases of approximately 4%[55] Operating Lease (in thousands) | Annual Fiscal Years | Operating Lease | | :------------------ | :----------------------------- | | 2024 | $219 | | 2025 | $452 | | 2026 | $470 | | 2027 | $405 | | Total future lease payments | $1,546 | | Present value of lease liability | $1,359 | NOTE 4 – STOCKHOLDERS' EQUITY This note details changes in stockholders' equity, primarily focusing on the May 2023 public offering of common stock and warrants, which generated significant gross proceeds, and provides a summary of outstanding warrants - In May 2023, the Company completed a public offering, issuing 8,816,900 shares of common stock and warrants to purchase 4,408,450 shares, generating aggregate gross proceeds of approximately $9.39 million[58] - The underwriter exercised its over-allotment option in full, purchasing an additional 1,322,534 shares and 661,267 warrants, adding approximately $1.408 million in gross proceeds[59] Warrant Summary | Warrant Type | Number of Shares (in thousands) | Exercise Price | Expiration | | :------------- | :------------------------------ | :------------- | :--------- | | Common stock | 1,348 | $0.01 | — | | Common stock | 768 | $6.00 | Jan-Feb 2027 | | Common stock | 4,011 | $6.60 | Feb 2027 | | Common stock | 1,438 | $6.60 | Nov 2027 | | Common stock | 605 | $1.32 | May 2027 | | Common stock | 5,070 | $1.22 | May 2028 | | Total | 13,240 | | | NOTE 5 – STOCK-BASED COMPENSATION This note details the Company's Amended 2017 Equity Incentive Plan, including the number of shares reserved, the recognition of stock-based compensation expense, and the activity of stock options and restricted stock units (RSUs) during the period - The 2017 Equity Incentive Plan was amended to increase shares reserved for issuance by an additional 2,000,000 shares in January 2023, allowing for a broad range of awards to employees, directors, and consultants[65] - Unamortized stock-based compensation cost for stock options was approximately $2.645 million as of September 30, 2023, expected to be recognized over a weighted-average period of 1.7 years[66] Stock-Based Compensation Metrics | Metric | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Weighted-average grant date fair value of options granted | $1.00 per share | $4.17 per share | | Options outstanding (Sep 30, 2023) | 2,912,664 | | | RSUs granted (Six months ended Sep 30, 2023) | 250,000 | | NOTE 6 – INCOME TAXES This note explains the Company's accounting for income taxes, including the determination of deferred tax assets and liabilities and the establishment of a full valuation allowance due to the unlikelihood of realizing federal and state net deferred tax assets - The Company has recorded a full valuation allowance against its federal and state net deferred tax assets, as management believes it is more likely than not that these assets will not be fully realized[73] - The Company has not recorded any liability for unrecognized tax benefits related to uncertain tax positions as of September 30, 2023[74] NOTE 7 – COMMITMENTS AND CONTINGENCIES This note outlines the Company's commitments and contingencies, including its involvement in legal proceedings, indemnification agreements with officers and directors, and significant purchase obligations for machinery and equipment - The Company is not currently involved in any litigation believed to have a material adverse effect on its financial condition or results of operations[75] - The Company has indemnification agreements with its officers and directors but has not estimated the maximum potential liability due to limited history of claims[76][77] - As of September 30, 2023, the Company had outstanding purchase orders for machinery and equipment and related expenditures totaling approximately $996 thousand[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting its status as a development-stage medical device company, ongoing operating losses, and the critical need for additional capital to address going concern risks. It also details changes in research and development and general and administrative expenses - The Company is a development-stage medical device company focused on an innovative insulin pump (MODD1) and has historically financed operations through equity offerings[82][83] - Substantial doubt exists about the Company's ability to continue as a going concern due to ongoing operating losses and negative cash flows, necessitating additional capital raises[83][97] - Economic disruptions, including inflation and rising interest rates, pose risks to the Company's ability to access capital markets on favorable terms[85] Results of Operations This subsection analyzes the Company's operating expenses, specifically research and development (R&D) and general and administrative (G&A) costs, detailing the drivers behind their changes for the three and six months ended September 30, 2023, compared to the prior year Research and Development This section details the changes in research and development expenses, highlighting increases due to employee-related costs, material costs, and headcount growth for product development Research and Development Expenses (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change (2022 to 2023) | % Change | | :---------------------- | :------------------------------ | :------------------------------ | :-------------------- | :------- | | Research and development | $2,980 | $2,385 | $595 | 24.9% | | Research and development (Six months) | $5,584 | $4,607 | $977 | 21.2% | - R&D expenses increased primarily due to higher employee-related costs ($377 thousand for three months, $786 thousand for six months) and increased material costs ($165 thousand for three months, $342 thousand for six months) related to pre-submission activities for the MODD1 insulin pump[89][90] - R&D employee headcount increased from 28 to 35 year-over-year, and stock-based compensation expenses within R&D were $373 thousand and $739 thousand for the three and six months ended September 30, 2023, respectively[91] General and Administrative This section analyzes changes in general and administrative expenses, attributing increases to facility, marketing, and employee costs, partially offset by reduced stock-based compensation General and Administrative Expenses (in thousands) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Change (2022 to 2023) | % Change | | :---------------------- | :------------------------------ | :------------------------------ | :-------------------- | :------- | | General and administrative | $1,210 | $1,064 | $146 | 13.7% | | General and administrative (Six months) | $2,357 | $2,341 | $16 | 0.7% | - G&A expenses increased for the three months ended September 30, 2023, due to higher facility-related ($120 thousand), marketing ($85 thousand), depreciation ($72 thousand), and employee-related costs ($70 thousand), partially offset by decreases in stock-based compensation ($190 thousand) and consulting ($90 thousand)[94] - For the six months, G&A expenses saw increases in facility-related ($230 thousand), employee-related ($150 thousand), depreciation ($110 thousand), and marketing ($80 thousand) costs, largely offset by significant decreases in stock-based compensation ($495 thousand) and consulting ($238 thousand)[95] Liquidity and Going Concern This section discusses the Company's liquidity position, ongoing net losses, and the critical need for additional capital to sustain operations and address going concern risks - The Company incurred net losses of $7.9 million for the six months ended September 30, 2023, and $13.9 million for the year ended March 31, 2023, resulting in an accumulated deficit of $56.4 million[97] - Cash balance at September 30, 2023, was approximately $6.3 million, and the Company used $6.48 million in operating activities for the six months ended September 30, 2023[97][98] - The Company's ability to continue as a going concern depends on raising additional capital, likely through equity or debt, to fund R&D and operations; failure to do so may require curtailing initiatives and reducing costs[97] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes to internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[105] - There were no material changes in internal control over financial reporting during the three months ended September 30, 2023[106] PART II — OTHER INFORMATION This part covers other essential information, including legal proceedings, risk factors, equity sales, defaults, and exhibits, providing a comprehensive overview beyond financial statements Item 1. Legal Proceedings The Company is not currently involved in any litigation that is expected to have a material adverse effect on its financial condition or results of operations - The Company is not currently involved in any litigation, claims, or assessments that are believed to have a material adverse effect on its financial condition or results of operations[108] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended March 31, 2023 - No material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended March 31, 2023, were identified[109] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section reports recent unregistered sales of common stock, including issuances to non-employee directors under the compensation plan and upon vesting of restricted stock units, as well as shares issued to a service provider - On September 29, 2023, the Company issued 6,265 shares to non-employee directors and 20,834 shares upon vesting of a restricted stock unit award[110] - On August 14, 2023, 1,428 shares of unregistered common stock were issued to a service provider[110] - These issuances were made pursuant to exemptions from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act[110] Item 3. Defaults Upon Senior Securities The Company reported no defaults in the payment of principal, interest, or other material defaults with respect to any of its indebtedness - There has been no default in the payment of principal, interest, or any other material default with respect to the Company's indebtedness[111] Item 4. Mine Safety Disclosures This item is not applicable to the Company - The disclosure requirement for Mine Safety is not applicable to Modular Medical, Inc.[112] Item 5. Other Information No other information is reported under this item - No other information is provided under this item[113] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from executive officers (Sarbanes-Oxley Act Sections 302 and 906) and financial information formatted in Inline XBRL - Exhibits include certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[114] - Financial information from the quarterly report, including statements of operations, balance sheets, stockholders' equity, cash flows, and notes, is filed in Inline Extensible Business Reporting Language (Inline XBRL)[114] Signatures The report is duly signed on behalf of Modular Medical, Inc. by its Chief Executive Officer, James E. Besser, and its Chairman, President, Chief Financial Officer, and Treasurer, Paul DiPerna, as of November 13, 2023 - The report is signed by James E. Besser, Chief Executive Officer, and Paul DiPerna, Chairman, President, Chief Financial Officer, and Treasurer, on November 13, 2023[117]