The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included in this Annual Report on Form 10-K. Management's Discussion and Analysis of Financial Condition and Results of Operations may contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risk, uncertainties and other factors. These statements are often identified by the use of words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue," and similar expressions or variations. Actual results could differ materially because of the factors discussed in Part I, Item 1A, These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
Our fiscal year ends on
Company Overview
We are a development-stage medical device company focused on the design, development and commercialization of an innovative insulin pump using modernized technology to increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product, we seek to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of care that presently-available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription, reimbursement, training and day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated "super users" and expand the category into the mass market. The product seeks to serve both the type 1 and the rapidly growing, especially in terms of device adoption, type 2 diabetes markets.
Historically, we have financed our operations principally through private placements and public offerings of our common stock and sales of convertible promissory notes. Based on our current operating plan, we believe we have adequate cash for at least the next 12 months. Our long-term ability to continue as a going concern depends on our ability to raise additional capital, through the sale of equity or debt securities, to support our future operations. If we are unable to secure additional capital, we will be required to curtail our research and development initiatives and take additional measures to reduce costs. We have provided additional disclosure in Note 1 to the consolidated financial statements in Item 1 of this Report and under Liquidity below.
39 Impacts of COVID-19
The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a
pandemic by the
In
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
through equity offerings in
For additional information on risks that could impact our future results, please refer to "Risk Factors" in Part I, Item 1A of this Report.
Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Report.
Research and Development Years ended March 31, Year-over-Year Change 2022 2021 2022 to 2021 Research and development$ 7,729,240 $ 4,083,303 $ 3,645,937 89.3 %
Our research and development expenses include personnel, materials and supplies and other costs associated with the development of our insulin pump product candidate. We expense research and development costs as they are incurred.
Research and development, or R&D, expenses increased in fiscal 2022 compared
with fiscal 2021 primarily due to increased consulting costs, engineering and
operations personnel, stock compensation expense and materials and supplies
expenditures. Our R&D employee headcount increased to 23 at
40 General and Administrative Years ended March 31, Year-over-Year Change 2022 2021 2022 to 2021 General and administrative$ 7,197,162 $ 3,253,412 $ 3,943,750 121.2 %
General and administrative expenses consist primarily of personnel and related overhead costs for marketing, finance, human resources and general management.
General and administrative expenses, or G&A, increased in fiscal 2022 compared
with fiscal 2021 primarily as a result of increased personnel and consulting
costs, stock-based compensation expenses and professional services fees,
primarily related to our financing activities, including our public offering
that was completed in
Interest Expense
Years ended March 31, Year-over-Year Change 2022 2021 2022 to 2021 Interest expense$ 2,752,229 $ 39,791 $ 2,712,438 6,816.7 %
Interest expense consisted of interest expense incurred from our convertible
promissory notes, including amortization of debt issuance costs, and our
promissory (bridge) note. We retired our outstanding debt in
Liquidity
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 and negative cash flows in each year due to costs incurred in
connection with R&D activities and G&A expenses associated with our operations.
For the years ended
In fiscal 2022, we used
41
In fiscal 2022, cash used in investing activities of
Cash provided by financing activities for fiscal 2022 totaled
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in conformity with accounting
principles generally accepted in
Use of estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to accruals, stock-based compensation and income taxes. Actual results could materially differ from those estimates.
Stock-based compensation
We recognize stock-based compensation for stock options granted to employees and non-employees on a straight-line basis over the requisite service period, usually the vesting period, based on the grant-date fair value. We estimate the value of stock options on the date of grant using the Black-Scholes pricing model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the option price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards, and projected stock option exercise behaviors.
Income taxes
We determine deferred tax assets and liabilities based upon the differences between the financial statement and tax bases of our assets and liabilities using tax rates in effect for the year in which we expect the differences to affect taxable income. A valuation allowance is established for any deferred tax assets for 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 and other factors, management believes it is more likely than not that our federal and state net deferred tax assets will not be fully realized, and we have recorded a full valuation allowance.
We account for uncertain tax positions in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes. When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in general and administrative expenses in the consolidated statements of operations.
42 Leases
We account for our leases under Accounting Standards Update (ASU) No. 2016-02, Leases (ASC 842), and related ASUs, which provide supplementary guidance and clarifications. Under ASC 842, all significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use (ROU) assets and lease liabilities are recognized at the commencement date. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short-term leases), and we recognize lease expense for these leases as incurred over the lease term.
ROU assets represent our right to use an underlying asset during the reasonably certain lease terms, and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements or obligations that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity or capital resources.
Contractual Obligations
As a "smaller reporting company," as defined by Item 10 of Regulation S-K, we are not required to provide the information requested by paragraph (a)(5) of this Item.
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements in Item 8 of this Report for a full description of recent accounting pronouncements.
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