Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2021 (the first quarter of fiscal 2022; fiscal year ends March 31). The filing was signed August 16, 2021. Modular Medical is a development-stage medical-device company developing an insulin pump and has not generated product revenue.
Financial results and liquidity
- Revenue: None reported.
- Operating expenses: $3.37 million, up 80% from $1.87 million in the comparable 2020 quarter. Research and development was $1.79 million, up 84%; general and administrative was $1.59 million, up 76%.
- Net loss: $4.84 million, versus $1.87 million a year earlier; basic and diluted loss per share was $0.26 versus $0.10. There is no meaningful revenue-based margin to report.
- Cash flow: Operating cash use was $2.20 million, compared with $1.51 million in the prior-year quarter. Investing cash use was $20,000; financing provided $4.14 million. Cash increased by $1.91 million to $3.38 million.
- Balance sheet: Current assets were $3.47 million and current liabilities $5.47 million, implying negative working capital of about $2.01 million. Total liabilities were $5.62 million; stockholders’ deficit was $1.58 million. Accumulated deficit was $20.78 million.
- Debt and liquidity: The company reported $6.61 million aggregate principal of unsecured 12% convertible notes, classified as current liabilities. The notes mature 12 months after their respective issue dates; management discusses repayment by May 2022 if they are not converted. The company received $4.14 million net cash proceeds from note issuance during the quarter. A $368,780 Paycheck Protection Program loan, plus accrued interest, was forgiven and recognized as other income.
Material changes and unusual items
- Compared with the 2020 quarter, operating costs increased substantially, principally reflecting increased engineering, operations, consulting, personnel and professional-service costs. R&D headcount rose to 22 from 10; G&A headcount rose to 4 from 3.
- Net loss included $368,823 of other income, primarily the PPP loan forgiveness, $508,877 of interest expense, and a $1.32 million loss on debt extinguishment associated with replacing earlier convertible notes and issuing warrants.
- The company issued warrants to purchase 2,303,348 common shares at an initial $8.00 exercise price. The notes have a 12% interest rate, a $2.87 initial conversion price after the specified trigger date, and terms that include a 110% prepayment penalty during the permitted prepayment period. Noteholders also have specified default, repayment and other contractual rights.
- On August 11, 2021, after quarter-end, the board approved increasing shares reserved under the equity plan by 4 million, to 8 million.
Outlook, risks and contingencies
- Management expects continuing operating losses and cash outflows, with R&D and G&A costs expected to remain elevated as the company develops its pump and a low-volume manufacturing process. It expects G&A expense to remain flat for the remainder of fiscal 2022.
- The company was preparing FDA submission testing and documentation, with submission expected in the quarter ending December 31, 2021. COVID-related component lead times could delay production and submission.
- Management states that substantial doubt exists about the company’s ability to continue as a going concern for at least one year after issuance of the financial statements. Continued operations depend on raising additional capital; availability and acceptable terms are uncertain. Without funding, the company may need to curtail R&D and reduce costs.
- Other disclosed risks include competition, changing technology and customer requirements, reliance on suppliers, capital-market access, and uncertainty regarding COVID-19 effects. The company reported no legal proceedings and no material change in internal control over financial reporting; management concluded disclosure controls were effective.
Key facts for investors to verify
- Whether additional financing is obtained, on what terms, and whether it is sufficient to fund operations and repay or refinance the convertible notes.
- The notes’ actual maturity dates and outstanding balances, conversion or repayment activity, and the effect of their conversion and warrant provisions on potential dilution.
- Whether component supply and manufacturing readiness support the expected FDA submission timing, and whether regulatory review or other development milestones change.
- Cash burn, working-capital needs, and progress toward commercialization; the filing provides no product revenue or profitability guidance.