Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2020, the first quarter of fiscal 2021 (fiscal year ends March 31). The request metadata says “2020 Q1,” but the filing itself reports the quarter ended June 30, 2020. Financial statements are unaudited.
Business context
Modular Medical is a development-stage medical-device company developing an insulin pump. It reported no product revenue and had not obtained FDA clearance. Management said product development was complete and expected to submit to the FDA in the quarter ending December 31, 2020.
Financial performance and position
| Metric | Quarter ended June 30, 2020 | Comparable 2019 period |
|---|---|---|
| Revenue | No product revenue | No product revenue reported |
| Research and development expense | $970,815 | $703,783 |
| General and administrative expense | $903,397 | $434,457 |
| Total operating expenses | $1,874,212 | $1,138,240 |
| Operating loss | $1,874,212 | $1,138,240 |
| Net loss | $1,874,157 | $1,122,198 |
| Basic and diluted loss per share | $0.10 | $0.06 |
| Net cash used in operating activities | $1,507,548 | $840,421 |
Gross margin and operating margin are not meaningful because the company had no product revenue. At June 30, cash and cash equivalents were $3,141,240; current assets were $3,179,509 and current liabilities were $727,872, yielding working capital of approximately $2.45 million. Total liabilities were $1,352,507, including a $368,780 Paycheck Protection Program (PPP) note and lease liabilities. The PPP note bears 1% interest, with payments scheduled to begin in November 2020 and maturity in April 2022; forgiveness was not assured.
Cash increased by $19,106 during the quarter. Financing provided $1,539,588, comprising $1,170,808 from a common-stock private placement and $368,780 from the PPP loan; investing used $12,934. Stock-based compensation was $344,716.
Material changes versus the prior comparable period
- Net loss increased by approximately $752,000, while operating expenses rose 64.7% to $1.87 million.
- R&D expense increased 37.9%, primarily due to engineering and operations staffing and consulting; R&D headcount rose to 10 from 4.
- G&A expense increased 107.9%, reflecting higher personnel and consulting costs, stock-based compensation, and financing-related professional fees; G&A headcount rose to 3 from 2.
- Operating cash use increased to $1.51 million from $840,421. The company received private-placement proceeds and the PPP loan during the quarter.
- Common shares outstanding increased to 18,600,158 from 17,870,261 at March 31, 2020.
Outlook, risks, and unusual items
- Going concern: Management stated 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; without it, the company may curtail R&D and reduce costs.
- Financing: The company reported selling 729,897 common shares at $2.87 per share for aggregate gross proceeds of approximately $2.09 million since the private placement began in March 2020. A registered offering of up to 2 million preferred units, priced at $25 each and carrying a 13% cumulative dividend plus warrants, had produced no sales as of the filing’s stated dates.
- COVID-19 and regulatory timing: Shelter-in-place measures reduced on-site activity, and component lead times lengthened. Management said the effects could delay the planned FDA submission or FDA review; it believed it could build an adequate supply for submission but noted that future disruption was uncertain.
- Spending outlook: Management expected R&D expense to continue increasing through the remainder of fiscal 2021 as it advanced the pump and developed a low-volume manufacturing process. It also expected continued operating losses and cash outflows.
- Other disclosures: The company reported no legal proceedings and no material change in internal control over financial reporting; management concluded disclosure controls were effective as of June 30, 2020. It disclosed a $5,585 payable to a director for prior consulting services.
Important facts for investors to verify
- Current cash burn, available financing, and the timing and terms of any additional capital raise, given the explicit going-concern warning.
- Whether the company met its expected FDA submission timeline and whether COVID-related supply or review delays affected progress.
- Whether any preferred units were subsequently sold and the resulting dividend, dilution, and liquidity implications.
- The amount of PPP loan forgiveness, if any, and the company’s repayment obligations.
- Reconciliation of the reported $2.09 million cumulative private-placement gross proceeds with $1.17 million of financing cash proceeds during the quarter.