Business context and reporting period
Modular Medical, Inc. filed an unaudited Form 10-Q for the quarter ended September 30, 2018, covering its fiscal second quarter and the six months ended September 30, 2018. The company is developing insulin-delivery technology through its wholly owned subsidiary, Quasuras, Inc.; it reported no product revenue.
Financial performance and position
- Revenue and margin: Revenue was $0 for both the three and six months ended September 30, 2018, and the comparable 2017 periods. Gross profit was $0 and reported gross margin was 0%.
- Operating results: Second-quarter operating expenses were $548,998, up from $175,986 a year earlier; net loss was $543,774 versus $176,002. For the six months, operating expenses were $804,188 versus $219,311, and net loss was $793,340 versus $219,091. Basic and diluted loss per share was $0.034 for the quarter and $0.050 for the six months.
- Expense drivers: Six-month R&D rose to $503,340 from $87,754, reflecting insulin-pump design and development and stock-based compensation. General and administrative expense increased to $177,255 from $14,426; professional expense increased to $123,593 from $117,131.
- Cash flow: In the six months, operating activities used $576,101 and investing activities used $32,753; financing provided no cash. Cash decreased $608,854 from March 31 to $3,687,822 at September 30. The comparable 2017 period used $332,192 in operations and included $4,710,616 of financing inflows.
- Liquidity and debt: Current assets were $3,688,128 and current liabilities $46,837 at September 30, producing reported working capital of approximately $3,641,291. The balance sheet reports no debt; the filing lists accounts payable and accrued expenses as the principal current liability.
- Equity and unusual expenses: Common shares outstanding were 15,983,273, unchanged from March 31. The company granted options covering 1,351,515 shares during the quarter. Six-month stock-based compensation was $182,837, including $174,504 in R&D and $8,334 in general and administrative expense; approximately $562,000 remained unrecognized, expected to be expensed over about nine months.
Material changes, outlook, and risks
Losses and operating cash use increased substantially year over year, primarily as development spending and other operating costs rose. Management said it expects to continue incurring R&D costs. The filing provides no specific revenue, earnings, cash-flow, or product-launch guidance.
The company states it has not generated sales to fund operations and has relied on previously raised capital. Management identified risks including financing and liquidity needs, competition, changing customer requirements, limited operating history, and public-market volatility. Cash deposits exceeded FDIC insurance limits: approximately $3,187,822 was uninsured at September 30, 2018. The company also disclosed a $3,000 monthly office sublease through December 2019 and a founder royalty on future product sales, subject to a $10 million aggregate cap. Management reported no off-balance-sheet arrangements; the filing lists no legal proceedings. Deferred tax assets were fully offset by a valuation allowance.
Important facts for investors to verify
- Product-development progress, regulatory pathway, commercialization timing, and the funding required to reach those milestones.
- Cash burn, available liquidity, and whether additional financing will be needed, given no sales and no financing inflows in the period.
- The nature and timing of option grants and remaining stock-based compensation, including potential dilution.
- Terms and potential economic impact of the founder royalty agreement if products are commercialized.
- Extent of uninsured cash exposure and any changes in the company’s banking arrangements.