Modular Medical, Inc. — Form 10-Q Summary
Business context and reporting period
Modular Medical, formerly Bear Lake Recreation, acquired Quasuras, Inc. on July 24, 2017, in a reverse merger and became a development-stage medical-device company focused on an insulin-delivery product. The filing describes Quasuras’ technology as supporting basal and bolus insulin delivery. The statements cover the three and six months ended September 30, 2017, with comparisons to the same periods in 2016. The cover page says “September 31, 2017,” an invalid date; the financial statements consistently use September 30. The company also changed its fiscal year-end to March 31.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2017 | Six months ended Sep. 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $176,303 | $220,111 |
| Net loss | $176,002 | $219,091 |
| Basic and diluted loss per share | $0.016 | $0.020 |
For the six-month period, operating cash use was $332,192; investing activities provided $4,694,471, including $4,697,400 of cash acquired upon reorganization; and financing activities provided $13,216. Cash increased from $392,007 at March 31 to $4,767,502 at September 30. September 30 current assets were $4,770,411 and total liabilities were $21,404, consisting of accounts payable and accrued expenses; the related-party payable was zero. The filing reports no debt balance. Margins are not meaningful because there was no revenue.
Management attributed the higher losses versus 2016 to consulting, professional, and general and administrative costs; the prior-year company had minimal operations. Six-month operating expenses were $1,755 and net loss was $1,141 in 2016. The quarter’s operating expenses were $1,710 and net loss was $1,473 in 2016.
Material changes, outlook, and risks
- The July reorganization brought Quasuras and its proposed insulin-delivery business into the company. A concurrent private placement issued 7,801,212 shares at $0.66 per share for approximately $5.1 million gross proceeds; $41,928 was paid in placement compensation. The balance sheet shows 15,983,273 shares outstanding at September 30, while the transaction notes cite 15,983,272.
- The company reported no revenue and provided no specific product, revenue, or earnings guidance. Management cautioned that six-month results are not necessarily indicative of full-year results.
- Cash deposits exceeded FDIC insurance limits: the uninsured amount was approximately $4.27 million at September 30. The filing says no reserve was recorded for potential bank losses.
- Disclosure controls were deemed ineffective due to inadequate segregation of duties and insufficient Board representation. Management reported no material change in internal control during the quarter.
- A founder royalty applies to future product sales at $0.75 per unit or 5% of gross sale price, whichever is less, capped at $10 million in aggregate. The office sublease runs through December 14, 2019, with $78,000 in stated minimum payments.
- The company disclosed no pending or threatened legal proceedings and no material off-balance-sheet arrangements. It recorded a full valuation allowance against deferred tax assets.
Key facts for investors to verify
- Confirm the reporting-period date: the cover’s “September 31” conflicts with the September 30 financial statements.
- Reconcile the one-share difference in reported September 30 shares outstanding and review the dilution and ownership effects of the acquisition and placement.
- Review the private-placement proceeds and the accounting presentation of cash acquired upon reorganization, which is shown in investing activities.
- Assess the development, regulatory, financing, and commercialization risks of a pre-revenue medical-device business, alongside the ineffective disclosure controls and large uninsured cash balance.
- Review the founder royalty terms, lease commitments, and any future product-sales assumptions; the filing provides no operating or commercialization timetable.