Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended September 30, 2023 (the company’s fiscal second quarter and first half of fiscal 2024). The filing was dated November 13, 2023. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context
Modular Medical is a development-stage medical-device company developing MODD1, a two-part wearable insulin patch pump intended to simplify insulin delivery and broaden adoption among people with type 1 and type 2 diabetes. The company reported no revenue and remains dependent on external financing.
Financial results and position
| Metric | Three months ended Sept. 30, 2023 | Three months ended Sept. 30, 2022 | Six months ended Sept. 30, 2023 | Six months ended Sept. 30, 2022 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $2.980 | $2.385 | $5.584 | $4.607 |
| General and administrative expense | $1.210 | $1.064 | $2.357 | $2.341 |
| Total operating expenses | $4.190 | $3.449 | $7.941 | $6.948 |
| Net loss | $4.183 | $3.450 | $7.920 | $6.949 |
| Basic and diluted loss per share | $0.19 | $0.28 | $0.40 | $0.58 |
With no revenue, gross profit and operating margins are not applicable. For the six months, cash used in operating activities was $6.484 million, compared with $5.526 million in 2022; investing activities used $0.718 million, mainly for equipment, versus $0.081 million. Financing provided $9.733 million from the May 2023 stock-and-warrant offering. Cash increased by $2.531 million to $6.330 million.
At September 30, 2023, total assets were $10.059 million, including $6.330 million in cash. Total liabilities were $2.121 million, primarily lease liabilities; the filing reports no material interest-bearing borrowings. Lease liabilities totaled $1.359 million, of which $0.350 million was current. Accumulated deficit was $56.379 million.
Changes versus the comparable period
- Second-quarter operating expenses rose 21.5% year over year; first-half expenses rose 14.3%. First-half net loss increased $0.971 million.
- R&D expense increased 24.9% in the quarter and 21.2% in the first half, reflecting higher employee-related costs and product testing and materials for anticipated FDA 510(k) submission. R&D headcount increased to 35 from 28.
- Quarterly G&A expense increased 13.7%, while first-half G&A was nearly unchanged, up 0.7%. Facility, employee, depreciation and marketing costs rose, partly offset by lower stock-based compensation and professional-services costs.
- Cash at period-end was below the prior-year September 30 balance of $10.841 million; the current period included a May equity raise. The offering generated $9.733 million net and involved substantial share issuance and warrants.
Outlook, risks and contingencies
- Management states that operating losses and cash burn raise substantial doubt 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; no assurance is given that financing will be available on acceptable terms.
- The company expects R&D expense to increase for the remainder of fiscal 2024 due to MODD1 pre-submission testing. It expects G&A expense to remain consistent. No revenue, profitability, or cash-runway guidance is provided.
- If additional capital is unavailable, management may curtail R&D, reduce headcount, or take other cost-reduction measures. Commercialization, competing technologies, market developments, and potential collaboration or acquisition needs may affect capital requirements.
- Inflation and rising component costs, economic disruption, and future access to capital are cited risks. The filing reports no material change to the risk factors in the fiscal 2023 Form 10-K.
- Outstanding purchase orders for machinery, equipment and related expenditures were approximately $0.996 million. The company reported no litigation believed to have a material adverse effect.
- The May 2023 offering included warrants exercisable at $1.22 per share; total warrants outstanding were approximately 13.240 million at September 30, 2023. Potential dilution is significant. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Whether available cash and any subsequent financing are sufficient to address the disclosed going-concern uncertainty and operating cash burn.
- The timing and outcome of MODD1 testing, FDA 510(k) submission, regulatory review, and any commercialization milestones.
- Current share count, warrant and option overhang, and the potential impact of future equity financing on existing shareholders.
- Progress against purchase commitments and whether planned R&D spending or other costs exceed management’s expectations.
- Whether the company provides updated cash-runway, financing, or product-development information in subsequent filings.