Modular Medical, Inc. — Form 10-Q
Reporting period: Three months ended June 30, 2022, the company’s fiscal first quarter of fiscal 2023. Balance-sheet figures are as of June 30, 2022, compared with March 31, 2022; operating results are compared with the three months ended June 30, 2021.
Business context
Modular Medical is a development-stage medical-device company developing the MODD1 insulin pump, intended to simplify insulin delivery and broaden pump adoption. The company reported no revenue and has not yet commercialized its product.
Financial performance and liquidity
- Operating expenses: $3.50 million, up 3.7% from $3.37 million. Research and development was $2.22 million, up 24.3%; general and administrative expense was $1.28 million, down 19.4%.
- Losses: Operating loss was $3.50 million versus $3.37 million. Net loss was $3.50 million, compared with $4.84 million; loss per share was $0.33 versus $0.77. The prior-year quarter included $1.32 million of debt-extinguishment loss and $508,877 of interest expense, while also recording $368,823 of other income, primarily from PPP loan forgiveness.
- Revenue and margins: No revenue was reported; gross profit and operating margins are therefore not meaningful.
- Cash flow: Operating activities used $2.68 million, versus $2.20 million in the prior-year quarter. Investing activities used $76,017, primarily for property and equipment. Financing activities provided $7.37 million, versus $4.14 million in the prior-year period.
- Cash and liquidity: Cash and cash equivalents were $13.70 million, up from $9.08 million at March 31, 2022. Current assets were $13.96 million and current liabilities $990,910.
- Debt and obligations: The company reported no outstanding promissory-note debt. Total liabilities were $990,910, primarily accounts payable, accrued expenses, and lease liabilities; the remaining lease liability was $150,073.
- Equity and dilution: Stockholders’ equity was $13.45 million. The May registered direct offering generated approximately $7.37 million net proceeds. At quarter-end, 10.91 million common shares were outstanding and 7.57 million warrants were outstanding.
Material changes, outlook, and risks
- R&D expense rose due mainly to increased engineering and operations staffing, stock-based compensation, and consulting costs. R&D headcount increased to 23 from 22 year over year. Management expects R&D expense to increase during the remainder of fiscal 2023 as product development and manufacturing-process work continue; it expects G&A expense to remain relatively flat.
- Management said cash should fund working-capital and capital-expenditure needs for at least 12 months. The company remains dependent on future capital to support commercialization and operations; inability to raise funds could require cuts to R&D and other costs. No formal revenue or earnings guidance was provided.
- Longer component lead times and supply-chain constraints could delay product quantities needed for FDA submission. The company also cited inflation, rising component costs, COVID-19 effects, market volatility, and uncertainty about future access to capital.
- The filing reports no material change to the risk factors in the fiscal 2022 Form 10-K and no litigation believed likely to have a material adverse effect. Management concluded disclosure controls were effective as of June 30, 2022.
Important facts for investors to verify
- Current product-development and FDA-submission milestones, including the effect of component lead times.
- Expected cash burn and whether the stated 12-month liquidity runway remains adequate as development and manufacturing costs rise.
- Potential dilution from the 7.57 million warrants outstanding and other equity awards.
- Timing, cost, and financing requirements for commercialization; the filing provides no specific launch date or revenue forecast.