Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2019, the company’s fiscal first quarter (fiscal year-end March 31). The filing compares results with the three months ended June 30, 2018. Balance-sheet amounts are compared with March 31, 2019. The financial statements are unaudited.
Business context
Modular Medical is a development-stage diabetes-technology company. Its wholly owned subsidiary, Quasuras, is developing insulin-delivery hardware intended to provide basal and bolus insulin delivery. The company reported no revenue and said it does not currently generate cash flow from operations sufficient to cover expenses.
Financial performance and position
| Metric | Quarter ended June 30, 2019 | Comparable 2018 quarter or prior balance-sheet date |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $1,138,240 | $255,190 |
| Operating loss | $1,138,240 | $255,190 |
| Interest income | $16,042 | $5,624 |
| Net loss | $1,122,198 | $249,566 |
| Basic and diluted loss per share | $0.06 | $0.02 |
| Net cash used in operating activities | $840,421 | $236,219 |
| Cash and cash equivalents | $5,706,628 | $6,553,768 at March 31, 2019 |
| Working capital | $5,462,654 | $6,390,429 at March 31, 2019 |
| Total liabilities | $253,474 | $178,929 at March 31, 2019 |
Research and development expense was $703,783, professional expense was $287,831, and general and administrative expense was $139,912; depreciation and amortization was separately reported at $6,714. No debt was reported on the balance sheet. The filing does not provide a meaningful revenue or profit margin because the company had no revenue and incurred losses.
Cash used in investing activities was $6,719, primarily for equipment purchases; financing cash flow was zero. Cash declined by $847,140 during the quarter. Approximately $5.42 million of cash at June 30 was above FDIC insurance limits, according to the filing.
Changes versus comparable periods
- Net loss increased to $1.12 million from $249,566. Management attributed the increase chiefly to higher R&D and professional fees.
- R&D expense rose to $703,783 from $135,789, reflecting insulin-pump design and development costs, including stock-based compensation. Management expected R&D costs to continue.
- Professional expense increased to $287,831 from $41,710, attributed to outside consulting and professional services for required filings.
- Operating cash use increased to $840,421 from $236,219, which management linked to higher operating expenses and R&D.
- Cash fell by $847,140 from March 31 to June 30, 2019; working capital declined by approximately $927,775 over the same balance-sheet interval.
Outlook, risks and unusual items
- Management said the company expects to continue incurring R&D costs and expects to raise capital through future equity offerings to finance operations. The filing provides no specific forecast, financing commitment, or revenue timetable.
- The company’s ability to fund operations depends on financing while it has no revenue. The filing identifies financing and liquidity needs, competition, changing customer requirements, limited operating history, and public-market volatility as risks.
- A royalty agreement with the founder and major shareholder provides for payments on future product sales: the lesser of $0.75 per product or 5% of gross sale price, capped at $10 million in aggregate. No sales-based royalty amount was reported for the quarter.
- The company recorded a full valuation allowance against deferred tax assets; it reported federal net operating loss carryforwards of approximately $1.10 million at June 30, 2019.
- Management reported material weaknesses in internal control over financial reporting, including inadequate controls and lack of segregation of duties. It also said there was no separately designated audit committee or independent director. A full-time accounting manager was hired to assist with remediation. The stated assessment date was March 31, 2019.
- The filing reported no legal proceedings and no material off-balance-sheet arrangements. It did not provide a specific outlook or guidance.
Important facts for investors to verify
- Whether the company can raise additional capital on acceptable terms and how long available cash may fund development and operating costs.
- Progress, costs, regulatory pathway and commercialization timing for the insulin-delivery product; the filing gives no specific milestones or launch schedule.
- Whether the reported internal-control weaknesses have been remediated, and the status of governance oversight and financial-reporting controls.
- Potential dilution from outstanding options: 1,198,372 options were outstanding and exercisable at June 30, 2019, with a weighted-average exercise price of $0.69.
- Cash concentration above FDIC insurance limits and the terms and potential future cost of the founder royalty agreement.