Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2021. The company is a development-stage medical-device business developing its MODD1 two-part patch insulin pump. It reported no revenue.
Financial position and performance
| Metric | Three months ended Dec. 31, 2021 | Nine months ended Dec. 31, 2021 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $1.85 million | $5.74 million |
| General and administrative expense | $1.98 million | $5.16 million |
| Operating loss | $3.83 million | $10.90 million |
| Net loss | $4.84 million | $14.06 million |
| Basic and diluted loss per share | $0.76 | $2.22 |
| Operating cash used | Not separately stated | $7.13 million |
For the nine months, investing activities used $23,000 and financing activities provided $5.89 million. Cash fell to $204,000 at December 31, 2021, from $1.47 million at March 31, 2021. Current assets were $269,000 versus current liabilities of $8.92 million; total liabilities were $9.00 million and stockholders’ deficit was $8.25 million. No revenue or gross margin was reported, so revenue-based margins are not applicable.
Changes versus the prior comparable period
- Third-quarter operating expenses rose 105% to $3.83 million; nine-month expenses rose 95% to $10.90 million.
- R&D expense increased 70% for the quarter and 82% for the nine months, reflecting greater engineering, manufacturing, personnel, consulting, materials and stock-compensation costs.
- G&A expense increased 153% for the quarter and 110% for the nine months, principally due to stock-based compensation, consulting and legal fees.
- Net loss widened from $1.87 million to $4.84 million for the quarter and from $5.61 million to $14.06 million for the nine months. Nine-month results included $2.20 million of interest expense and a $1.32 million debt-extinguishment loss; the prior-year periods had no reported interest expense.
- Operating cash use increased from $4.57 million to $7.13 million for the nine months. The prior-year figures and per-share data reflect the company’s 1-for-3 reverse stock split.
Debt, liquidity, outlook and risks
- At December 31, current liabilities included $5.49 million of convertible notes and a $1.50 million secured bridge-note balance. The convertible notes carry 12% interest, generally mature 12 months after issuance, and were due in the first half of 2022; the bridge facility’s stated maturity was March 15, 2022. The bridge facility provides up to $3.00 million and is secured by a first-priority interest in company property.
- Management stated that operating losses, cash burn and required debt repayments raised substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on obtaining additional capital; absent financing, management may need to curtail R&D and reduce costs.
- Management expected R&D expense to remain flat for the rest of fiscal 2022 while advancing product development and initial low-volume manufacturing. G&A expense was expected to increase, including in connection with a planned public offering. The company expects continued operating losses and cash outflows and provided no revenue or profitability guidance.
- COVID-19-related supply-chain delays had affected component lead times for initial product quantities intended for FDA submission. Management believed it could build an adequate supply but warned that further disruptions could delay submission. The company also cited financing, competition, technology, commercialization and regulatory risks.
- Subsequent events: After quarter-end, the company drew an additional $600,000 under the bridge facility. On February 9, 2022, it agreed to a public offering of 2.5 million units at $6.00 each, consisting of one common share and one warrant per unit, for $15 million gross proceeds before expenses. Trading on Nasdaq began February 10. The filing does not establish that these proceeds fully resolve the going-concern uncertainty.
- The company reported no legal proceedings and concluded disclosure controls were effective as of December 31, 2021.
Important facts for investors to verify
- Actual net proceeds from the February 2022 offering and how they were applied to debt repayment, product development and working capital.
- Whether the convertible notes and bridge note were repaid, converted, extended or otherwise settled by their stated deadlines, and the associated interest or other costs.
- Current cash runway, subsequent operating cash burn, and whether management still identifies substantial doubt about going concern.
- Progress and timing of MODD1 development, manufacturing readiness and FDA submission, including any continuing component-supply delays.
- Potential dilution from note conversion, warrants, stock options and the public offering; confirm applicable share counts and prices in light of the reverse split.