Modular Medical, Inc. annual report, FY2022

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Modular Medical, Inc. — FY2022 Form 10-K

Reporting period: Fiscal year ended March 31, 2022 (not calendar Q4 2021). The filing describes a development-stage medical-device company developing the MODD1 insulin patch pump; it had no product revenue.

Financial performance and position

  • Revenue and margins: No revenue was reported. Operating and gross margins are not meaningful at this pre-commercial stage.
  • Losses: Net loss was $18.63 million, or $2.74 per diluted share, versus $7.38 million, or $1.20 per share, in FY2021. Operating expenses were $14.93 million, up from $7.34 million.
  • Expenses: Research and development rose 89% to $7.73 million; general and administrative expense rose 121% to $7.20 million. Management attributed increases to development activity, staffing, consulting, professional services and stock-based compensation.
  • Cash flow: Operating cash use was $10.26 million, compared with $5.91 million in FY2021. Investing cash use was $0.05 million. Financing provided $17.92 million, principally from the February 2022 public offering.
  • Liquidity: Cash and cash equivalents were $9.08 million at March 31, 2022, versus $1.47 million a year earlier. Current assets were $9.39 million and current liabilities $0.97 million. The company reported total liabilities of $1.01 million and stockholders’ equity of $8.84 million.
  • Debt and funding: Convertible notes converted into common shares and related warrants in connection with the February offering; the bridge note was repaid, and the PPP loan had been forgiven in FY2021. A May 2022 registered offering generated approximately $7.37 million net proceeds, after the balance-sheet date.

Material changes versus FY2021

  • Net loss increased by approximately $11.25 million as operating expenses expanded and interest expense rose to $2.75 million from $0.04 million. FY2022 also included a $1.32 million loss on debt extinguishment.
  • Cash increased following the February 2022 offering, which raised $15.0 million gross; the company also issued shares upon conversion of notes. Common shares outstanding at fiscal year-end were 10.46 million, up from 6.30 million.
  • Stock-based compensation was a significant noncash expense: approximately $4.03 million in FY2022 versus $1.23 million in FY2021.

Outlook, risks and unusual items

  • Management said available cash, including the subsequent May 2022 financing, was expected to fund operations for at least 12 months from the financial-statement issuance date. The company remains dependent on future financing and may need to reduce research and development if capital is unavailable.
  • MODD1 was undergoing testing for a planned FDA 510(k) submission; clearance had not been obtained. The filing described a soft launch after clearance and anticipated commercialization in late FY2023, as well as a target for European and UK approvals toward early 2023. These are plans, not assurances.
  • Management estimated potential gross margins up to 78% and a 20% operating margin approximately 30 months after launch. These projections depend on successful clearance, manufacturing scale-up, reimbursement and market adoption.
  • Key risks include regulatory or testing delays, manufacturing and supply-chain execution, reimbursement and insurance coverage, competition, product safety and liability, intellectual-property protection, and the need for additional capital and potential shareholder dilution. COVID-19-related supply delays were noted.
  • Unusual items included the $1.32 million debt-extinguishment loss, $2.75 million interest expense, and $0.37 million gain from PPP loan forgiveness. The auditor issued an unqualified opinion and identified going-concern assessment and stock-based compensation as critical audit matters; management concluded financing plans alleviated substantial doubt for at least 12 months.

Most important facts for investors to verify

  1. Progress and timing of FDA 510(k) testing, submission and clearance, and whether further clinical work is required.
  2. Actual cash burn and runway against management’s 12-month liquidity statement, including financing needs and dilution from subsequent securities.
  3. Evidence that payors will provide the anticipated coverage and that customers will adopt MODD1 at the projected pricing and volumes.
  4. Manufacturing readiness, unit costs, product quality and supply-chain capacity relative to the company’s stated margin targets.
  5. Current fully diluted share count, including warrants, options and securities issued in the May 2022 financing.