Modular Medical, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2021 (not calendar Q4 2020). The company is a development-stage medical-device business developing an insulin pump; it had no product revenue.
Financial results and liquidity
| Metric | FY2021 / March 31, 2021 | FY2020 / March 31, 2020 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.08 million | $3.03 million |
| General and administrative expense | $3.25 million | $2.31 million |
| Net loss | $7.38 million | $5.32 million |
| Net loss per share, basic and diluted | $0.40 | $0.30 |
| Cash used in operating activities | $5.91 million | $4.09 million |
| Cash and cash equivalents | $1.47 million | $3.12 million |
| Working capital | Negative $1.65 million | Positive $2.52 million |
| Total liabilities | $3.52 million | $0.98 million |
| Stockholders’ equity (deficit) | Negative $1.28 million | Positive $2.88 million |
Gross margin and operating margin are not meaningful because the company reported no revenue. Losses increased as development spending and overhead rose. R&D expense increased 34.6%, primarily due to engineering, operations and consulting costs; G&A increased 40.6%, reflecting higher personnel, consulting, stock compensation and financing-related professional fees. There was no meaningful operating cash inflow to fund the business.
Material changes and financing
- At March 31, 2021, current liabilities included $2.13 million of convertible notes and a $368,780 Paycheck Protection Program loan; the notes carried 12% interest. The PPP loan was forgiven in full in May 2021.
- After year-end, the company issued additional notes in its 2021 private placement. The filing reports $6.61 million aggregate principal issued between February and May 2021; $4.25 million was issued after March 31. The post-year-end notes were unsecured, generally mature 12 months after issuance, bear 12% interest and were issued with warrants to purchase 2,285,736 shares at $8 per share. The notes include conversion, prepayment, anti-dilution and default provisions.
- The audited balance sheet reflects only obligations outstanding at March 31; the subsequent financing does not remove the reported year-end working-capital deficit or going-concern uncertainty.
- Common shares outstanding rose from 17.87 million to 18.91 million during FY2021. The filing also reports 3.59 million outstanding options at year-end, in addition to subsequent financing warrants.
Business, outlook and principal risks
The company aims to develop a simpler, lower-cost insulin pump for insulin-requiring patients who do not use pumps because of complexity, bulk or cost. Its prototype is designed to provide basal and mealtime bolus insulin delivery. The company described core engineering and mechanical development as substantially completed, but said further refinement, testing, manufacturing preparation and regulatory work remained. It expected to submit a 510(k) application to the FDA in the fourth calendar quarter of 2021; clearance and commercial launch were not assured.
Management expects R&D and G&A expenses to increase in fiscal 2022. The company will need additional capital to complete development, testing, regulatory submissions and commercialization. The auditor’s report and management disclosures identify substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Future financing may be unavailable or dilutive, and failure to obtain it could force development cuts or curtailment of operations.
- Regulatory and product risk: FDA clearance, product safety and efficacy, manufacturing readiness and market acceptance remain uncertain. A more demanding regulatory pathway than anticipated could increase costs or delay or prevent commercialization.
- Reimbursement and competition: Commercial prospects depend on insurer coverage and reimbursement. Established competitors have substantially greater resources and experience.
- Execution and supply risk: The company relies on consultants and third parties for development, manufacturing and regulatory support. COVID-19-related component lead times had lengthened and could delay the planned submission.
- Financing and dilution: The company has recurring losses and may require further debt or equity financing. The 2021 notes carry substantial interest and conversion/default provisions that investors should review.
- Other disclosures: The company reported no pending legal proceedings, no off-balance-sheet arrangements, and effective management assessments of disclosure controls and internal control over financial reporting. The auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Current cash, operating runway and whether subsequent financing proceeds are sufficient to fund the FDA submission and planned development.
- The executed 2021 note agreements, including maturity dates, interest, conversion and anti-dilution terms, default remedies, warrants and any related-party participation.
- Actual progress on required testing, manufacturing readiness, FDA submission and the applicable regulatory pathway and timeline.
- Whether the pump can obtain payer coverage and reimbursement, and whether manufacturing costs support the company’s affordability claims.
- Fully diluted share count, including outstanding options, warrants and potential note conversions, along with the impact of insider ownership and related-party arrangements.