Modular Medical, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2020; filed November 6, 2020. This is fiscal 2021’s second quarter (fiscal year ends March 31). The company is a development-stage medical-device business developing an insulin pump. It has not received FDA clearance and has generated no product revenue.
Financial results and position
| Metric | Three months ended Sept. 30, 2020 | Six months ended Sept. 30, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | None reported | None reported | None reported |
| Research and development expense | $1.09 million | $2.06 million | $633,241 and $1.34 million, respectively |
| General and administrative expense | $766,513 | $1.67 million | $524,100 and $958,556, respectively |
| Net loss | $1.86 million | $3.73 million | $1.15 million and $2.27 million, respectively |
| Basic and diluted loss per share | $0.10 | $0.20 | $0.06 and $0.13, respectively |
| Net cash used in operating activities | Not presented for the quarter | $3.03 million | $1.75 million for six months |
With no product revenue, gross profit and operating margins are not meaningful. At September 30, cash and cash equivalents were $1.49 million, working capital was approximately $0.79 million, total assets were $2.20 million, total liabilities were $1.29 million, and stockholders’ equity was $907,490. Cash declined from $3.12 million at March 31, 2020. The accumulated deficit was $12.30 million.
The company received a $368,780 unsecured Paycheck Protection Program (PPP) loan at 1% interest, due in April 2022; the balance sheet classified $163,902 as current and $204,878 as long-term. It applied for forgiveness in October 2020, but forgiveness is not assured. Six-month financing also included $1.12 million net proceeds from a private placement. The company spent $93,303 on property and equipment.
Changes versus the prior comparable period
- Three- and six-month operating expenses rose to $1.86 million and $3.73 million, from $1.16 million and $2.30 million, respectively. R&D increased 72.6% for the quarter and 54.3% for six months; management attributed the increase mainly to engineering and manufacturing personnel and consulting as development activity expanded.
- G&A increased 46.3% for the quarter and 74.2% for six months, primarily due to personnel, stock-based compensation, and facility costs. Management expected G&A to decrease during the remainder of fiscal 2021.
- Six-month operating cash use increased to $3.03 million from $1.75 million. Cash was partly supported by the private placement and PPP loan; the comparable 2019 period had no financing cash inflows.
- R&D headcount rose to 15 from four year over year, and G&A headcount to four from two. Six-month stock-based compensation expense was $645,320, versus $350,783.
Outlook, risks, and notable items
- Management stated that substantial doubt exists about the company’s ability to continue as a going concern for at least one year after issuance of the financial statements. Continued operations depend on raising additional equity or debt capital; failure to do so could require reduced R&D and other cost-cutting measures.
- Management expected R&D spending to continue increasing through the remainder of fiscal 2021 as it advances pump development and an initial low-volume manufacturing process. An FDA submission was expected in the first half of calendar 2021; the product had not yet received FDA clearance.
- COVID-19-related restrictions and supplier lead times had affected operations. Further workforce, facility, or supply-chain disruptions, as well as delays in FDA review, could delay submission and adversely affect the business.
- The company reported that it completed development of its pump, but still needed regulatory clearance and product commercialization. It cautioned that future capital may be unavailable or obtainable only on terms detrimental to existing stockholders.
- The March 2020 private placement had produced $2.09 million in gross proceeds through September 30. The company sold another 125,000 shares for $358,750 in October; subsequent disclosures state 854,897 shares sold for approximately $2.45 million gross proceeds to date.
- The filing gives inconsistent start dates for PPP monthly payments: the loan note says February 2021, while the MD&A says November 2020. Verify the operative repayment schedule.
- No legal proceedings were reported. The filing disclosed customary indemnification arrangements but recorded no related amounts.
Important facts for investors to verify
- Cash runway, near-term funding needs, and the status, amount, and terms of any subsequent financing.
- Whether the PPP loan is forgiven, and the correct payment commencement date and repayment schedule.
- Progress against the expected first-half 2021 FDA submission timeline, including manufacturing readiness and regulatory review risks.
- Actual cash burn and spending trends against management’s stated R&D and G&A outlook.
- Potential dilution from future equity financing and the company’s outstanding options; 3,480,088 options were outstanding at September 30, 2020.