Modular Medical, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2020 (filed June 29, 2020). The company is a development-stage medical-device business with no product revenue, developing an insulin pump intended to simplify insulin-pump therapy and lower barriers to adoption.
Business and product status
The company’s prototype is designed to deliver basal and mealtime bolus insulin. It reported that major engineering and mechanical development was substantially complete, but further refinement, testing, manufacturing preparation and regulatory review remained. The pump had not received FDA clearance or approval, and the company had not generated product-sale revenue.
Financial performance and position
| Metric | FY2020 / March 31, 2020 | FY2019 / March 31, 2019 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $3.03 million | $1.88 million |
| General and administrative expense | $2.31 million | $0.69 million |
| Net loss | $5.32 million | $2.54 million |
| Net loss per share, basic and diluted | $0.30 | $0.15 |
| Operating cash used | $4.09 million | $1.81 million |
| Cash and cash equivalents | $3.12 million | $6.55 million |
| Working capital | $2.52 million | Not clearly stated in the filing text |
| Total liabilities | $0.98 million | $0.18 million |
| Accumulated deficit | $8.57 million | $3.25 million |
Operating expenses were $5.35 million, up from $2.58 million. R&D increased 61%, mainly from higher engineering and operations staffing and consulting costs; G&A increased 233%, reflecting personnel, consulting, stock-based compensation and financing-related professional fees. Operating and net margins are not meaningful because the company had no revenue.
Operating cash use and $0.26 million of investing cash outflow exceeded $0.92 million of financing proceeds, reducing cash by $3.43 million during the year. The balance sheet showed no conventional borrowing at March 31, 2020; it included lease liabilities and a $140,000 long-term liability for the CEO’s bonus. In April 2020, the company received a $368,780 PPP loan at 1% interest, with forgiveness uncertain.
Changes, financing and outlook
- Net loss more than doubled year over year as development and corporate costs rose. Cash declined by about 52% from March 31, 2019.
- The company expected to submit an FDA application in calendar Q4 2020 and anticipated higher R&D expense in fiscal 2021, including work on a low-volume manufacturing process. The filing describes a planned 510(k) submission, but elsewhere says the pump may require the more costly PMA pathway; the expected regulatory route is therefore not clear from the filing text.
- A common-stock private placement begun in March 2020 generated approximately $924,000 by year-end; additional shares were sold after year-end. The filing reports $1.68 million gross proceeds through June 15, 2020.
- A registered offering of up to 2 million preferred units at $25 each was effective May 11, 2020; each unit includes 13% Series A preferred stock and three warrants. No units had been sold as of June 22, 2020. The preferred stock carries senior liquidation rights and cumulative dividends.
- Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern without additional financing. Management said it may need to curtail R&D and reduce costs if it cannot raise capital.
Risks, contingencies and notable items
- COVID-19 caused longer lead times for certain components and reduced on-site activity; further supply-chain, staffing or regulatory delays could postpone the planned FDA submission. The overall effect was uncertain.
- Commercialization depends on regulatory clearance or approval, manufacturing scale-up, market acceptance and third-party insurance coverage and reimbursement. The company relied on consultants and third parties and had no established commercial infrastructure.
- The company identified large, better-resourced competitors, financing and dilution risk, and uncertainty over patent protection. It had four pending U.S. utility patent applications and three pending foreign applications.
- The company reported no pending legal proceedings. The auditor gave an unmodified opinion on the financial statements with a going-concern emphasis; it did not express an opinion on internal-control effectiveness. Management reported that disclosure controls and internal control over financial reporting were effective at year-end and said fiscal 2019 material weaknesses had been remediated.
- Related-party and governance items include a $280,000 CEO bonus payable over 24 months, a founder royalty on future product sales, and consulting payments and option awards to a director. The CEO also served as CFO, secretary and treasurer.
Key facts for investors to verify
- Current cash, operating burn and financing availability, including actual proceeds from the common-stock and preferred-unit offerings and the PPP loan’s repayment or forgiveness status.
- Whether the FDA pathway is 510(k) or PMA, the timing and completeness of the submission, and any additional testing or clinical requirements.
- Actual development milestones, component availability, manufacturing readiness and expected commercialization funding needs.
- Evidence of payer coverage, reimbursement, customer demand and the product’s achievable price and recurring costs.
- Potential dilution from future equity financing, stock options and preferred-stock warrants, and the effect of the preferred stock’s 13% dividend and senior liquidation preference.