Modular Medical, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the unaudited three months ended June 30, 2018, the first quarter of the fiscal year ending March 31, 2019. Modular Medical is developing insulin-delivery technology through its wholly owned subsidiary, Quasuras. The Company reports no product revenue and is focused on research and development. The July 2017 acquisition of Quasuras was accounted for as a reverse merger; the Company changed its fiscal year-end to March 31, so historical periods may not be directly comparable.
Financial and operating metrics
| Metric | Three months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $255,190 | $37,482 |
| Operating loss | $255,190 | $37,482 |
| Interest income | $5,624 | $237 |
| Net loss | $249,566 | $38,742 |
| Basic and diluted loss per share | $0.016 | $0.005 |
| Cash used in operating activities | $236,219 | $46,957 |
At June 30, 2018, cash and cash equivalents were $4.054 million, total current assets were $4.060 million, current liabilities were $16,659, and working capital was approximately $4.044 million. Total assets were $4.086 million and stockholders’ equity was $4.069 million. The balance sheet shows no debt; liabilities consisted principally of accrued expenses. Cash decreased $242,905 during the quarter, including $6,170 used for equipment purchases and $516 used to repay a related-party payable. No gross profit was reported; management presented gross margin as 0% given zero sales.
Changes versus prior comparable period
- Net loss increased to $249,566 from $38,742, primarily reflecting $135,789 of research and development expense, versus none in the prior-year quarter, along with higher professional and general and administrative expenses.
- General and administrative expense rose to $77,691 from $290. The filing attributes the increase to employee costs, marketing, rent, insurance, and other operating expenses.
- Operating cash use increased to $236,219 from $46,957. The prior-year period included $200,000 of financing cash outflow, compared with $516 in the current quarter.
- Cash declined from $4.297 million at March 31, 2018 to $4.054 million at June 30, 2018. Common shares outstanding remained 15,983,273 during the quarter.
Outlook, risks, contingencies, and unusual items
- Management expects to continue incurring research and development costs to design and develop an insulin pump. The filing provides no quantified revenue, earnings, or cash-flow guidance.
- The Company has no sales to fund operations and depends on available capital to meet operating needs. Cash runway is not quantified.
- Management concluded internal control over financial reporting was ineffective at June 30, 2018, citing material weaknesses, including inadequate controls and lack of segregation of duties. The Company had no separate audit committee or independent director; management said it intends to engage an internal accountant when finances allow.
- Approximately $3.554 million of cash deposits were uninsured at June 30, 2018. The Company reported no reserve for potential bank losses.
- A royalty agreement with the founder provides for the lesser of $0.75 per product sold or 5% of gross sale price, subject to a $10 million aggregate cap. No sales-related royalty amounts are reported for the quarter.
- The office sublease requires monthly rent of $3,000 and had $52,500 of minimum payments remaining as disclosed in the filing. Management reported no legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Development status, commercialization timeline, and funding needs for the insulin-delivery product.
- Whether the Company can sustain operations without revenue and how quickly cash balances may be used.
- Progress in addressing the disclosed internal-control material weaknesses.
- Terms and potential economic impact of the founder royalty agreement, including any future product sales.
- Cash-deposit concentration and the Company’s ability to maintain adequate liquidity.