UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 10-Q/A

(Amendment No. 1)  

 

(Mark One)

       
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended June 30, 2019
     
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the transition period from ____________________________ to __________________________
   
  Commission file number   000-49671

 

MODULAR MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)

 

Nevada   87-0620495
(State or Other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)
     
800 West Valley Parkway, Suite 203, Escondido, California 92025
(Address of Principal Executive Offices) (Zip Code)

 

(949) 370-9062
(Registrant’s Telephone Number, Including Area Code)
 
 N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

   
Large accelerated filer o Accelerated filer o
Non-accelerated filer x Smaller reporting company x
  Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 13, 2019, there were 17,870,261 shares of our common stock (“Common Stock”), par value $.001 per share, outstanding.

 
 

  EXPLANATORY NOTE

 

Modular Medical, Inc., is filing this Amendment No. 1 on Form 10-Q/A to amend its First Quarter Report on Form 10-Q for the period ended June 30, 2019, filed with the Commission On August 14, 2019. Our financial printer inadvertently named the document modular_1q19 and in actuality is should have been named modular_1q20. This filing reflects the correct name change to the document as modular_1q20.

 

Unless expressly indicated or the context requires otherwise, the terms “Modular Medical, Inc.”, “Modular Medical”, “Company”, “we”, “us”, and “our” in this document refer to Modular Medical, Inc. (f/k/a Bear Lake Recreation, Inc.), a Nevada corporation, and may include Modular Medical, Inc.’s wholly-owned subsidiary, Quasuras, Inc., a Delaware corporation.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the Financial Statements and Notes to Financial Statements contained herein may contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

2
 

Item 1. Financial Statements

Modular Medical, Inc. and its Subsidiary
(f/k/a- Bear Lake Recreation, Inc.)
Condensed Consolidated Balance Sheets

             
ASSETS   June 30, 2019
(UNAUDITED) 		    March 31,2019  
CURRENT ASSETS                
Cash and cash equivalents   $ 5,706,628     $ 6,553,768  
Other current assets     9,500       15,590  
TOTAL CURRENT ASSETS     5,716,128       6,569,358  
                 
Intangible assets, net     172       180  
Property and equipment, net     75,961       75,948  
Security deposit     7,500       7,500  
TOTAL NON-CURRENT ASSETS     83,633       83,628  
TOTAL ASSETS   $ 5,799,761     $ 6,652,986  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accounts payable and accrued expenses   $ 253,474     $ 178,929  
TOTAL CURRENT LIABILITIES     253,474       178,929  
TOTAL LIABILITIES     253,474       178,929  
                 
STOCKHOLDERS’ EQUITY                
Preferred Stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding     —       —  
Common Stock, $0.001 par value, 50,000,000 shares authorized, 17,870,261
shares issued and outstanding as of June 30, 2019 and 17,840,261 as of March 31, 2019 		    17,870       17,840  
Additional paid-in capital     9,898,776       9,684,578  
Common stock issuable     —       19,800  
Accumulated deficit     (4,370,359 )     (3,248,161 )
TOTAL STOCKHOLDERS’ EQUITY     5,546,287       6,474,057  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 5,799,761     $ 6,652,986  

 

  The accompanying notes are an integral part of these unaudited condensed consolidated financial statements .

3
 

Modular Medical, Inc. and its Subsidiary
(f/k/a- Bear Lake Recreation, Inc.)
Consolidated Statements of Operations

    Three Months Ended  
    June 30, 2019
(UNAUDITED) 		    June 30, 2018
(UNAUDITED) 		 
Operating Expenses:                
Professional expenses     287,831       41,710  
Research and development     703,783       135,789  
General and administration expenses     139,912       76,296  
Depreciation and amortization expenses     6,714       1,395  
Total Operating Expenses     1,138,240       255,190  
Loss From Operations     (1,138,240 )     (255,190 )
                 
Other Income (Expenses):                
Interest income     16,042       5,624  
                 
Loss Before Income Taxes     (1,122,198 )     (249,566 )
                 
Provision for income taxes     —       —  
                 
Net Loss   $ (1,122,198 )   $ (249,566 )
                 
Net Loss Per Share                
Basic and Diluted:   $ (0.06 )   $ (0.02 )
Weighted average number of shares used in computing basic and diluted net loss per share:                
Basic     17,847,740       15,983,273  
Diluted     17,847,740       15,983,273  

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4
 

Modular Medical, Inc. and its Subsidiary
(f/k/a- Bear Lake Recreation, Inc.)
Consolidated Statements of Cash Flows

    Three Months Ended  
    June 30, 2019
(UNAUDITED) 		    June 30, 2018
(UNAUDITED) 		 
Net loss   $ (1,122,198 )   $ (249,566 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:                
Stock-Based Compensation     194,428       —  
Depreciation and amortization     6,714       1,395  
                 
Increase/Decrease in current assets:                
Other assets     6,090       10,248  
                 
Decrease in current liabilities:                
Accounts payable and accrued expenses     74,545       1,704  
Net cash used in operating activities     (840,421 )     (236,219 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Purchase of property, plant and equipment     (6,719 )     (6,170 )
Net cash used in investing activities     (6,719 )     (6,170 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Repayment to related party     —       (516 )
Net cash used in financing activities     —       (516 )
                 
Net increase in cash and cash equivalents     (847,140 )     (242,905 )
                 
Cash and cash equivalents, at the beginning of the period     6,553,768       4,296,676  
                 
Cash and cash equivalents, at the end of the period   $ 5,706,628     $ 4,053,771  
                 
SUPPLEMENTAL DISCLOSURES:                
Cash paid during the year for:                
Income tax   $ —     $ —  
Interest   $ —     $ —  

 

Common stock issuable was met.  Therefore, $19,800 was re-classed from common stock issuable to common stock in the Stockholders’ equity.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5
 

MODULAR MEDICAL, INC.

F/K/A BEAR LAKE RECREATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

 

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Modular Medical, Inc. (the “Company”) was organized under the laws of the State of Nevada on October 22, 1998, to engage in any lawful purpose. The Company has at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

 

Quasuras, Inc. (“Quasuras”) was incorporated in Delaware on April 20, 2015.

 

Quasuras has developed a hardware technology allowing people with insulin dependent diabetes to receive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount of insulin to be in the blood at all times and a “bolus” delivery to address meal time glucose input and to address when the blood glucose level becomes too high. By addressing the time and effort required to effectively treat their condition, Quasuras believes it can address the less technically savvy, less motivated part of the market.

 

Reorganization

 

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among the Company and Quasuras, the Company acquired one hundred percent (100%) of the issued and outstanding shares of Quasuras for 7,582,060 shares of the Company, resulting in Quasuras becoming a wholly-owned subsidiary of the Company. Since the major shareholder of Quasuras retained control of both the Company and Quasuras, the share exchange was accounted for as a reverse merger. As such, the Company recognized the assets and liabilities of Quasuras, acquired in the Reorganization, at their historical carrying amounts.

 

Pursuant to the reorganization, the Company changed the fiscal year end from June 30 to March 31, to coincide with the year end for Quasuras.

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. The following summarizes the more significant of such policies:

 

Basis of Presentation

 

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and related disclosures.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Modular Medical, Inc. and its wholly-owned subsidiary Quasuras, Inc., and are collectively referred to as the “Company”. All material intercompany accounts, transactions and profits were eliminated in consolidation.

 

Use of Estimates

 

The preparation of the accompanying financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reportable Segment

 

The Company has one reportable segment. The Company’s activities are interrelated and each activity is dependent upon and supportive of the other. Accordingly, all significant operating decisions are based on analysis of financial products provided as a single global business.  

 

Professional Fees

 

The Company expenses the cost of legal, accounting, audit, tax and other professional services.

6
 

Research and Development

 

The Company expenses the cost of research and development as incurred. Research and development costs charged to operations were approximately $703,783 and $135,789 for the fiscal quarter ended June 30, 2019 and 2018, respectively.

 

General and Administration

 

General and administrative expense consists primarily of payroll and benefit related costs, rent, office expenses, equipment supplies and meetings and travel.

 

Income Taxes

 

The Company utilizes Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that were included in the consolidated financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company accounts for uncertain tax positions in accordance with FASB ASC Topic 740. When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the consolidated statements of income.

 

At June 30, 2019 and 2018, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended June 30, 2019 and prior years or in computing its tax provision for 2019. Management has considered its tax positions and believes that all of the positions taken by the Company in its Federal and State tax returns are more likely than not to be sustained upon examination. The Company is subject to examination by U.S. Federal and State tax authorities for the period ended March 31, 2017 to the present, generally for three years after they are filed.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company maintains cash balances at financial institutions within the United States, which are insured by the Federal Deposit Insurance Corporation (FDIC) up to limits of approximately $250,000. The Company has not experienced any losses with regard to its bank accounts and believes it is not exposed to any risk of loss on its cash bank accounts.

 

Risks and Uncertainties

 

The Company is subject to risks from, among other things, competition associated with the industry in general, other risks associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history and the volatility of public markets.

 

Contingencies

 

Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

7
 

If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash in hand and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. At June 30, 2019 and March 31, 2019, the Company had $5,706,628 and $6,553,768, respectively, in cash. Deposits at the bank are insured up to $250,000 by the Federal Deposit Insurance Corporation. The Company’s uninsured portion of the balances held at the bank aggregated to approximately $5,421,940 and $6,269,116 respectively. No reserve has been made in the financial statements for any possible loss due to any financial institution failure. The Company has not experienced any losses in such accounts and believes we are not exposed to any significant risk on cash and cash equivalents.

  

Property, Plant & Equipment

 

Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer equipment& software developed or acquired for internal use, three to ten years; office equipment, two to three years; buildings and improvements, five to fifteen years; leasehold improvements, two to ten years; and machinery and equipment, one to five years. 

 

As of June 30, 2019 and March 31, 2019, property, plant and equipment amounted to:

 

    June 30, 2019
(UNAUDITED) 		    March 31, 2019  
Computer equipment and software   $ 25,028     $ 20,565  
Office equipment     49,724       49,724  
Machinery and equipment     24,194       21,937  
Less: accumulated depreciation     (22,985 )     (16,278 )
    $ 75,961     $ 75,948  

 

Depreciation expenses for the quarter ended June 30, 2019 and March 31, 2019 was $6,707 and $1,387 respectively. 

 

Fair Value of Financial Instrument

 

For certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

Due to their short-term nature, the carrying values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of the notes payable approximates fair value.

8
 

Earnings Per Share (“EPS”)

 

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of outstanding common shares during the period. Diluted earnings per share are computed by dividing net income by the weighted average number of shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. During the fiscal quarter ended June 30, 2019 and 2018 we incurred losses. Therefore, the effects of any common stock equivalent were anti-dilutive during those periods.  

 

The following table sets for the computation of basic and diluted earnings per share for the fiscal quarters ended June 30, 2019 and June 30, 2018:  

             
    June 30, 2019
(UNAUDITED) 		    June 30, 2018
(UNAUDITED) 		 
             
Net Loss   $ (1,122,198 )   $ (249,566 )
                 
Net Loss Per Share                
Basic and Diluted:   $ (0.06 )   $ (0.02 )
                 
Weighted average number of shares used in computing basic and diluted net loss
per share: 		               
                 
Basic     17,847,740       15,983,273  
Diluted     17,847,740       15,983,273  

 

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09,  Revenue from Contracts with Customers , issued as a new Topic, ASC Topic 606. The new revenue recognition standard supersedes all existing revenue recognition guidance. Under this ASU, an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2015-14, issued in August 2015, deferred the effective date of ASU 2014-09 to the first quarter of 2018, with early adoption permitted in the first quarter of 2018. The company has adopted the new standard utilizing the modified retrospective approach. The adoption of this new accounting guidance does not have material effects on results of operations, cash flows and financial position for the forceable future because the company does not have revenues.

 

In January 2016, The FASB issued ASU No. 2016-01,  Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825) . ASU No. 2016-01 revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU No. 2016-01 requires the change in fair value of many equity investments to be recognized in net income. For non-public companies, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the adoption of ASU 2016-01 will have on our consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or statement of operations.

 

In August 2018, the FASB issued guidance that eases certain documentation and assessment requirements of hedge effectiveness and modifies the accounting for components excluded from the assessment. Some of the modifications include the ineffectiveness of derivative gain/loss in highly effective cash flow hedge to be recorded in other comprehensive income, the change in fair value of derivative to be recorded in the same income statement line as hedged item, and additional disclosures required on the cumulative basis adjustment in fair value hedges and the effect of hedging on financial statement lines for components excluded from the assessment. The amendment also simplifies the application of hedge accounting in certain situations to permit new hedging strategies to be eligible for hedge accounting. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning after December 15, 2018, our fiscal 2020. Early adoption is permitted, and the modified retrospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

9
 

In February 2016, FASB issued ASU No. 2016-02, Leases (“Topic 842”). Topic 842 requires an entity to recognize right-of -use assets and lease liability on its balance sheet and disclosure key information about leasing arrangements. For public companies, Topic 842 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. We have evaluated this ASU and believe this guidance will not have a material impact on our financial position and statement of operations.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements. 

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations or cash flow.

 

NOTE 2 – REORGANIZATION AND PRIVATE PLACEMENT

 

On April 26, 2017, Modular Medical, Inc. issued 2,900,000 shares (the “Control Block”), of new, restricted common stock, par value, $0.001, per share, for a purchase price of $375,000, resulting in a change in control of Modular Medical, Inc. 

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, Modular Medical, Inc., 3 Quasuras Shareholders and Quasuras (the “Acquisition Agreement”), the Company acquired all 4,400,000 shares of Quasuras’ common stock which represented one hundred percent (100%) of the issued and outstanding shares of Quasuras for 7,582,060 shares of our common stock, resulting in Quasuras becoming our wholly-owned subsidiary (the “Acquisition”).

Simultaneously with the closing of the Acquisition and as a condition thereto, we sold (the “2017 Private Placement”), in a private placement an aggregate of 7,233,031 for cash and 568,182 from reissuance of previously canceled shares of our common stock pursuant to one or more exemptions from the registration requirements of the Securities Act, at a purchase price of $0.66 per share resulting in net proceeds to us of approximately $4,731,872. Simultaneously with the Acquisition and Private Placement, the Company cancelled all 2,900,000 Control Block shares it had issued in the Control Block Acquisition (the “Share Cancellation”). In connection with the 2017 Private Placement, we paid $41,928 as compensation in connection with sales of our shares therein.

Following the Acquisition, the 2017 Private Placement and the Share Cancellation, we had issued and outstanding 15,983,273 shares of our common stock.

The cash received in the private placement was recorded as the cash received in reorganization in the accompanying consolidated financial statements.

Simultaneously with and as a condition to the closing of the Acquisition and the 2017 Private Placement, pursuant to an Intellectual Property Transfer Agreement, dated as of July 24, 2018, by and among us, Quasuras and Mr. DiPerna (the “IP Transfer Agreement”), Mr. DiPerna transferred to us all intellectual property rights owned directly and/or indirectly by him related to our proposed business. Separately, we agreed to pay Mr. DiPerna as part of his compensation for services to be performed for us pursuant to a Royalty Agreement (the “Royalty Agreement”) certain fees based upon future sales, if any, of our proposed product subject to a maximum $10,000,000 “cap” on the aggregate amount of fees that Mr. DiPerna could earn from such arrangement.

NOTE 3 – ACCRUED EXPENSES

 

As of June 30, 2019 and March 31, 2019, accrued expenses amounted to $253,474 and $178,929 respectively. Accrued expenses comprised of accrued legal and professional, consultant services as of June 30, 2019 and March 31, 2019.

 

NOTE 4 – PAYABLE TO RELATED PARTY

 

Payable to related party comprises of the amounts paid by the major shareholder on behalf of the Company. The payable is unsecured, non-interest bearing and due on demand. As of June 30, 2019 and March 31, 2019, respectively, there were no amounts payable to related party.

 

NOTE 5 – STOCKHOLDERS’ EQUITY

 

Common stock

 

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, the Company and Quasuras Inc., the Company acquired one hundred percent (100%) of the issued and outstanding shares of Quasuras for 7,582,060 shares of the Company, resulting in Quasuras becoming a wholly-owned subsidiary of the Company. The historical equity for Quasuras was restated pursuant to the reorganization.

 

The Company has 50,000,000 shares of common stock authorized. The par value of the shares is $0.001. In April 2019 the Company issued 30,000 shares for services bringing the outstanding balance to 17,870,261 shares of common stock.

10
 

Preferred Stock

 

The Company has 5,000,000 shares of preferred stock authorized. The par value of the shares is $0.001. As of June 30, 2019, none of the shares of preferred stock of the Company were issued.

 

Stock Options

 

On October 19, 2017, the Board of Directors approved an Employee Stock Option Program (“ESOP”) that reserves 3,000,000 shares of common stock of the Company to be issued. Under the Company’s ESOP, eligible employees, directors and consultants are granted options to purchase shares of common stock of the Company. The ESOP is administered by the Company’s Board of Directors or, in the alternative, if necessary, a committee designated by the Board of Directors, and has the sole power over the exercise of the ESOP. The Board of Directors determines whether the ESOP will allow for the issuance of shares of common stock or an option to purchase shares of common stock, such option designated as either an incentive stock option or a non-qualified stock option.

 

The exercise or purchase price shall be calculated as follows:

 

(i) In the case of an incentive stock option, (A) granted to employees, directors and consultants who, at the time of the grant of such incentive stock option own stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company, the per share exercise price shall be not less than one hundred ten percent (110%) of the fair market value per share on the date of grant; or (B) granted to employees, directors and consultants other than to employees, directors and consultants described in the preceding clause, the per share exercise price shall be not less than one hundred percent (100%) of the fair market value per share on the date of grant;

 

(ii) In the case of a non-qualified stock option, the per share exercise price shall be not less than one hundred percent (100%) of the fair market value per share on the date of grant unless otherwise determined by the Board of Directors; and

 

(iii) In the case of other grants, such price as is determined by the Board of Directors.

 

The Board of Directors are responsible for determining the consideration to be paid for the shares of common stock to be issued upon exercise or purchase. The ESOP generally doesn’t allow for the transfer of the options, and the Board of Directors may amend, suspend or terminate the ESOP at any time.

On April 15, 2019, the Company granted 4,778 options to a consultant, these options are fully vested on the grant date. The 4,778 options will expire on April 14, 2029. The fair value of the options 4,778 shares is determined to be $8,173, was accrued in professional expenses for the quarter ended June 30, 2019.

 

The following assumptions were used in the fair value method calculation:

 

  · Volatility: 101.85%
  · Risk free rate of return: 2.41%
  · Expected term: 5 years

 

On April 15 th and May 15 th 2019, the Company granted 8,908 options to a consultant, these options will be fully vested on the grant date. The 8,908 options will expire on April 14 th and May 14 th , 2029. The fair value of the options 8,908 shares is determined to be $15,000 was accrued in consulting expenses for the fiscal quarter ended June 30, 2019.

 

The following assumptions were used in the fair value method calculation:

 

  · Volatility: 97 – 102%
  · Risk free rate of return: 2.15 – 2.37%
  · Expected term: 5 years

 

On April 15 th , 2019, the Company granted 9,000 options to an employee, these options will be fully vested three years from the date granted. The 9,000 options will expire on April 14 th , 2029. The fair value of the options 9,000 shares is determined to be $16,258. During the quarter ended June 30, 2019, $447 was accrued monthly in general and administrative expenses.

 

The following assumptions were used in the fair value method calculation:

 

  · Volatility: 101.85%
  · Risk free rate of return: 2.41%
  · Expected term: 6.0 years

 

On July 25, 2018, the Company granted 1,280,000 options to certain consultants, these options are fully vested one year from the date granted. The 1,280,000 options will expire on August 31, 2019. The fair value of the options 1,280,000 shares is determined to be $682,240, was accrued monthly in research and development expenses for the fiscal quarter ended June 30, 2019.

 

The following assumptions were used in the fair value method calculation:

 

  · Volatility: 110%
  · Risk free rate of return: 2.82%
  · Expected term: 5.27 years

 

On January 16, 2019, the Company granted 185,221 options to certain consultants, these options will be fully vested three years from the date granted. The 185,221 options will expire on January 15, 2029. The fair value of the options 185,221 shares is determined to be $336,732, was accrued monthly in general and administrative expenses for the fiscal quarter ended June 30, 2019.

 

The following assumptions were used in the fair value method calculation:

 

  · Volatility: 104%
  · Risk free rate of return: 2.54%
  · Expected term: 5.88 years

The relative fair value of each of the granted options set forth above has been calculated using the Black-Scholes-Merton pricing model, which, for each such option, is based on the granted strike price, the three month average trading volatility of three comparable companies (e.g., PODD, TNDM, VLRX), the five year, risk-free treasury bond interest rate on the applicable grant date and a weighted average term using the simplified method calculation. It outlines calculation methods for sbc.

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The following is a rollforward of the options outstanding and exercisable for the fiscal quarter ended June 30, 2019:

 

    Options     Weighted
Average
Exercise Price 		    Average
Remaining
Life 		 
Outstanding and exercisable – March 31, 2019     918,020       0.68       9.43  
Vested     280,352       0.74          
Expired     —       —       —  
Outstanding and exercisable – June 30, 2019     1,198,372     $ 0.69       5.13  

 

NOTE 6 – INCOME TAXES

 

Based on the available information and other factors, management believes it is more likely than not that the net deferred tax assets at, June 30, 2019 and March 31, 2019, will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at June 30, 2019 and March 31, 2019. At June 30, 2019 and March 31, 2019, the Company had federal net operating loss carryforwards of approximately $1,098,000 and $817,000 respectively, expiring beginning in 2037.

 

Deferred tax assets consist of the following components:

 

    June 30, 2019     March 31, 2019  
Net loss carryforward   $ 1,098,000     $ 817,000  
Valuation allowance     (1,098,000 )     (817,000 )
Total deferred tax assets   $ —     $ —  

 

NOTE 7 – ROYALTY AGREEMENT

 

On July 12, 2017, the Company entered into a royalty agreement with the founder and major shareholder. Pursuant to the agreement, the founder and major shareholder is assigning and transferring all of his rights in the intellectual property in return for royalty payments. The Company shall pay royalty to the founder on any sales of the royalty product sold or otherwise commercialized by the Company, equal to (a) US $0.75 on each sale of a royalty product, or (b) five percent (5%) of the gross sale price of the royalty product, whichever is less. The royalty payments shall cease, and this agreement shall terminate, at such time as the total sum of royalty payments actually paid to the founder, pursuant to this agreement, reaches $10,000,000. The Company shall have the option to terminate this agreement at any time upon payment, to the founder, of the difference between total royalty payments actually made to him to date and the sum of $10,000,000. All payments of the royalties, if due, for the preceding quarter, shall be made by the Company within thirty days after the calendar quarter.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Modular Medical, Inc. (the “Company”) was organized under the laws of the State of Nevada on October 22, 1998, to engage in any lawful purpose. The Company has at the present time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of the Company and other relevant factors.

 

Quasuras, Inc. (“Quasuras”) was incorporated in Delaware on April 20, 2015.

 

Quasuras has developed a hardware technology allowing people with insulin dependent diabetes to receive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount of insulin to be in the blood at all times and a “bolus” delivery to address meal time glucose input and to address when the blood glucose level becomes too high. By addressing the time and effort required to effectively treat their condition, Quasuras believes it can address the less technically savvy, less motivated part of the market.

 

On July 24, 2017, pursuant to the Acquisition Agreement, by and among the Company, the three Quasuras shareholders and Quasuras, the Company acquired all 4,400,000 shares of Quasuras’ common stock owned by the three Quasuras shareholders (which represented one hundred percent (100%) of the issued and outstanding shares of Quasuras) resulting in Quasuras becoming our wholly-owned subsidiary and Mr. Paul DiPerna owning approximately forty-seven percent (47%) of our issued and outstanding common stock, after giving effect to the 2017 Private Placement and the Share Cancellation. Simultaneously with the closing of the Acquisition and pursuant to the Acquisition Agreement, (i) Mr. James Besser resigned as president and a director and Mr. Morgan Frank resigned as chief executive officer, chief financial officer, secretary, and treasurer but remained a director of the Company, and (ii) Mr. Paul DiPerna was appointed our chairman, chief executive officer, chief financial officer, secretary and treasurer.

 

The Acquisition was accounted for as a reverse merger effected by a share exchange, wherein Quasuras is considered the acquirer for accounting and financial reporting purposes.

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The Company is focused on providing next generation products and services to address the disease and condition diabetes.

 

This discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

 

Critical Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to accruals, stock-based compensation and income taxes. Actual results could materially differ from those estimates.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2019, we had not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Recent Accounting Pronouncements

 

See Note 1 in the Notes to the Financial Statements for recent accounting pronouncements.

 

There were various other accounting standards and interpretations recently issued, none of which are expected to have a material impact on our financial position, operations or cash flows.

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Results of Operations  

 

The results of operations for the fiscal quarters are as follows:

 

    Three Months Ended  
    June 30, 2019     June 30, 2018  
Operating expenses                
Professional expenses     287,831       41,710  
Research and development     703,783       135,789  
General and administrative     146,626       77,691  
Total operating expenses     1,138,240       255,190  
Operating loss     (1,138,240 )     (255,190 )
Interest income     16,042       5,624  
Income tax     —       —  
Net loss   $ (1,122,198 )   $ (249,566 )

 

Overview :

We reported a net loss of $1,122,198 and $249,566 for the three months ended June 30, 2019 and 2018, respectively. The increase in our net loss during the current quarter is due to an increase in research and development and professional fees.

 

Operating Expenses :

Professional expenses for the three months ended June 30, 2019 increased to $287,831 as compared to $41,710 for the quarter ended June 30, 2018. The increase is attributable to an increase in consulting fees paid to outside consultants and professional services required for our required filings.

 

Research and development for the three months ended June 30, 2019 increased to $703,783 as compared to $135,789 for the quarter ended June 30, 2018. The increase in research and development expenditures is attributable to efforts and expenses incurred to design and develop an innovative insulin pump to better serve the diabetic insulin delivery market along with stock-based compensation. We expect to continue to incur costs related to research and development.

 

General and administrative expenses for the three months ended June 30, 2019 increased to $146,626 as compared to $77,691 for the quarter ended June 30, 2018. The increase in our general and administrative expense is attributable primarily to an increase in employee related cost.

 

Interest Income :

Interest income for the three months ended June 30, 2019 and 2018 was $16,042 and $5,624, respectively.

 

Liquidity and Capital Resources

 

The following summarizes our cash flows for the fiscal quarter ended June 30,:

 

    2019     2018  
Cash used in operating activities   $ (840,421 )   $ (236,219 )
Cash used in investing activities     (6,719 )     (6,170 )
Cash used in financing activities     —       (516 )
Net change in cash and cash equivalents     (847,140 )     (242,905 )
Cash and cash equivalents at beginning of period     6,553,768       4,296,676  
Net change in cash   $ 5,706,628     $ 4,053,771  

 

As a development stage enterprise, the Company does not currently have revenues to generate cash flow to cover operating expenses. The Company has historically raised capital through the 2017 Private Placement and the 2018 Private Placement. Management expects to continue to raise capital through future equity offerings in order to finance its operations.

 

As of June 30, 2019, we had total current assets of $5,716,128 of which $5,706,628 were cash and cash equivalents, and current liabilities of 253,474. As of June 30, 2019 and March 31, 2019, we had working capital of approximately of $5,462,654 and $6,390,429, respectively.

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Net Cash Used In Operating Activities :  

We used $840,421 of cash to fund operating activities during the three months ended June 30, 2019, compared to $236,219 during the comparable period in 2018. Increased cash usage during the recent quarter was due to increasing operating expenses to fund research and development.

 

Net Cash Used In Investing Activities :

We used $6,719 and $6,170 of cash to purchase equipment during the three months ended June 30, 2019 and 2018, respectively.

 

Net Cash Used In Financing Activities :

We used no cash for financing activities during the three months ended June 30, 2019, compared to $516 during the prior year quarter.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2019. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that there are material weaknesses in our internal control over financial reporting and Management has concluded that the Company’s internal controls over financial reporting are not effective as of March 31, 2019. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

The material weaknesses relate to inadequate internal controls over financial reporting, and the lack of segregation of duties in our financial reporting process. We do not have a separately designated audit committee or independent director. To remedy these material weaknesses, we hired a full-time accounting manager to assist in remedying weaknesses by implementing new policies and procedures to ensure effective internal control over financial reporting.

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Part II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

No report is required.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Stock-Based Compensation

 

During the three months ended June 30, 2019, pursuant to the terms of our Employment Agreement, we granted Ms. Gordon options exercisable to purchase 9,000 shares at an exercise price of $2.25 per share, and, pursuant to the terms of our Stock Option Agreement, we granted Mr. David Nassif options exercisable to purchase 4,778 shares at an exercise price of $2.25 per share.

 

During the three months ended June 30, 2019, pursuant to the terms of our Stock Option Agreement, we granted Mr. Burns options exercisable to purchase 8,908 shares at an exercise price of $2.25 per share.

 

The options and shares of restricted Common Stock were granted without registration under the Securities Act of 1933, as amended, in reliance upon exemptions provided under Section 4(a)(2) of the Securities Act. 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None. 

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Item 6. Exhibits

 

Exhibit No.   Description of Document
31.1   Certification of Paul M. DiPerna pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Paul M. DiPerna of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MODULAR MEDICAL, INC.

         
Date: August 20, 2019   By:  /s/ Paul M. DiPerna
        Paul M. DiPerna
        Chief Executive Officer, Chief Financial Officer,
Secretary, Treasurer and Director
        (principal executive, financial and accounting officer)
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