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.
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.
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.
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.
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.
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:
|
·
|
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:
|
·
|
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.
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.