NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2017
(UNAUDITED)
NOTE 1 - ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Modular Medical,
Inc. (the “Company” or “Modular” or “we”) 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.
Through the
year ended June 30, 2001 the Company was seeking to rent out snowmobiles and all-terrain vehicles (ATV’s). In June
of 2000, the Company also purchased the rights to manufacture, use, market, and sell the Net Caddy, a backpack style bag used
to transport fishing gear. The Company abandoned both the snowmobile and ATV’s plans, and the Net Caddy plans.
Quasuras,
Inc. (Quauras) was incorporated in Delaware on April 20, 2015.
Quasuras
has developed a hardware technology allowing people with 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
100% of the issued and outstanding shares of Quasuras for 7,582,000 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,
Inc.
The 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 accompanying
condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the United
States (“US GAAP”) and with the instructions to Form 10-Q.
Certain information
and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or
omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore, the unaudited
condensed interim consolidated financial statements should be read in conjunction with the financial statements and the notes
thereto, included in the Company’s Annual Report on the Form 10-K for the year ended June 30, 2017 and the Form 8-K filed
on July 28, 2017. Current and future financial statements may not be directly comparable to the Company’s historical financial
statements. However, except as disclosed herein, there have been no material changes in the information disclosed in the notes
to the financial statements for the year ended June 30, 2017 included in the Company’s Annual Report on Form 10-K filed
with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation,
consisting solely of normal recurring adjustments, have been made. Operating results for the six months ended September 30, 2017
are not necessarily indicative of the results that may be expected for the year ending June 30, 2018.
Principles
of Consolidation
The consolidated
financial statements include the accounts of Modular Medical, Inc. and its wholly owned subsidiary Quasuras, Inc., collectively
referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.
Use of Estimates
The preparation
of financial statements in conformity with US GAAP requires management to make certain 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 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.
Operating Overhead Expense
Operating
overhead expense consists primarily of consulting expense, professional services, rent, depreciation and amortization, and meetings
and travel.
Income Taxes
The Company
utilizes 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 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
follows FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in 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 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 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 statements of income.
At September
30, 2017 and 2016, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended March
31, 2017 and prior years or in computing its tax provision for 2017. 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 concentrations of credit risk is cash. The Company places its cash in what
it believes to be credit-worthy financial institutions.
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 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 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 September 30, 2017 and March 31, 2017, the Company had $4,767,502 and $392,007,
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 $4,267,501 and $142,007, 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 software
developed or acquired for internal use, 3 to 10 years; computer equipment, 2 to 3 years; buildings and improvements, 5 to 15 years;
leasehold improvements, 2 to 10 years; and furniture and equipment, 1 to 5 years.
As of September 30, 2017 and
March 31, 2017, property, plant and equipment amounted to:
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
Computers and equipment
|
|
$
|
2,699
|
|
|
$
|
—
|
|
Less: accumulated depreciation
|
|
|
(300
|
)
|
|
|
—
|
|
Property and equipment, net
|
|
$
|
2,399
|
|
|
$
|
—
|
|
Depreciation expense for the
six months ended September 30, 2017 and 2016 was $300 and $0, 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 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.
The Company
analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities
from Equity,” and ASC 815.
As of
September 30, 2017 and 2016, the Company did not identify any assets and liabilities that are required to be presented on the
balance sheet at fair value.
Earnings Per Share (EPS)
Basic
EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similar to basic net income per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock
options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method for
the outstanding options and the if-converted method for the outstanding convertible preferred shares. Under the treasury stock
method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted
method, convertible outstanding instruments are assumed to be converted into common stock at the beginning of the period (or at
the time of issuance, if later).
The
following table sets for the computation of basic and diluted earnings per share for the years ended September 30, 2017 and 2016:
|
|
Three Month Periods Ended
September 30,
|
|
|
Six Month Periods Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(176,002
|
)
|
|
$
|
(1,473
|
)
|
|
$
|
(219,091
|
)
|
|
$
|
(1,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
$
|
(0.016
|
)
|
|
$
|
(0.000
|
)
|
|
$
|
(0.020
|
)
|
|
$
|
(0.000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,144,565
|
|
|
|
7,582,060
|
|
|
|
7,802,447
|
|
|
|
7,582,060
|
|
Diluted
|
|
|
11,144,565
|
|
|
|
7,582,060
|
|
|
|
7,802,447
|
|
|
|
7,582,060
|
|
Recently Issued Accounting
Pronouncements
In August 2016,
the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, 2017, 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.
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, issued 2,900,000 shares (the “
Control Block
”), of newly issued, restricted common stock,
par value, $0.001, per share, for a purchase price of $375,000, resulting in a change in control of Modular.
On July
24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, Modular, and
3 Quasuras Shareholders
and
Quasuras (the “
Acquisition Agreement
”), the Company acquired all 4,400,000 shares of Quasuras’ common
stock which represented 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 “
Private Placement
”), in a private
placement an aggregate of 7,801,212 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 gross proceeds to us of approximately $5,100,000. 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 Private Placement, we paid $41,928 as
compensation in connection with sales of our shares therein.
Following
the Acquisition, the Private Placement and the Share Cancellation, we had issued and outstanding 15,983,272 shares of our common
stock.
The cash
received in the private placement was recorded as the cash received in reorganization in the accompanying financial statements.
Simultaneously
with and as a condition to the closing of the Acquisition and the Private Placement, pursuant to an intellectual property transfer
agreement dated as of July 24, 2017, 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 September 30, 2017 and March 31, 2017, accrued expenses amounted to $21,404 and $8,425, respectively. Accrued expenses comprised
of accrued legal and professional charges as of September 30, 2017 and March 31, 2017.
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
Legal and professional charges
|
|
$
|
21,404
|
|
|
$
|
8,425
|
|
|
|
$
|
21,404
|
|
|
$
|
8,425
|
|
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 September 30, 2017 and March 31, 2017, respectively, the payable to related party amounted
to $0 and $21,256.
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 100% of the issued and outstanding shares of Quasuras for 7,582,000 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
sold (the “Private Placement”), in a private placement an aggregate of 7,801,212 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 gross proceeds to us of approximately $5,100,000, simultaneously with the closing of the Acquisition and as a condition thereto.
Simultaneously with the Acquisition and Private Placement, the Company cancelled all 2,900,000 Control Block shares it acquired
pursuant to the Stock Purchase Agreement (See Note 2). In connection with the Private Placement, we paid $41,928 as compensation
in connection with sales of our shares therein.
The Company
has 50,000,000 shares of common stock authorized. The par value of the shares is $0.001. As of September 30, 2017, 15,983,000
shares of common stock of the Company were issued and outstanding.
Preferred
Stock
The Company
has 5,000,000 shares of preferred stock authorized. The par value of the shares is $0.001. As of September 30, 2017, none of the
shares of preferred stock of the Company were issued.
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, September 30, 2017 and 2016, will not be fully realizable. Accordingly, management has recorded a full valuation allowance
against its net deferred tax assets at, September 30, 2017 and 2016. At September 30, 2017 and March 31, 2017, the Company had
federal net operating loss carry-forwards of approximately $290,000 and $75,000, respectively, expiring beginning in 2036
.
Deferred
tax assets consist of the following components:
|
|
September 30,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2017
|
|
Net loss carryforward
|
|
$
|
290,000
|
|
|
$
|
75,000
|
|
Valuation allowance
|
|
|
(290,000
|
)
|
|
|
(75,000
|
)
|
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) 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.
NOTE 8 – LEASE AGREEMENT
On August
21, 2017, the Company entered into a sublease agreement to rent office space. The term of the lease commences on September 1,
2017 and expires on December 14, 2019. The monthly rent for the lease is $3,000. The Company paid a deposit of $7,500 upon execution
of the lease which has been recorded as a security deposit in the accompanying financial statements. The amounts of minimum lease
payments and periods during which they become due are as follows:
Year
|
|
September 30,
|
|
|
|
|
|
2018
|
|
$
|
36,000
|
|
2019
|
|
|
36,000
|
|
2020
|
|
|
6,000
|
|
Total minimum lease payment
|
|
$
|
78,000
|
|
NOTE 9 – SUBSEQUENT
EVENTS
Management
has evaluated subsequent events or transactions occurring through the date the financial statements were issued, November 10,
2017. Management concluded that no additional subsequent events required disclosure in these financial statements.