UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

 

FORM 10-Q

 

(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, 2018
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

 

Yes x No o (The Registrant does not have a corporate Web site.)

 

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 o (Do not check if a smaller reporting company)	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 June 30, 2018, there were 15,983,273 shares of our common stock (“Common Stock”), par value $.001 per share, outstanding.

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.

Part I - FINANCIAL INFORMATION

 

Modular Medical, Inc. And Subsidiary

(fka- Bear Lake Recreation, Inc.)

Condensed Consolidated Balance Sheets

		June 30, 2018
		(UNAUDITED)				March 31, 2018
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	4,053,771			$	4,296,676
Other current assets			6,556				16,804
TOTAL CURRENT ASSETS			4,060,327				4,313,480
Intangible assets, net			205				213
Property and equipment, net			18,042				13,259
Security deposit			7,500				7,500
TOTAL NON-CURRENT ASSETS			25,747				20,972
TOTAL ASSETS		$	4,086,074			$	4,334,452
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	16,659			$	14,955
Payable to related party			—				516
TOTAL CURRENT LIABILITIES			16,659				15,471
Commitments and Contingencies			—				—
TOTAL LIABILITIES			16,659				15,471
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, 15,983,273 shares issued and outstanding as of June 30, 2018 and March 31, 2018			15,983				15,983
Additional paid-in capital			5,011,661				5,011,661
Accumulated deficit			(958,229	)			(708,663	)
TOTAL STOCKHOLDERS’ EQUITY			4,069,415				4,318,981
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	4,086,074			$	4,334,452

 

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

Modular Medical, Inc. And Subsidiary

(fka- Bear Lake Recreation, Inc.)

Condensed Consolidated Statements of Operations

(UNAUDITED)

		Three Months Ended
		June 30, 2018				June 30, 2017
Net Revenues		$	—			$	—
Operating Expenses:
Professional expenses			41,710				37,192
Research and development			135,789				—
General and administration expenses			77,691				290
Total Operating Expenses			255,190				37,482
Loss From Operations			(255,190	)			(37,482	)
Other Income (Expenses):
Interest income			5,624				237
Loss Before Income Taxes			(249,566	)			(37,245	)
Provision for income taxes			—				1,497
Net Loss		$	(249,566	)		$	(38,742	)
Net Loss Per Share
Basic and Diluted:		$	(0.016	)		$	(0.005	)
Weighted average number of shares used in computing basic and diluted net loss per share:
Basic			15,983,273				7,582,060
Diluted			15,983,273				7,582,060

 

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

Modular Medical, Inc. And Subsidiary

(fka- Bear Lake Recreation, Inc.)

Condensed Consolidated Statements of Cash Flows

(UNAUDITED)

 

		Three Months Ended
		June 30, 2018				June 30, 2017
Net loss		$	(249,566	)		$	(38,742	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,395				150
Increase in current assets:
Other assets			10,248				(2,602	)
Decrease in current liabilities:
Accounts payable and accrued expenses			1,704				(5,763	)
Net cash used in operating activities			(236,219	)			(46,957	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment			(6,170	)			(2,699	)
Net cash used in investing activities			(6,170	)			(2,699	)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment to related party, net			(516	)			(200,000	)
Net cash used in financing activities			(516	)			(200,000	)
Net decrease in cash and cash equivalents			(242,905	)			(249,656	)
Cash and cash equivalents, at the beginning of the period			4,296,676				392,007
Cash and cash equivalents, at the end of the period		$	4,053,771			$	142,351
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Income tax payments		$	—			$	1,497
Interest payments		$	—			$	—

 

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

MODULAR MEDICAL, INC.

F/K/A BEAR LAKE RECREATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(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.

 

Through the year ended June 30, 2001, the Company was seeking to rent out snowmobiles and all-terrain vehicles (“ATV”).  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 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, three Quasuras Shareholders 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 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 (“U.S. 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 fiscal year ended March 31, 2018. 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 fiscal year ended March 31, 2018 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 three months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019.

 

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 the accompanying financial statements in conformity with U.S. 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 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.

 

Revenue Recognition

 

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. Revenue generally is recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities.

 

Cost of Sales 

 

Cost of sales consists primarily of inventory costs, as well as warehousing costs (including the cost of warehouse labor), shipping, importation duties and charges, third party royalties, and product sampling.

 

Research and Development

 

The Company expenses the cost of research and development as incurred. Research and development costs charged to operations were approximately $135,789 and $0 for the three months ended June 30, 2018 and 2017, respectively.

 

General and Administration

 

General and administration expense consists primarily of payroll and benefit related costs, rent, office expenses, 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 June 30, 2018 and 2017, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended March 31, 2018 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, 2018 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 are cash, accounts receivable and other receivables arising from its normal business activities. 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 June 30, 2018 and March 31, 2018, the Company had $4,053,771 and $4,296,676, 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 $3,553,771 and $3,933,002, 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, three (3) to ten (10) years; computer equipment, two (2) to three (3) years; buildings and improvements, five (5) to fifteen (15) years; leasehold improvements, two (2) to ten (10) years; and furniture and equipment, one (1) to five (5) years.

 

As of June 30, 2018 and March 31, 2018, property, plant and equipment amounted to:

 

		June 30, 2018				March 31, 2018
Computer and equipment		$	21,273			$	15,103
Less: accumulated depreciation			(3,231	)			(1,844	)
		$	18,042			$	13,259

 

Depreciation expenses for the three months ended June 30, 2018 and 2017 was $1,387 and $150, 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 June 30, 2018 and March 31, 2018, 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 three months ended June 30, 2018 and 2017:

 

		June 30, 2018				June 30, 2017
Net Loss		$	(249,566	)		$	(38,742	)
Net Loss Per Share
Basic and Diluted:		$	(0.016	)		$	(0.005	)

 

Weighted average number of shares used in computing basic and diluted net loss per share:

 

Basic			15,983,273				7,582,060
Diluted			15,983,273				7,582,060

 

Recently Issued Accounting Pronouncements

 

In August 2017, 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 OCI, 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.

 

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, the Company 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 the Company.

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among the Company, three 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 “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 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 15,983,273 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 June 30, 2018 and March 31, 2018, accrued expenses amounted to $16,659 and $14,955, respectively. Accrued expenses comprised of accrued legal and professional charges as of June 30, 2018 and March 31, 2018.

 

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, 2018 and March 31, 2018, respectively, the payable to related party amounted to $0 and $516, respectively.

 

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, 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. As of June 30, 2018, 15,983,273 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 June 30, 2018, 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. As of June 30, 2018, none of the Company’s employees have enrolled in the ESOP.

 

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, 2018 and March 31, 2018, will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at, June 30, 2018 and March 31, 2018. At June 30, 2018 and March 31, 2018, the Company had federal net operating loss carry-forwards of approximately $244,500 and $182,500, respectively, expiring beginning in 2037.

 

Deferred tax assets consist of the following components:

		June 30,				March 31
		2018				2018
Net loss carryforward		$	244,500			$	182,500
Valuation allowance			(244,500	)			(182,500	)
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 (30) 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 commenced 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			June 30,
2019			$	36,000
2020				16,500
Total minimum lease payment			$	52,500

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

 

Overview

 

The Company was organized under the laws of the State of Nevada on October 22, 1998 under the name Bear Lake Recreation Inc., with an initial authorized capital consisting of 50,000,000 shares of $0.001 par value common voting stock.

 

Our initial operations consisted of renting snowmobiles and ATVs. We had also planned on organizing snowmobile rental packages, which would have included lodging at Ideal Beach Resort at Bear Lake, Utah. On or about October 1999, we abandoned the snowmobile, ATV and lodging plans. Our lack of success was attributed to entering the marketplace comprising this endeavor during a year that was the beginning of a drought cycle, resulting in below average snowfall and competitive growth from one to three self-promoting developmental properties. Our operations ceased due to depleted capital resources resulting from offering vacation packages lacking in demand.

 

On June 27, 2000, we entered into a licensing agreement with AlCORP, an Oregon limited liability company, to purchase the right to manufacture, use, market and sell the NetCaddy, a backpack style bag used to transport fishing gear. By the end of the first quarter of 2002, we had also abandoned the Net Caddy operations. We realized only minimal sales through our e-commerce site and 800-number infomercial advertisements. Additionally, due to the exhaustion of our capital resources, we could no longer maintain the infrastructure required for sales promotion while faced with limited consumer demand.

 

We had no material business operations from 2002 through the Acquisition and we were a shell company as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). As a shell company, we did not have material operations and had assets consisting solely of cash and cash equivalents.

 

On July 24, 2017, pursuant to the Acquisition Agreement, by and among the Company, 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. DiPerna owning approximately forty-seven percent (47%) of our issued and outstanding common stock, after giving effect to the Private Placement and the Share Cancellation. Simultaneously with the closing of the Acquisition and pursuant to the Acquisition Agreement, (i) Mr. Besser resigned as president and a director and Mr. Frank resigned as chief executive officer, chief financial officer, secretary, and treasurer but remained a director of the Company, and (ii) Mr. DiPerna was appointed our chairman, chief executive officer, chief financial officer, secretary and treasurer.

 

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

 

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, 2018, 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.

 

Results of Operations 

 

For the Three Months Ended June 30,

		2018				2017
Sales, net		$	—			$	—
Cost of sales			—				—
Gross profit			—				—
Gross profit margin			0	%			0	%
Operating expenses
Professional expenses			41,710				37,192
Research and development			135,789				—
General and administrative			77,691				290
Total operating expenses			255,190				37,482
Operating loss			(255,190	)			(37,482	)
Interest income			5,624				237
Income tax			—				(1,497	)
Net loss		$	(249,566	)		$	(38,742	)

  

Overview:

 

We reported a net loss of $249,566 and $38,742 for the three months ended June 30, 2018 and 2017, respectively. The increase in our net loss from June 30, 2018 to June 30, 2017, is due to an increase in research and developments, consulting fees, professional fees and general and administrative expenses.

 

Revenues:

 

Revenue for the three months ended June 30, 2018 and 2017 was $0.

 

Operating Expenses:

 

Professional expenses, for the three months ended March 31, 2018, increased to $41,710 as compared to $37,192 for 2017. 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 March 31, 2018, increased to $135,789 as compared to $0 for 2017. 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. We expect to continue to incur costs related to research and development.

 

General and administrative expenses, for the three months ended March 31, 2018, increased to $77,691 as compared to $290 for 2017. The increase in our general and administrative expense is attributable to (i) an increase in employee related cost of approximately $28,000, (ii) an increase in marketing and advertising expenses of approximately $8,000, (iii) an increase in rent of approximately $9,000, (iv) an increase in insurance expense of approximately $8,900, and (v) the remaining increase of approximately $24,000 is attributable to the additional cost we incurred for dues, supplies, travels and other operating expenses.

 

Interest Income:

 

Interest income for the three months ended June 30, 2018 and 2017 was $5,624 and $237, respectively.

 

Liquidity and Capital Resources

 

The following summarizes our cash flows for the three months ended June 30,:

		2018				2017
Cash used in operating activities		$	(236,219	)		$	(46,957	)
Cash used in investing activities			(6,170	)			(2,699	)
Cash used in financing activities			(516	)			(200,000	)
Net change in cash		$	(242,905	)		$	(249,656	)

As a result of our growth stage, the Company has not experienced sales to sustain cash flow to meet our current obligations and operations expenditures. As a result, the Company raised capital though the share exchange to meet our operating expenditures.

 

As of June 30, 2018, we had total current assets of $4,060,327 of which $4,053,771 were cash and cash equivalents, and current liabilities of $16,659. As of March 31, 2018, we had total current assets of $4,313,480 and current liabilities of $15,471. As of June 30, 2018 and March 31, 2018, we had working capital of approximately of $4,044,000 and $4,298,000, respectively.

 

Net Cash Used In Operating Activities:

 

We used $236,219 of cash to fund operating activities during three month ended June 30, 2018, compared to $46,957 in 2017.  Increased cash usage in 2018 was driven by greater operating losses deriving from development. We reported net losses of $249,566 and $38,742 for the three months ended June 30, 2018 and 2017, respectively.

 

Net Cash Provided By Investing Activities:

 

We used $6,170 and $2,699 of cash to purchase equipment and intangible assets during the three month ended June 30, 2018 and 2017, respectively.  

 

Net Cash Used In Financing Activities:

 

We used $516 of cash for financing activities during three month ended June 30, 2018, compared to $200,000 in 2017.  

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not required.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure 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 June 30, 2018. 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 June 30, 2018. 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 intend to engage an internal accountant to assist with financial reporting as soon as our finances will allow.

 

Changes in Internal Control over Financial Reporting

During the fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

Item 6. Exhibits

Exhibit No.	Description of Document
2.1	Reorganization and Share Exchange Agreement, dated as of July 24, 2017, by and among Modular Medical, Inc., Quasuras, Inc., Paul DiPerna and the other stockholders of Quasuras, Inc. 1
3.1	Second Amended and Restated Articles of Incorporation, as filed with the Secretary of State of Nevada on June 27, 2017 2
10.1	Common Stock Purchase Agreement, dated as of April 5, 2017, by and among Bear Lake Recreation, Inc., Manchester Explorer, LP, a Delaware limited partnership, and certain person named therein 1
10.2	Form of Common Stock Purchase Agreement, dated as of July 24, 2017, by and between the Company and the purchaser named therein 1
10.3	Intellectual Property Transfer Agreement, by and between Modular Medical, Inc., Quasuras, Inc.  and Paul DiPerna 1
10.4	Technology and Royalty Agreement, dated as of July 24, 2017, by and between Modular Medical, Inc., Quasuras, Inc. and Paul DiPerna 1
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 3
32.1	Certification of Paul M. DiPerna of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002 3
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

¹ As filed with our Current Report on Form 8-K filed July 28, 2017, and incorporated herein by reference.

 

² As filed with our Current Report on Form 8-K filed June 29, 2017, and incorporated herein by reference.

 

³ Filed herewith.

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 10, 2018		By:	/s/ Paul M. DiPerna
				Paul M. DiPerna
				Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director
				(principal executive, financial and accounting officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Paul M. DiPerna		Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, (principal financial and accounting officer) and		August 10, 2018
Paul M. DiPerna
		Director (Chairman of the Board)
/s/ Morgan Frank		Director		August 10, 2018

Morgan Frank