UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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.

Yesx Noo

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).

Yesx Noo (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.

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).

Yeso Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of September 30, 2018,August 13, 2019, there were 15,983,27317,870,261 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'smanagement’s existing beliefs about present and future events outside of management'smanagement’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.

Item 1. Financial Statements

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

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

.

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

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

statements.

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

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

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

MODULAR MEDICAL, INC.

F/K/A BEAR LAKE RECREATION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBERJUNE 30, 20182019

(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.  In June of 2017, the Company changed its name to Modular Medical, Inc. by filing a Certificate of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State. 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, as well as the Net Caddy plans.

Quasuras, Inc. (“Quauras”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,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 accompanying condensedpreparation of the consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and with the instructions to Form 10-Q.

Certain informationassumptions that affect reported amounts 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 six months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2019.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.“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 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.

Revenue RecognitionProfessional Fees

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 (includingThe Company expenses the cost of warehouse labor), shipping, importation dutieslegal, accounting, audit, tax and charges, third party royalties and product sampling.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 $367,550$703,783 and $83,408$135,789 for the three monthsfiscal quarter ended SeptemberJune 30, 20182019 and 2017, respectively. For the six months ended September 30, 2018, and 2017, the costs were approximately $503,340 and $87,754 respectively.

General and Administration

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

Income Taxes

The Company utilizes FASBFinancial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”)(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 follows FASB Interpretation No. 48, Accountingaccounts for Uncertaintyuncertain tax positions in Income Taxes, (codified inaccordance with FASB ASC Topic 740).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 fifty50 percent (50%) 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 SeptemberJune 30, 20182019 and 2017,2018, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended March 31, 2018June 30, 2019 and prior years or in computing its tax provision for 2017.2019. 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, 20182017 to the present, generally for three years after they are filed.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrationsconcentration of credit risk areconsist primarily of cash and accounts receivable and other receivables arising from its normal business activities.receivable. The Company placesmaintains 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 in what it believes to be credit-worthy financial institutions.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 SeptemberJune 30, 20182019 and March 31, 2018,2019, the Company had $3,687,822$5,706,628 and $4,296,676,$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 $3,187,822$5,421,940 and $3,933,002,$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; computeroffice equipment, two to three years; buildings and improvements, five to fifteen years; leasehold improvements, two to ten years; and furnituremachinery and equipment, one to five years.

As of SeptemberJune 30, 2018,2019 and March 31, 2018,2019, property, plant and equipment amounted to:

Depreciation expenses for the three monthsquarter ended SeptemberJune 30, 20182019 and 2017 were $1,802March 31, 2019 was $6,707 and $154,$1,387 respectively. For the six months ended September 30, 2018 and 2017 depreciation was approximately $3,189 and $300, 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.

The Company analyzes all financial instruments with featuresDue to their short-term nature, the carrying values of both liabilitiescash and equity under ASC 480, “Distinguishing Liabilities from Equity,”equivalents, accounts receivable, accounts payable, and ASC 815.

As of September 30, 2018 and June 30, 2018,accrued expenses, approximate fair value. Based on borrowing rates currently available to the Company did not identify any assets and liabilities that are required to be presented onfor loans with similar terms, the balance sheet atcarrying value of the notes payable approximates fair value.

Earnings Per Share (EPS)(“EPS”)

Basic EPS isearnings per share are computed by dividing incomeearnings available to common shareholdersstockholders by the weighted average number of outstanding common shares outstanding forduring the period. Diluted EPS isearnings per share are computed similar to basicby dividing net income per share except thatby the denominator isweighted average number of shares outstanding during the period increased to include the number of additional shares of common sharesstock that would have been outstanding if all the potential common shares, warrants and stock optionspotentially dilutive securities had been issuedissued. During the fiscal quarter ended June 30, 2019 and if2018 we incurred losses. Therefore, 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 beginningeffects of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchaseany common stock at the average market priceequivalent were anti-dilutive 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).those periods.  

The following table sets for the computation of basic and diluted earnings per share for three & six monthsthe fiscal quarters ended SeptemberJune 30, 20182019 and 2017:June 30, 2018:

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 2017,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 OCI,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 newly issued,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.Medical, Inc. 

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, Modular Medical, threeInc., 3 Quasuras shareholdersShareholders and Quasuras (the “Acquisition Agreement”), Modular Medicalthe 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 (the “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 Placementprivate 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, 2017,2018, by and among Modular Medical,us, Quasuras and Mr. Paul DiPerna (the “IP Transfer Agreement”), Mr. Paul 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. Paul 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“cap” on the aggregate amount of fees that Mr. Paul DiPerna could earn from such arrangement.

NOTE 3 – ACCRUED EXPENSES

As of SeptemberJune 30, 20182019 and March 31, 2018,2019, accrued expenses amounted to $46,837$253,474 and $14,955,$178,929 respectively. Accrued expenses comprised of credit card transactions, rentaccrued legal and stock compensationprofessional, consultant services as of SeptemberJune 30, 20182019 and March 31, 2018.2019.

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 SeptemberJune 30, 20182019 and March 31, 2018,2019, respectively, thethere were no amounts payable to related party amounted to $0 and $516, respectively.party.

NOTE 5 – STOCKHOLDERS’ EQUITY

Common stock

On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, the Acquisition Agreement,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. As of September 30, 2018, 15,983,273In April 2019 the Company issued 30,000 shares for services bringing the outstanding balance to 17,870,261 shares of common stock of the Company were issued and outstanding.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 SeptemberJune 30, 2018,2019, 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:

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:

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:

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:

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:

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:

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:

NOTE 6 — STOCK-BASED COMPENSATION

During the three months ended September 30, 2018, we granted options for a total of $1,351,515 shares with a weighted average grant date fair value of $0.55 per option. No options were granted during the prior quarters.

The fair values of options at the grant date were estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions for the three months ended September 30, 2018: (i) dividend yield on our common stock of 0 percent, (ii) expected stock price volatility of 88 percent, (iii) a risk-free interest rate of 3.2 percent, and (iv) and expected option term of 9 years.

General and administrative expense for the three months ended September 30, 2018 included stock-based compensation expense of $8,334. Research and development expenses also included stock-based compensation expenses of $174,504 for the three months ended September 30, 2018. No such expenses were recognized in the prior quarters.

As of September 30, 2018, the unrecognized stock-based compensation expenses related to non-vested stock options was approximately $562,000, which will be amortized over an estimated weighted average period of approximately 9 months.

NOTE 7 -– 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, SeptemberJune 30, 20182019 and March 31, 20182019, will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at SeptemberJune 30, 20182019 and March 31, 2018.2019. At SeptemberJune 30, 20182019 and March 31, 2018,2019, the Company had federal net operating loss carry-forwardscarryforwards of approximately $380,500$1,098,000 and $182,500,$817,000 respectively, expiring beginning in 2037.

Deferred tax assets consist of the following components:

NOTE 87 – 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$0.75US $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.

NOTE 9 – 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:

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

Overview

The CompanyModular Medical, Inc. (the “Company”) was organized under the laws of the State of Nevada on October 22, 1998, underto engage in any lawful purpose. The Company has at the name Bear Lake Recreation Inc., with an initial authorized capital consistingpresent time, not paid any dividends and any dividends that may be paid in the future will depend upon the financial requirements of 50,000,000 shares of $0.001 par value common voting stock. In June of 2017, the Company changed its name to Modular Medical, Inc. by filing a Certificate of Amendment to the Company’s Articles of Incorporation with the Nevada Secretary of State.and other relevant factors.

Our initial operations consisted of renting snowmobiles and ATVs. We had also plannedQuasuras, Inc. (“Quasuras”) was incorporated in Delaware 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.April 20, 2015.

On June 27, 2000, we entered intoQuasuras has developed a licensing agreementhardware technology allowing people with AlCORP, an Oregon limited liability company,insulin dependent diabetes to purchasereceive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount of insulin to be in the rightblood at all times and a “bolus” delivery to manufacture, use, marketaddress meal time glucose input and sellto address when the NetCaddy, a backpack style bag usedblood glucose level becomes too high. By addressing the time and effort required to transport fishing gear. Byeffectively treat their condition, Quasuras believes it can address the endless technically savvy, less motivated part 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.market.

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

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

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

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

Critical Accounting Policies

Use of Estimates

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

Off-Balance Sheet Arrangements

As of SeptemberJune 30, 2018,2019, we had not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Recent Accounting Pronouncements

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

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

Results of Operations

For the Three & Six Months Ended September 30,

Overview:

We reported a net loss of $543,774 and $176,002 for the three months ended September 30, 2018 and 2017, respectively, and losses for the six months ended September 30, 2018 and 2017 of $793,340 and $219,091, respectively. The increase in our net loss from September 30, 2018 to September 30, 2017 is due to an increase in research and developments, consulting fees, professional fees and general and administrative expenses.

Results of Operations

Revenues:

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

RevenueOverview:

We reported a net loss of $1,122,198 and $249,566 for the three and six months ended SeptemberJune 30, 2019 and 2018, respectively. The increase in our net loss during the current quarter is due to an increase in research and 2017 was $0.development and professional fees.

Operating Expenses:

Professional expenses for the three months ended SeptemberJune 30, 20182019 increased to $81,883$287,831 as compared to $79,939$41,710 for 2017. For the six monthsquarter ended SeptemberJune 30, 2018 and 2017, professional fees increased to $123,593 in 2018 versus $117,131 in 2017.2018. The increase is attributable to an increase in consulting fees paid to outside consultants and professional services required for our required filings.

Research and development for the three months ended SeptemberJune 30, 20182019 increased to $367,550$703,783 as compared to $83,408$135,789 for 2017. For the six monthsquarter ended SeptemberJune 30, 2018 and 2017, research and development increased to $503,340 in 2018 versus $87,754 in 2017.2018. The increase in research and development expenditures is attributable to efforts and expenses incurred to design and develop an innovative insulin pump to better serve the diabetic insulin delivery market along with stock-based compensation. We expect to continue to incur costs related to research and development.

General and administrative expenses for the three months ended SeptemberJune 30, 20182019 increased to $99,565$146,626 as compared to $12,639$77,691 for 2017. For the six monthsquarter ended SeptemberJune 30, 2018 and 2017, general and administrative increased to $177,255 in 2018 versus $14,426 in 2017.2018. The increase in our general and administrative expense is attributable primarily to (i) an increase in employee related cost of approximately $60,000, (ii) an increase in stock-based compensation of approximately $8,334, (iii) an increase in rent & utilities of approximately $17,500, (iv) an increase in insurance expense of approximately $21,400, (v) an increase in marketing of $8,000, and (vi) an increase in equipment supplies of approximately $34,500.cost.

Interest Income:

Interest income for the three months ended SeptemberJune 30, 2019 and 2018 was $16,042 and 2017 was $5,224 and $784, respectively. For the six months ended September 30, 2018 and 2017, interest income was $10,848 and $1,020,$5,624, respectively.

Liquidity and Capital Resources

The following summarizes our cash flows for the six monthsfiscal quarter ended SeptemberJune 30,:

As a result of our growthdevelopment stage enterprise, the Company hasdoes not experienced salescurrently have revenues to sustaingenerate cash flow to meet our current obligations and operations expenditures. As a result, thecover operating expenses. The Company has historically raised capital thoughthrough the share exchange2017 Private Placement and the 2018 Private Placement. Management expects to meet our operating expenditures.continue to raise capital through future equity offerings in order to finance its operations.

As of SeptemberJune 30, 2018,2019, we had total current assets of $3,688,128$5,716,128 of which $3,687,822$5,706,628 were cash and cash equivalents, and current liabilities of $46,837.253,474. As of March 31, 2018, we had total current assets of $4,313,480 and current liabilities of $15,471. As of SeptemberJune 30, 20182019 and March 31, 2018,2019, we had working capital of approximately of $3,641,291$5,462,654 and $4,298,009,$6,390,429, respectively.

Net Cash Used In Operating Activities:

We used $576,101 of cash to fund operating activities during six month ended September 30, 2018, compared to $332,192 in 2017.  Increased cash usage in 2018 was driven by greater operating losses deriving from development. We reported net losses of $793,340 and $219,091 for the six months ended September 30, 2018 and 2017, respectively.

Net Cash Provided By Investing Activities:

We used $32,753 and acquired $2,929 of cash to purchase equipment and intangible assets during the six month ended September 30, 2018 and 2017, respectively.  

Net Cash Acquired In Financing Activities:

We acquired $0 of cash from financing activities for six month ended September 30, 2018, compared to $4,710,616 in 2017.

Net Cash Used In Operating Activities:

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

Net Cash Used In Investing Activities:

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

Net Cash Used In Financing Activities:

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required.

Item 4. Controls and Procedures

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

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

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

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

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

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.Stock-Based Compensation

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

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

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

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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.

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.

Morgan Frank