| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Modular Medical, Inc. (the “Company”)
was formed as a corporation under the laws of the State of Nevada in October 1998 under the name Bear Lake Recreation, Inc. The
Company had no material business operations from 2002 until approximately 2017 when it acquired all of the issued and outstanding
shares of Quasuras, Inc., a Delaware corporation (“Quasuras”). As 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. Prior to the acquisition
of Quasuras and, since at least 2002, the Company was a shell company as defined in Rule 12b-2 promulgated under the Securities
Exchange Act of 1934 (the “Exchange Act”). In June 2017, the Company changed its name from “Bear Lake Recreation,
Inc.” to “Modular Medical, Inc.” The Company is a development-stage medical
device company focused on the design, development and eventual commercialization of an innovative insulin pump to address shortcomings
and problems represented by the relatively limited adoption of currently available pumps for insulin dependent people with diabetes.
The Company 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 excessively
high. By addressing the time and effort required to effectively treat their condition, the Company believes it can address the
less technically savvy, less motivated part of the market. The accompanying condensed consolidated
financial statements of the Company have been prepared without audit. The condensed consolidated balance sheet
as of March 31, 2019 has been derived from the audited consolidated financial statements at that date. Certain information and
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States (GAAP) have been condensed or omitted in accordance with these rules and regulations of the Securities and Exchange
Commission (SEC). The information in this report should be read in conjunction with the Company’s consolidated financial
statements and notes thereto included in its most recent annual report on Form 10-K filed with the SEC. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments)
necessary to summarize fairly the Company’s financial position, results of operations and cash flows for the interim periods
presented. The operating results for the three and six months ended September 30, 2019 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2020 or for any other future period. Basis of Presentation The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, Quasuras, Inc. All significant intercompany transactions and
balances have been eliminated in consolidation. The Company’s fiscal year ends on March 31 of each calendar year. Use of Estimates The preparation of the accompanying financial
statements in conformity with U.S. generally accepted accounting principles (“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 and uses one measurement
of profitability for its business. Research and Development The Company expenses research and development
expenditures as incurred. General and Administrative General and administrative expenses consist
primarily of payroll and benefit costs, rent, travel and office and other administrative expenses. Income Taxes Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic 740, Income Taxes The Company accounts for uncertain tax
positions in accordance with FASB ASC Topic 740. When tax returns are filed, it is likely that some positions taken would be sustained
upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the
amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the consolidated financial
statements in the period during which, based on all available evidence, management believes it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions
taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold
are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the accompanying condensed 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 September 30, 2019 and 2018, the Company
had not taken any significant uncertain tax positions on its tax returns for periods ended September 30, 2019 and prior years or
in computing its tax provision for 2018. Management has considered its tax positions and believes that all of the positions taken
by the Company in its U.S. federal and state tax returns are more likely than not to be sustained upon examination. All tax returns
from 2016 to 2019 may be subject to examination by the U.S. federal and state tax authorities. Concentration of Credit Risk Financial instruments that potentially
subject the Company to concentration of credit risk consist primarily of cash. The Company maintains its cash balances at high-credit
quality financial institutions within the United States, which are insured by the Federal Deposit Insurance Corporation (FDIC)
up to limits of approximately $250,000. The uninsured portion of the cash balances held at the Company’s primary bank aggregated
approximately $4,521,000 at September 30, 2019. No reserve has been made in the financial statements for any possible loss due
to any financial institution failure. 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 condensed 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 assesses 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 highly liquid debt instruments with original maturities of three
months or less. Property & 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 property and equipment are generally as follows: computer equipment & software, three to ten years;
office equipment, two to three years; buildings and improvements, five to fifteen years; leasehold improvements, two to ten years;
and machinery and equipment, one to five years. As of September 30, 2019 and March 31, 2019, property and
equipment amounted to:
September 30, 2019 March 31, 2019
Computer equipment and software $ 33,852 $ 20,565
Office equipment 49,724 49,724
Machinery and equipment 39,250 21,937
Less: accumulated depreciation (30,616) (16,278 )
$ 92,210 $ 75,948 Fair Value of Financial Instruments 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 Company measures
the fair value of financial instruments using a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels:
· Level 1 inputs to the
valuation methodology are quoted prices for identical assets or liabilities in active markets.
· Level 2 inputs to the
valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
· Level 3 inputs to the
valuation methodology are unobservable and significant to the fair value measurement. Due to their short-term nature, the carrying
values of cash and equivalents, accounts receivable, accounts payable, and accrued expenses, approximate fair value. Based on borrowing
rates currently available to the Company for loans with similar terms, the carrying value of the notes payable approximates fair
value. Per-Share Amounts Basic net loss per share is computed
by dividing loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted
loss per share gives effect to all potentially dilutive common shares outstanding during the period. During the three and six months
ended September 30, 2019, 1,630,394 outstanding options to purchase common stock were excluded from the calculation of diluted
net loss per share because their effect would be anti-dilutive. During the three and six months ended September 30, 2018, 1,316,026
outstanding options to purchase common stock were excluded from the calculation of diluted net loss per share because their effect
would be anti-dilutive. The following table sets forth the computation
of basic and diluted earnings per share for the periods indicated:
Three months ended September 30, Six months ended September 30,
2019 2018 2019 2018
Net Loss $ (1,147,566) $ (543,774) $ (2,269,764) $ (793,340)
Net Loss Per Share
Basic and Diluted $ (0.06) $ (0.03) $ (0.13) $ (0.05)
Weighted average common shares outstanding
Basic and Diluted 17,870,261 15,983,273 17,855,343 15,983,273 Recently Adopted Accounting Pronouncement In February 2016, FASB issued Accounting
Standards Update (“ASU”) No. 2016-02, Leases 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 flows. |
