| THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 – THE COMPANY AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES Modular Medical, Inc. (the Company) was incorporated
in 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 merger, 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 using modernized technology to
increase pump adoption in the diabetes marketplace. Through the creation of a novel two-part patch pump, our MODD1 product candidate,
or MODD1, the Company seeks to fundamentally alter the trade-offs between cost and complexity and access to the higher standards of care
that presently available insulin pumps provide. By simplifying and streamlining the user experience from introduction, prescription, reimbursement,
training and day-to-day use, we seek to expand the wearable insulin delivery device market beyond the highly motivated “super users”
and expand the category into the mass market. The product candidate seeks to serve both the type 1 and the rapidly growing, especially
in terms of device adoption, type 2 diabetes markets. In February 2022, the Company completed a public
offering of its equity securities, and its common stock was approved to list on the Nasdaq Capital Market under the symbol “MODD”
and began trading there on February 10, 2022. Liquidity
and Going Concern The Company
expects to continue to incur operating losses for the foreseeable future and incur cash outflows from operations as it continues to invest
in the development and subsequent commercialization of its product. The Company expects that its research and development and general
and administrative expenses will continue to increase, and, as a result, it will eventually need to generate significant revenue to achieve
profitability. The Company’s expected operating losses and cash burn raise substantial doubt about the Company’s ability to
continue as a going concern within one year after the date that these financial statements are issued. These consolidated financial statements
do not include any adjustments that might result from this uncertainty. Implementation of the Company’s plans and its ability to
continue as a going concern will depend upon the Company’s ability to raise additional capital, through the sale of additional equity
or debt securities, to support its future operations. There can be no assurance that such additional capital, whether in the form of debt
or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable
to the Company. As discussed in Note 4, in May 2023, the Company completed an offering of its common stock and warrants. The Company’s
operating needs include the planned costs to operate its business, including amounts required to fund working capital and capital expenditures.
The Company’s future capital requirements and the adequacy of its available funds will depend on many factors, including the Company’s
ability to successfully commercialize its product, competing technological and market developments, and the need to enter into collaborations
with other companies or acquire other companies or technologies to enhance or complement its product offering. If the Company is unable
to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce
costs in order to conserve its cash. Basis of Presentation The Company’s fiscal year ends on March
31 of each calendar year. Each reference to a fiscal year in these notes to the condensed consolidated financial statements refers to
the fiscal year ended March 31 of the calendar year indicated (for example, fiscal 2024 refers to the fiscal year ending March 31, 2024).
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Quasuras. All significant
intercompany transactions and balances have been eliminated in consolidation. The accompanying condensed consolidated financial
statements are unaudited and have been prepared in accordance with generally accepted accounting principles in the United States (GAAP)
and with the rules and regulations of the United States Security and Exchange Commission (SEC) regarding interim financial reporting.
The condensed consolidated balance sheet as of March 31, 2023 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 GAAP have been condensed
or omitted in accordance with these rules and regulations of the 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 months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the
year ending March 31, 2024 or for any other future period. Use of Estimates The preparation of the accompanying condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amount of revenues and expenses during the reporting period. Estimates may include those pertaining to accruals,
stock-based compensation and income taxes. Actual results could differ from those estimates. Reportable Segment The Company operates in one business 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, stock-based compensation, legal and accounting fees, and office and other administrative expenses. 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 at a high-credit quality financial
institution within the United States, which is insured by the Federal Deposit Insurance Corporation (FDIC) up to limits of approximately
$250,000. No reserve has been made in the financial statements for any possible loss due to 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. Recent
Economic Disruptions The global
outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency
by the U.S. government in March 2020. This negatively affected the U.S. and global economy, disrupted global supply chains, significantly
restricted travel and transportation, resulted in mandated closures and orders to “shelter-in- place” and created significant
disruption of the financial markets. While the U.S. national emergency expired in May 2023 and substantially all closures and “shelter-in-place”
orders have ended, there can be no assurance that the COVID-19 pandemic will not impact the Company’s operational and financial
performance in the future, as the duration and spread of the pandemic and related actions taken by U.S. and foreign government agencies
to prevent disease spread are uncertain, out of our control, and cannot be predicted. The continued
spread of COVID-19 has also led to disruption and volatility in the global capital markets. The Russian invasion of Ukraine in February
2022 has led to further economic disruptions. Mounting inflationary cost pressures and recessionary fears have negatively impacted the
global economy. Since mid-2022, the U.S. Federal Reserve has addressed elevated inflation by increasing interest rates, as inflation remains
elevated. While the Company was recently able to access the capital markets, in the future, the Company may be unable to access the capital
markets, and additional capital may only be available to the Company on terms that could be significantly detrimental to its existing
stockholders and to its business. Cash and Cash Equivalents Cash and cash equivalents include cash on hand
and cash in demand deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or
less. Property and Equipment Property
and equipment are recorded at historical cost. Depreciation is computed using the straight-line method over the estimated useful lives
of the assets, generally three five Fair Value of Financial Instruments 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 equivalents, accounts payable and accrued expenses, approximate fair value. Leases The Company’s right-of-use assets consist
of leased assets recognized in accordance with FASB ASC No. 842, Leases Stock-Based Compensation The Company recognizes stock-based compensation
for equity awards granted to employees and non-employees on a straight-line basis over the requisite service period, usually the vesting
period, based on the grant-date fair value. The Company estimates the value of stock options on the date of grant using the Black-Scholes
pricing model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected
by the option price, as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but
are not limited to, the expected stock price volatility over the term of the awards, and projected stock option exercise behaviors. 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
(WASO) during the period. In addition, the Company includes the number of shares of common stock issuable under pre-funded warrants as
outstanding. Diluted net loss per share gives effect to all potentially dilutive common shares outstanding during the period. Potentially
dilutive common shares consist of incremental shares of common stock issuable upon the exercise of stock options and exercise of warrants. Prior to April 1, 2023, the Company excluded pre-funded
warrants from the computation of WASO. The pre-funded warrants are now included in the computation of WASO. Prior period amounts have
been conformed to the current-period presentation. The impact of the change reduced the previously reported loss per share by $0.03 and
increased WASO by approximately 844,000 shares for the three months ended June 30, 2022. The reclassification had no impact on the Company's
net loss or cash flows for the three months ended June 30, 2022. For the three months ended June 30, 2023 and 2022,
the following table sets forth securities outstanding which were excluded from the computation of diluted net loss per share as their
inclusion would be anti-dilutive (in thousands).
Three Months Ended
2023 2022
Options to purchase common stock 2,824 1,820
Common stock purchase warrants 11,997 6,217
Total 14,821 8,037 Reclassifications 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. Comprehensive Loss Comprehensive loss represents the changes in equity
of an enterprise, other than those resulting from stockholder transactions. Accordingly, comprehensive loss may include certain changes
in equity that are excluded from net loss. For the three months ended June 30, 2023 and 2022, the Company’s comprehensive loss was
the same as its net loss. Recently Issued Accounting Pronouncement In June 2016, the FASB issued Accounting Standards
Update (ASU) No. 2016-13, Financial Instruments—Credit Losses |
