ITEM 1. BUSINESS
Corporate History
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 all-terrain vehicles (ATV’s). 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.
All computations herein take into account a one for three and one-half (1 for 3.5) share reverse split of our outstanding shares of common stock that was effective on or about October 23, 2006, and which is discussed below under this heading.
The following is a summary of material business developments since our inception through March 2018:
·285,734 shares of our common stock were issued to our principal founder at inception for services valued at $1,000.
·Completed the offer and sale of approximately 12,868 shares of our common stock to public investors under Rule 504 of Regulation D of the Securities and Exchange Commission (the “SEC”) in March, 1999, for aggregate consideration of $45,000.
·Completed the offer and sale of approximately 94,066 shares of our common stock to persons who were “accredited investors” under Rule 506 of Regulation D in July and August, 2000, for aggregate consideration of $41,150.
·Issued our three directors and executive officers a total of approximately 428,574 (approximately 142,857 shares each, to Todd L. Albiston, Wayne Bassham and Derrick Albiston) for services valued at an aggregate consideration of $1,500 in September, 2004.
·Issued the same three directors and executive officers a total of approximately 428,574 (approximately 142,857 shares each) for services valued at an aggregate consideration of $1,500 in September, 2005.
·Our common stock was granted quotations on the OTC Bulletin Board (“OTCBB”) on or about December 31, 2005, and we were assigned a trading symbol of “BLKR.”
·On March 1, 2006, we amended Section 2.11 of our Bylaws to allow for written action to be taken without a meeting by less than all of the stockholders.
·Amended and restated our Articles of Incorporation, effective in April, 2006. The Amended and Restated Articles of Incorporation were unanimously adopted by our Board of Directors, who then also constituted our majority stockholders, collectively beneficially owning approximately 857,143 shares of our common stock or approximately 68.6% of our outstanding voting securities, as Board members and stockholders. No other votes were required or necessary to adopt the amendments to our Articles of Incorporation, and none were solicited. The following is a summary of the material changes to our Articles of Incorporation: (i) five million (5,000,000) shares of preferred stock with a par value of $0.001 per share were authorized; (ii) the minimum number of our directors was reduced to one; (iii) our Board of Directors was authorized to change our name in certain circumstances, without stockholder approval; and (iv) our Board of Directors was authorized to effect recapitalizations in the form of forward or reverse splits in certain circumstances, without a stockholder approval. We filed a Definitive Information Statement with the SEC on March 20, 2006.
·We effected a one for three and one-half (1 for 3.5) share reverse split of our outstanding shares of common stock that was effective on or about October 23, 2006, and our then OTCBB trading symbol was changed to “BLKE” on or about October 23, 2006. All share and per share amounts have been retroactively adjusted to reflect the reverse stock split.
Description of Business
We had no material business operations from 2002 until the Acquisition and prior to the Acquisition we were a shell company as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”).
The Control Block Acquisition
On April 26, 2017, pursuant to a Common Stock Purchase Agreement, dated as of April 5, 2017, by and among Manchester Explorer, LP, a Delaware limited partnership (“Manchester”), the Company and certain persons named therein (the “SPA”), Manchester purchased from the Company (the “Control Block Acquisition”) 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 (approximately $0.13 per share), resulting in a change in control of the Company. In connection with the Control Block Acquisition, James E. Besser was appointed president and a director and Morgan C. Frank was appointed the chief executive officer, chief financial officer, secretary, treasurer and a director of the Company and immediately following such appointments, Wayne R. Bassham resigned as director and President, Derrick M. Albiston resigned as director and Vice President, and Todd L. Albiston resigned as director, Secretary and Treasurer of the Company. For additional information regarding the Control Block Acquisition, see our Current Report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on May 1, 2017.
The Acquisition
On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among the Company, Paul M. DiPerna, the sole officer and director and the controlling stockholder of Quasuras Inc., a Delaware company (“Quasuras”), Messrs. Besser and Frank (Messrs. Besser, Frank and Mr. DiPerna, shall sometimes be collectively referred to as the “3 Quasuras Shareholders”) and Quasuras (the “Acquisition Agreement”), the Company acquired all 4,400,000 issued and outstanding shares of Quasuras’ common stock owned by the 3 Quasuras Shareholders (which represented 100% of the issued and outstanding shares of Quasuras) in exchange for 7,582,060 shares of our common stock, resulting in Quasuras becoming our wholly-owned subsidiary (the “Acquisition”) and Mr. DiPerna owning approximately 47% of our issued and outstanding common stock, after giving effect to the Private Placement (as defined below) and the Share Cancellation (as defined below). 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.
In anticipation of the closing of the Acquisition, on June 27, 2017, the Company changed its name from “Bear Lake Recreation, Inc.” to “Modular Medical, Inc.” and changed its trading symbol from “BLKE” to “MODD” which symbol and name change was approved by FINRA and became effective on June 29, 2017.
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.
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 cancelled 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.
Unless otherwise indicated, all information contained in this Annual Report on Form 10-K with respect to periods prior to the date on which we consummated the Acquisition relates solely to Modular, without regard to the Acquisition.
For additional information regarding the Acquisition, see our Current Report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on July 28, 2017.
Effect of Existing or Probable Governmental Regulations on the Business
Smaller Reporting Company
We are subject to the reporting requirements of Section 13 of the Exchange Act, and we are subject to the disclosure requirements of Regulation S-K of the SEC, as a “smaller reporting company.” That designation will relieve us of some of the informational requirements of Regulation S-K.
Sarbanes-Oxley Act
We are also subject to the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act created a strong and independent accounting oversight board to oversee the conduct of auditors of public companies and strengthens auditor independence. It also requires steps to enhance the direct responsibility of senior members of management for financial reporting and for the quality of financial disclosures made by public companies; establishes clear statutory rules to limit, and to expose to public view, possible conflicts of interest affecting securities analysts; creates guidelines for audit committee members’ appointment, compensation and oversight of the work of public companies’ auditors; management assessment of our internal controls; prohibits certain insider trading during pension fund blackout periods; requires companies and auditors to evaluate internal controls and procedures; and establishes a federal crime of securities fraud, among other provisions. Compliance with the requirements of the Sarbanes-Oxley Act will substantially increase our legal and accounting costs.
Exchange Act Reporting Requirements
Section 14(a) of the Exchange Act requires all companies with securities registered pursuant to Section 12(g) of the Exchange Act to comply with the rules and regulations of the SEC regarding proxy solicitations, as outlined in Regulation 14A. Matters submitted to our stockholders at a special or annual meeting thereof or pursuant to a written consent will require us to provide our stockholders with the information outlined in Schedules 14A or 14C of Regulation 14; preliminary copies of this information must be submitted to the SEC at least 10 days prior to the date that definitive copies of this information are forwarded to our stockholders.
We are required to file annual reports on Form 10-K and quarterly reports on Form 10-Q with the Securities Exchange Commission on a regular basis, and are required to timely disclose certain material events (e.g., changes in corporate control; acquisitions or dispositions of a significant amount of assets other than in the ordinary course of business; and bankruptcy) in a Current Report on Form 8-K.
Number of Total Employees and Number of Full-Time Employees
We currently employ the following four (4) employees at the Company:
·Paul DiPerna, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director (August 1, 2017 - Present);
·Marc Goldman, Consultant (August 1, 2017 - Present);
·Maria Shellhart, Bookkeeper (January 1, 2018 - Present); and
·Freeman Rose, Consultant (September 1, 2017 - Present).
Additional Information
You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may also find all of the reports or registration statements that we have previously filed electronically with the SEC at its Internet site at www.sec.gov. Please call the SEC at (202) 551-8090 for further information on this or other Public Reference Rooms. Our SEC reports and registration statements are also available from commercial document retrieval services, such as CCH Washington Service Bureau, whose telephone number is 1-800-955-0219.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not required for smaller reporting companies.
PART II
ITEM 2:
ITEM 2: PROPERTIES
As of March 31, 2018, we had property consisting of computers and equipment, totaling $13,259 ($15,103 less accumulated depreciation); our principal executive office address were previously located at 3 West Hill Place, Boston, MA 02110, which was provided free of charge by Manchester, and our telephone number was 617-856-8995. Our executive offices are now located at 800 West Valley Parkway, Suite 203, Escondido, CA 92025, and our telephone number is (949) 370-9062.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding. To the knowledge of our management, no federal, state or local governmental agency is presently contemplating any proceeding against us. No director, executive officer or affiliate of ours or owner of record or beneficially of more than five percent (5%) of our common stock is a party adverse to us or has a material interest adverse to us in any proceeding.
ITEM 4:
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5:
ITEM 5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock was listed on the OTC Pink Sheets on December 13, 2005, under the symbol “BLKR”. On October 23, 2006, in conjunction with the reverse split, FINRA changed our trading symbol, “BLKR,” to “BLKE.” In anticipation of the closing of the Acquisition, on June 27, 2017, the Company changed its name from “Bear Lake Recreation, Inc.” to “Modular Medical, Inc.” and changed its trading symbol from “BLKE” to “MODD” which symbol and name change was approved by FINRA and became effective on June 29, 2017. There is currently no established trading market for shares of our common stock. Management does not expect any viable market to develop in our common stock unless and until we complete an acquisition or merger. In any event, no assurance can be given that any market for our common stock will develop or be maintained.
For any market that develops for our common stock, the sale of “restricted securities” (common stock) pursuant to Rule 144 of the SEC by members of management or any other person to whom any such securities may be issued in the future may have a substantial adverse impact on any such public market. For information regarding the requirements of resales under Rule 144, see the heading “Rule 144” below.
The following table sets forth, for the periods indicated over the last two years, the high and low closing bid quotations, as reported by the OTCQB, and represents prices between dealers, does not include retail markups, markdowns or commissions, and may not represent actual transactions:
These prices were obtained from the OTC Markets Group, Inc. and do not necessarily reflect actual transactions, retail markups, markdowns or commissions.
Holders
We currently have 78 stockholders, not including an indeterminate number who may hold shares in “street name.”
Dividends
We have not declared any cash dividends with respect to our common stock, and do not intend to declare dividends in the foreseeable future. Our future dividend policy cannot be ascertained with any certainty, and if and until we complete any acquisition, reorganization or merger, no such policy will be formulated. There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our securities.
Securities Authorized for Issuance under Equity Compensation Plans
None; not applicable.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
The Private Placement and the Share Cancellation
Simultaneously with the closing of the Acquisition and as a condition thereto, we sold in the Private Placement an aggregate of 7,233,031 for cash and 568,182 from reissuance of previously cancelled 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.
Manchester and JEB Partners, L.P., a fund who may be deemed an affiliate of Manchester (together with Manchester, collectively, the “Purchasing Funds”) purchased in the Private Placement in the aggregate 5,303,030 shares for $3,500,000; and Mr. DiPerna, in addition to his prior investment of approximately $600,000 of his personal funds into Quasuras prior to the Acquisition, purchased in the Private Placement 303,030 shares for approximately $200,000. Simultaneously with the Acquisition and Private Placement, Manchester cancelled all 2,900,000 Control Block shares it acquired 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 of which Mr. DiPerna owned 7,523,430 shares, the Purchasing Funds and Messrs. Besser and Frank owned in the aggregate 5,664,690 shares and the other purchasers in the Private Placement owned 2,195,151 shares.
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.
Mr. DiPerna is subject to confidentiality, non-compete and invention agreements with us.
Rule 144
The following is a summary of the current requirements of Rule 144:
Affiliate or Person Selling on Behalf of an Affiliate Non-Affiliate (and has not been an Affiliate During the Prior Three Months)
Restricted Securities of Reporting Issuers During six-month holding period - no resales under Rule 144 Permitted.
After Six-month holding period - may resell in accordance with all Rule 144 requirements including:
· Current public information;
· Volume limitations;
· Manner of sale requirements for equity securities; and
· Filing of Form 144.
During six- month holding period - no resales under Rule 144 permitted.
After six-month holding period but before one year - unlimited public resales under Rule 144 except that the current public information requirement still applies.
After one-year holding period - unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.
Restricted Securities of Non-Reporting Issuers During one-year holding period - no resales under Rule 144 permitted.
After one-year holding period - may resell in accordance with all Rule 144 requirements including:
· Current public information;
· Volume limitations;
· Manner of sale requirements for equity securities; and
· Filing of Form 144.
During one-year holding period - no resales under Rule 144 permitted.
After one-year holding period - unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements.
Shell Companies
The following is an excerpt from Rule 144(i) regarding resales of securities of shell companies:
“(i) Unavailability to securities of issuers with no or nominal operations and no or nominal non-cash assets.
(1)
This section is not available for the resale of securities initially issued by an issuer defined below:
(i) An issuer, other than a business combination related shell company, as defined in §230.405, or an asset-backed issuer, as defined in Item 1101(b) of Regulation AB (§229.1101(b) of this chapter), that has:
(A)
No or nominal operations; and
(B)
Either:
(1) No or nominal assets;
(2) Assets consisting solely of cash and cash equivalents; or
(3) Assets consisting of any amount of cash and cash equivalents and nominal other assets; or
(ii)
An issuer that has been at any time previously an issuer described in paragraph (i)(1)(i).
(2)
Notwithstanding paragraph (i)(1), if the issuer of the securities previously had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issue was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and has filed current Form 10 Information with the SEC reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one year has elapsed from the date that the issuer filed Form 10 Information with the SEC.
(3)
The term Form 10 Information means the information that is required by Form 10 or Form 20-F (§249.220f of this chapter), as applicable to the issuer of the securities, to register under the Exchange Act each class of securities being sold under this rule. The issuer may provide the Form 10 Information in any filing of the issuer with the Commission. The Form 10 Information is deemed filed when the initial filing is made with the Commission.”
With the exception that securities that were initially issued by an issuer that was not a shell company, securities of a shell company cannot be publicly sold under Rule 144 in the absence of compliance with this subparagraph.
Section 4(a)(1) of the Securities Act
Since were a shell company as defined in subparagraph (i) of Rule 144, other than shares that were initially issued prior to our becoming a shell company, our shares of common stock cannot be publicly resold under Rule 144 until we comply with the requirements outlined above under the heading “Shell Companies.” Until those requirements have been satisfied, any resales of our shares of common stock must be made in compliance with the provisions of the exemption from registration under the Securities Act provided in Section 4(a)(1) thereof, applicable to persons other than “an issuer, underwriter or a dealer.” That will require that such shares of common stock be sold in “routine trading transactions,” which would include compliance with substantially all of the requirements of Rule 144, regardless of its availability; and such resales may be limited to our non-affiliates.
Use of Proceeds of Registered Securities
There were approximately $4,731,872 net proceeds received during the year ended March 31, 2018, from the sale of registered securities.
Purchases of Equity Securities by Us and Affiliated Purchasers
None; not applicable.
ITEM 6:
ITEM 6: SELECTED FINANCIAL DATA
Not required for smaller reporting companies.
ITEM 7:
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When used in this Annual Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions, and financial trends that may affect our future plans of operations, business strategy, operating results, and financial position. Persons reviewing this Annual Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Such factors are discussed further below under “Trends and Uncertainties,” and also include general economic factors and conditions that may directly or indirectly impact our financial condition or 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 all-terrain vehicles (ATV’s). 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 a the Acquisition Agreement, by and among, the Company, 3 Quasuras Shareholders and Quasuras, the Company acquired all 4,400,000 shares of Quasuras’ common stock owned by the 3 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.
Results of Operations - for the Fiscal Year Ended March 31, 2018 and Compared to Fiscal Year Ended March 31, 2017
For the Years Ended March 31,
Overview:
We reported a net loss of $659,246 and $29,256 for the fiscal years ended March 31, 2018 and 2017, respectively. The increase in our net loss from March 31, 2018 to March 31, 2017, is due to an increase in Consulting fee, Professional fee and General and Administrative Expenses.
Revenues:
Revenue for the fiscal years ended March 31, 2018 and 2017 was $0.
Operating Expenses:
Professional expenses, for the fiscal year ended March 31, 2018, increased by 1,207% or $232,961 as compared to $17,830 for 2017. The increase is attributable to an increase in consulting fees paid to outside consultants and professional services required for our required filings. The Company had no such expenses in 2017.
Research and development, for the fiscal year ended March 31, 2018, increased to $332,642 as compared to $0 for 2017. The increase in research and development expenditure is attributable to effort 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 fiscal year ended March 31, 2018, increased by 768% to $100,561 as compared to $11,588 for 2017. The increase in our general and administrative expense is attributable to (i) an increase in employee related cost of approximately $18,000, (ii) an increase in marketing and advertising expenses of approximately $13,000, (iii) an increase in rent of approximately $21,000, (iv) an increase in insurance expense of approximately $15,500, and (v) the remaining increase of approximately $45,000 is attributable to the additional cost we incurred for dues, supplies, travels and other operating expenses.
Interest Income:
Interest income for or the fiscal year ended March 31, 2018 and 2017 was $8,518 and $962, respectively.
Liquidity and Capital Resources
The following summarizes our cash flows for the fiscal years ended March 31,:
As a development stage enterprise, the Company does not currently have revenues to generate cash flow to cover operating expenses. The Company raised capital through the 2017 share exchange in order to finance operations.
As of March 31, 2018, we had total current assets of $4,313,480 of which $4,296,676 were cash and cash equivalents, and current liabilities of $15,471. As of March 31, 2017, we had total current assets of $392,313 and current liabilities of $29,681. As of March 31, 2018 and 2017, we had working capital of approximately of $4,298,000 and $362,600, respectively.
Net Cash Used In Operating Activities
We used $791,131 of cash to fund operating activities during fiscal year ended March 31, 2018, compared to $21,137 in 2017. Increased cash usage in 2018 was driven by greater operating losses deriving from development. We reported net losses of $659,246 and $29,256 for the fiscal years ended March 31, 2018 and 2017, respectively.
Net Cash Used In Investing Activities
We used $15,332 of cash to purchase equipment and intangible assets during the fiscal year ended March 31, 2018, compared to no cash used by investing and financing activities in the comparable prior year period.
Net Cash Provided By Financing Activities
We provided $4,711,132 of cash from financing activities during fiscal year ended March 31, 2018, compared to $23,521 in 2017. The subsidiary issued shares pursuant to a private placement completed simultaneously with the reverse acquisition. The cash collected in the private placement was acquired by the Company at the time of the reverse acquisition.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 March 31, 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.
ITEM 7A:
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MODULAR MEDICAL, INC.
(FKA BEAR LAKE RECREATION, INC.)
FINANCIAL STATEMENTS
March 31,
Reports of Independent Registered Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statement of Stockholders’ Equity
Consolidated Statement of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Modular Medical, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Modular Medical, Inc. (the Company) as of March 31, 2018, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Lichter, Yu and Associates, Inc.
Certified Public Accountants
Ventura Blvd., suite 316
Woodland Hills, CA 91364
Tel (818)789-0265 Fax (818) 789-3949
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Modular Medical, Inc.
We have audited the accompanying balance sheet of Modular Medical, Inc. (the “Company”) as of March 31, 2017, and the related statements of operations, stockholders’ equity, and cash flows for year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2017, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Lichter, Yu and Associates, Inc.
Woodland Hills, California
July 13, 2017
Modular Medical, Inc. And Subsidiary
(fka- Bear Lake Recreation, Inc.)
Consolidated Balance Sheets
The accompanying notes are an integral part of these audited consolidated financial statements
Modular Medical, Inc. And Subsidiary
(fka- Bear Lake Recreation, Inc.)
Consolidated Statements of Operations
For The Fiscal Years Ended March 31, 2018 and 2017
The accompanying notes are an integral part of these audited consolidated financial statements
Modular Medical, Inc. And Subsidiary
(fka- Bear Lake Recreation, Inc.)
Consolidated Statement of Stockholders’ Equity
The accompanying notes are an integral part of these audited consolidated financial statements
Modular Medical, Inc. And Subsidiary
(fka- Bear Lake Recreation, Inc.)
Consolidated Statements of Cash Flows
For The Fiscal Years Ended March 31, 2018 and 2017
The accompanying notes are an integral part of these audited consolidated financial statements
MODULAR MEDICAL, INC.
FKA - BEAR LAKE RECREATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
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’s). In June of 2000, the Company also purchased the rights to manufacture, use, market, and sell the Net Caddy, a backpack style bag used to transport fishing gear. The Company abandoned both the snowmobile and ATV’s plans, and the Net Caddy plans.
Quasuras, Inc. (“Quauras”) was incorporated in Delaware on April 20, 2015.
Quasuras has developed a hardware technology allowing people with diabetes to receive their daily insulin in two ways, through a continuous “basal” delivery allowing a small amount of insulin to be in the blood at all times and a “bolus” delivery to address meal time glucose input and to address when the blood glucose level becomes too high. By addressing the time and effort required to effectively treat their condition, Quasuras believes it can address the less technically savvy, less motivated part of the market.
Reorganization
On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among the Company and Quasuras, the Company acquired 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 preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect reported amounts and 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”. All material intercompany accounts, transactions and profits were eliminated in consolidation.
Use of Estimates
The preparation of the accompanying 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 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 $332,642 and $0 for the fiscal year ended March 31, 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 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 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 March 31, 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, 2016 to the present, generally for three years after they are filed.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash and accounts receivable. The Company maintains 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 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 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 March 31, 2018 and March 31, 2017, the Company had $4,296,676 and $392,007, respectively, in cash. Deposits at the bank are insured up to $250,000 by the Federal Deposit Insurance Corporation. The Company’s uninsured portion of the balances held at the bank aggregated to approximately $3,933,002 and $142,007, respectively. No reserve has been made in the financial statements for any possible loss due to any financial institution failure. The Company has not experienced any losses in such accounts and believes we are not exposed to any significant risk on cash and cash equivalents.
Property, Plant & Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated useful life of the asset or the lease term. The estimated useful lives of our property and equipment are generally as follows: computer software developed or acquired for internal use, three to 10 years; computer equipment, two to three years; buildings and improvements, five to 15 years; leasehold improvements, two to 10 years; and furniture and equipment, one to five years.
As of March 31, 2018 and March 31, 2017, property, plant and equipment amounted to:
Depreciation expenses for the year ended March 31, 2018 and 2017 was $1,844 and $0, respectively.
Fair Value of Financial Instrument
For certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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.
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 fiscal years ended March 31, 2018 and 2017:
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 2017. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its results of operations, cash flows and financial position.
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 on our consolidated financial statements.
In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This update addresses a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or statement of operations.
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, Modular issued 2,900,000 shares (the “Control Block”), of newly issued, restricted common stock, par value, $0.001, per share, for a purchase price of $375,000, resulting in a change in control of Modular.
On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, Modular, 3 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 March 31, 2018 and 2017, accrued expenses amounted to $14,955 and $8,425, respectively. Accrued expenses comprised of accrued legal and professional charges as of March 31, 2018 and March 31, 2017.
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 March 31, 2018 and 2017, respectively, the payable to related party amounted to $516 and $21,256.
NOTE 5 - STOCKHOLDERS’ EQUITY
Common stock
On July 24, 2017, pursuant to a Reorganization and Share Exchange Agreement, by and among, the Company and Quasuras Inc., the Company acquired 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 March 31, 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 March 31, 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 March 31, 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, March 31, 2018 and 2017, will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at, March 31, 2018 and 2017. At March 31, 2018 and 2017, the Company had federal net operating loss carry-forwards of approximately $182,500 and $17,500, respectively, expiring beginning in 2037.
Deferred tax assets consist of the following components:
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 days after the calendar quarter.
NOTE 8 - LEASE AGREEMENT
On August 21, 2017, the Company entered into a sublease agreement to rent office space. The term of the lease commences on September 1, 2017 and expires on December 14, 2019. The monthly rent for the lease is $3,000. The Company paid a deposit of $7,500 upon execution of the lease which has been recorded as a security deposit in the accompanying financial statements.
The amounts of minimum lease payments and periods during which they become due are as follows:
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 11, 2017, the Company was notified by Lichter, Yu and Associates, Inc. (“Lichter”) that Lichter had resigned as the Company’s independent auditors.
Lichter’s audit reports on the Company’s financial statements for the fiscal year ended June 30, 2017 (such fiscal years of the Company have been previously amended to now be March 31st of each year) did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the Company’s fiscal year ended June 30, 2017 and the subsequent interim period preceding the date of Lichter’s resignation, there were no “disagreements,” as that term is defined in Item 304(a) of Regulation S-K and the instructions related thereto, with Lichter on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreement(s), if not resolved to the satisfaction of Lichter, would have caused Lichter to make reference to the subject matter of the disagreement(s) in connection with its report.
During the Company’s fiscal year ended June 30, 2017 and the subsequent interim period preceding the date of Lichter’s resignation, there were no “reportable events,” as that term is defined in Item 304(a)(1)(v) of Regulation S-K and the instructions related thereto.
On January 15, 2018, the Company engaged Farber Hass Hurley LLP (“FHH”) as the Registrant’s independent accountants to report on the Registrant’s fiscal year ending March 31, 2018.
During the Company’s two most recent fiscal years and any subsequent interim period prior to the engagement of FHH, neither the Company nor anyone on the Company’s behalf consulted with FHH regarding either (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements and neither a written report not oral advice was provided that FHH concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a disagreement between the Company and its predecessor auditor as described in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A:
ITEM 9A: CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018 (the “Evaluation Date”). Based upon the evaluation of our disclosure controls and procedures as of the Evaluation Date, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
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, 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 March 31, 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
There have been no changes in internal control over financial reporting for the quarter ended March 31, 2018.
ITEM 9B:
ITEM 9B: OTHER INFORMATION
None.
PART III
ITEM 10:
ITEM 10: DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Identification of Directors and Executive Officers
On April 26, 2017, in connection with the Control Block Acquisition (i) Wayne R. Bassham resigned as director and President, Derrick M. Albiston resigned as director and Vice President, and Todd L. Albiston resigned as director, Secretary and Treasurer of the Company, and (ii) James E. Besser was appointed president and a director and Morgan C. Frank was appointed the chief executive officer, chief financial officer, secretary, treasurer and a director of the Company.
On July 24, 2017, in connection with the Acquisition, (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) Paul DiPerna was appointed our chairman, chief executive officer, chief financial officer, secretary and treasurer.
Our executive officers and directors and their respective ages, positions and biographical information are set forth below.
The following information pertains to the members of our Board and to our executive officers effective as of the closing of the Share Exchange, their principal occupations and other public company directorships for at least the last five years and information regarding their specific experiences, qualifications, attributes and skills:
Paul DiPerna serves as our chairman, chief executive officer, chief financial officer, secretary and treasurer began his career in approximately 1980 as a mechanical design engineer in the automated test equipment industry before moving in approximately 1989 to a start-up in the blood separation sciences industry. This company was eventually acquired in approximately 1991 by Baxter Healthcare (“Baxter”). Following such acquisition, Mr. DiPerna became employed by Baxter and held various positions during his approximate 12 years at Baxter. While at Baxter, Mr. DiPerna led significant projects and initiatives including leading a team of approximately 50 engineers in developing equipment in the blood separation sciences industry. In approximately 1996, Mr. DiPerna was promoted to General Manager of Baxter’s business development group to identify expansion opportunities in the medical device industry for Baxter to expand into. While holding such position, Mr. DiPerna led a team of 20-25 persons researching custom orthopedics, digital dentistry and rapid prototyping. In such role, one of Mr. DiPerna’s assignments was identifying opportunities in the diabetes industry. As a result, Mr. DiPerna developed an expertise and knowledge and became well known in the diabetes industry and led attempts by Baxter to acquire three then leading insulin pump manufacturers. In 2003, Mr. DiPerna using his knowledge and experience acquired at Baxter in the diabetes industry and in the “pump” product business in particular, left Baxter and founded what subsequently became Tandem Diabetes Care, Inc. (“Tandem”). While at Tandem, Mr. DiPerna held various positions including a director, chief executive officer and chief technology officer. Tandem is a medical device company that designs, develops and commercializes products for people with insulin dependent diabetes. Tandem’s common stock is listed on the NASDAQ Global Market under the symbol “TNDM”. Tandem was founded by Mr. DiPerna to design, develop and commercialize a “state-of-the-art” user-friendly insulin pump. Under the leadership of Mr. DiPerna, Tandem raised approximately $52,000,000 from well-known venture capital firms. Mr. DiPerna was the person primarily responsible for the design concept and development of Tandem’s insulin pump, which after commercial introduction it is estimated by Mr. DiPerna such insulin pump had a quick ramp up to 5,000 purchasers. In 2011, Mr. DiPerna resigned from his executive officer position and board seat at Tandem and continued to assist the company through 2013. He co-invented a medical device used for blood borne infection control called the “Curos Cap.” Curos Cap was owned by a private company which was acquired by 3M Corporation in 2015 for $150,000,000. Thereafter, Mr. DiPerna founded a company Fuel Source Partners, LLC, where he is the manager, to incubate early stage medical device products and accumulate technical talent. One of such proposed products was spun-out to Quasuras in March 2015, which we acquired in the Acquisition. Mr. DiPerna owns a variety of patents and patents pending and is a member of the American Diabetes Association. Mr. DiPerna received a Masters in Engineering Management from Northeastern University and a BS in Mechanical Engineering from the University of Lowell. In January 2017, Mr. DiPerna joined National Cardiac Incorporated as the Chief Executive Officer and as a board member to leverage their technology in the cardiac monitoring space
Morgan C. Frank serves as a director of the Company. Mr. Frank has worked with MMC since May 2002, and prior to such time, he was a founder and managing director at First Principles Group, a boutique consultancy and principal investor specializing in corporate restructuring, restarts, intellectual property assessment and salvage, and spin outs. Prior to such time, Mr. Frank spent approximately five years as an analyst and portfolio manager at Hollis Capital, a San Francisco based hedge fund and prior thereto, Mr. Frank worked for an independent private client group at Paine Webber specializing in primary research to develop investment ideas (particularly short sale ideas) for institutional clients. Prior to his employment at Paine Webber, Mr. Frank was a currency trader for Eastern Vanguard. Mr. Frank holds a BA in Economics and in Political Science from Brown University.
Significant Employees
We have no employees who are not executive officers, but who are expected to make a significant contribution to our business.
Involvement in Legal Proceedings
To the Company’s knowledge, none of our officers or our directors has, during the last ten years:
·been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
·had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
·been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
·been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
·been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
To the Company’s knowledge, there are no material proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.
Arrangements for Appointment of Directors and Officers
Manchester Management Company, LLC, a Delaware limited liability company, the general partner of both of the Purchasing Funds (“MMC”) has the right to appoint two (2) of our five (5) directors of which Mr. Frank is one; and Mr. DiPerna has the right to appoint our chairman and chief executive officer as well as two (2) other directors to our Board of Directors. To date, Mr. DiPerna has appointed himself our chairman and chief executive officer.
Family Relationships
There are no family relationships among the members of our Board or our executive officers.
Composition of the Board
In accordance with our articles of incorporation, our Board is elected annually as a single class.
Communications with our Board of Directors
Our stockholders may send correspondence to our Board of Directors c/o the corporate secretary at the address set forth on the cover page of this Annual Report on Form 10-K. Our corporate secretary will forward stockholder communications to our Board of Directors prior to the Board of Director’s next regularly scheduled meeting following the receipt of the communication.
CORPORATE GOVERNANCE
Board Leadership Structure and Role in Risk Oversight
Due to the small size and early stage of the Company, we have not adopted a formal policy on whether the chairman and chief executive officer positions should be separate or combined. Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of the Company. Our Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. Our Board of Directors will focus on the most significant risks facing us and our general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the board’s appetite for risk. While the Board of Directors oversees our Company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing us and that our board leadership structure supports this approach.
Code of Ethics
We have adopted a Code of Ethics for our principal executive and financial officers. See Part IV, Item 15.
Corporate Governance
Nominating Committee
We have not established a Nominating Committee because, due to our lack of operations and the fact that we only have two directors and one executive officer, we believe that we are able to effectively manage the issues normally considered by a Nominating Committee. A further review of this issue will be undertaken by the new management.
If we do establish a Nominating Committee, we will disclose this change to our procedures in recommending nominees to our Board of Directors.
Audit Committee
We have not established an Audit Committee because, due to our lack of material operations and the fact that we only have two directors and one executive officer, we believe that we are able to effectively manage the issues normally considered by an Audit Committee. A further review of this issue will be undertaken by the new management.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
All Compensation
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 March 31, 2018, none of the Company’s employees have enrolled in the ESOP.
The following table sets forth the aggregate compensation paid by us for services rendered during the periods indicated:
SUMMARY COMPENSATION TABLE
(1)	Mr.DiPerna was named Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and a Director of the Company on July 24, 2017 at an annual salary base of $180,000.
(2)	Mr. Frank was appointed as a Director of the Company on April 26, 2017.
Outstanding Equity Awards at Fiscal Year-End
None; not applicable.
Compensation of Directors
There are no standard arrangements pursuant to which our directors are compensated for any services provided as director, including services for committee participation or for special assignments. Our directors received no compensation for service as directors for the year ended March 31, 2018.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners and management
The following table sets forth certain information as of March 31, 2018, with respect to the beneficial ownership of our shares of common stock (our only class of outstanding voting securities), by (i) any person or group owning more than 5% of our common stock; (ii) each of our directors and executive officers; and (iii) all executive officers and directors as a group. Unless otherwise indicated, the address of all listed stockholders is 800 West Valley Parkway, Suite 203, Escondido, CA 92025.
(1) Based upon 15,983,273 shares of common stock outstanding on March 31, 2018.
(2) Consists of (i) 7,220,400 shares acquired in the Acquisition, and (ii) 303,030 shares were acquired in the Private Placement. Mr. DiPerna is our chairman, chief executive officer, chief financial officer, secretary and treasurer.
(3) Consists of (i) 5,303,031 shares owned by the Purchasing Funds that were purchased in the Private Placement, and (ii) 180,830 shares received by Mr. Frank in the Acquisition in exchange for the shares of Quasuras purchased by Mr. Frank in January 2017 directly from Quasuras. Mr. Frank serves as portfolio manager and consultant of MMC who may be deemed a control person of the Purchasing Funds. The address for Mr. Frank is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA 02110.
(4) Consists of (i) 4,545,455 shares purchased by such person in the Private Placement, (ii) 757,576 shares owned by JEB Partners LP, (iii) 180,830 shares owned and acquired by Mr. Frank in the Acquisition, and (iv) 180,830 shares owned and acquired by Mr. Besser in the Acquisition. The address for Manchester Explorer, L.P. is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA 02110.
(5) Consists of (i) 757,576 shares purchased by such person in the Private Placement, (ii) 4,545,455 shares owned by Manchester Explorer, (iii) 180,830 shares owned and acquired by Mr. Frank in the Acquisition, and (iv) 180,830 shares owned and acquired by Mr. Besser in the Acquisition. The address for JEB Partners, L.P. is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA 02110.
SEC Rule 13d-3 generally provides that beneficial owners of securities include any person who, directly or indirectly, has or shares voting power and/or investment power with respect to such securities, and any person who has the right to acquire beneficial ownership of such security within 60 days. Any securities not outstanding which are subject to such options, warrants or conversion privileges exercisable within 60 days are treated as outstanding for the purpose of computing the percentage of outstanding securities owned by that person. Such securities are not treated as outstanding for the purpose of computing the percentage of the class owned by any other person. At the present time there are no outstanding options or warrants.
Changes in Control
There are no additional present arrangements or pledges of our securities which may result in a change in control of the Company. However, there are no provisions in our Articles of Incorporation or Bylaws that would delay, defer or prevent a change in control.
Securities Authorized for Issuance under Equity Compensation Plans
None; not applicable.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
During the years ended June 30, 2017 and 2016, we borrowed $141,989 and $10,663, respectively from related persons to pay operating expenses.
On April 26, 2017, pursuant the SPA, Manchester purchased from the Company the 2,900,000 share Control Block for $375,000, approximately $0.13 per share, in the Control Block Acquisition, which following the closing thereof, such 2,900,000 shares represented approximately 83% of our issued and outstanding common stock.
Pursuant to the SPA, the then directors and officers of the Company appointed Mr. Besser as president and a director of the Company; and Mr. Frank as chief executive officer, chief financial officer, secretary, treasurer and a director of the Company, and immediately following such appointments, such prior directors and officers of the Company resigned as directors and officers of the Company.
In approximately February 2017, Mr. Besser and Mr. Frank purchased in the aggregate approximately four and one half (4.5%) percent of the capital stock of Quasuras (approximately 2.25% per person), for $100,000, and as a result received 361,660 shares of our common stock in the Acquisition (180,830 each), representing in the aggregate four and one half (4.5%) percent of the 7,582,060 shares of our common stock to the 3 Quasuras Shareholders (including Messrs. Besser and Frank) in the Acquisition, with the remaining approximately ninety-five and one half (95.5%) percent, or 7,220,400 shares, being issued to Mr. DiPerna.
Contemporaneously with and as a condition to the closing of the Private Placement, Manchester cancelled the 2,900,000 share Control Block purchased by it in the Control Block Acquisition.
Mr. Besser is the managing member of MMC, the general partner of each of the Purchasing Funds, one of who is Manchester; and Mr. Frank is the portfolio manager of and consultant to MMC. As a result of the above, Mr. Frank being a director of the Company prior to and following the Acquisition and the 5,303,030 shares of our common stock purchased by the Purchasing Funds in the Private Placement, Messrs. Besser and Frank, the Company, MMC and the Purchasing Funds may be deemed Affiliates of the Company.
In addition, as a result of the above, Mr. Besser and Mr. Frank may be deemed beneficial owners (as determined pursuant to Rule 13d-3 of the Exchange Act) of all 5,303,030 shares purchased by the Purchasing Funds in the Private Placement. Messrs. Besser and Frank, however, disclaim all such beneficial ownership.
Promoters and Certain Control Persons
See the heading “Transactions with Related Persons” above.
Parents of the Smaller Reporting Company
We have no parents.
Director Independence
Mr. DiPerna and Mr. Frank are our only directors and neither independent. We currently intend in the future to obtain director and officer insurance and thereafter appoint persons to our Board of Directors who will be considered “independent directors” as defined in Nasdaq Stock Market Rule 5605(a)(2) and applicable SEC rules and regulations.
ITEM 14:
ITEM 14: PRINCIPAL ACCOUNTING FEES AND SERVICES
The following is a summary of the fees billed to us by our principal accountants during the fiscal years ended March 31, 2018, and 2017:
Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of our annual financial statements and review of the financial statements included in our Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”
Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.
All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit fees,” “Audit-related fees,” and “Tax fees” above.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
We have not adopted an Audit Committee; therefore, there is no Audit Committee policy in this regard. However, we do require approval in advance of the performance of professional services to be provided to us by our principal accountant. Additionally, all services rendered by our principal accountant are performed pursuant to a written engagement letter between us and the principal accountant.
PART IV
ITEM 15:
ITEM 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1)(2) Financial Statements. See the audited financial statements for the year ended March 31, 2018 contained in Item 8 above which are incorporated herein by this reference.
(a)(3) Exhibits. The following exhibits are filed as part of this Annual Report:
No. Description
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
3.2 Amended Bylaws 3
4.1 Equity Incentive Plan 5
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
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
14.1 Code of Ethics 4
31.1 Certification of Paul M. DiPerna pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 5
Certification of Paul M. DiPerna of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002 5
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 As filed with our Form 10-K/A for June 30, 2008, and incorporated herein by reference.
4 Incorporated herein by reference.
5 Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MODULAR MEDICAL, INC.
Date: June 29, 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
June 29, 2018
Paul M. DiPerna
Director (Chairman of the Board)
/s/ Morgan Frank
Director
June 29, 2018
Morgan Frank