Part I [Item 1. Business](index=4&type=section&id=ITEM%201.%20BUSINESS) The company is a development-stage entity creating a simpler, more affordable insulin pump for the diabetes market [Overview](index=4&type=section&id=Overview) The company is designing an innovative, simple, and affordable insulin pump to expand therapy access for diabetics - The company is a development stage entity focused on designing and commercializing an innovative, simpler, and more affordable insulin pump to expand access for individuals requiring daily insulin administration[20](index=20&type=chunk)[21](index=21&type=chunk) - The company's founder and CEO, Paul DiPerna, also founded **Tandem Diabetes Care, Inc. (NASDAQ: TNDM)**, bringing significant experience in developing and commercializing insulin pumps[22](index=22&type=chunk) - Identified shortcomings of current insulin pumps include **complexity, being cumbersome, and high costs**, which limit broader market acceptance[23](index=23&type=chunk) [The Market and Opportunity](index=6&type=section&id=The%20Market%20and%20Opportunity) The company targets the large diabetes market, seeing opportunity in the complexity and high cost of existing pumps - In 2012, the CDC estimated **3.1 million people** in the U.S. required daily administration of rapid-acting insulin, which constitutes the company's target market[29](index=29&type=chunk) - The company believes existing pumps are **too complex, bulky, and expensive**, which has held back adoption rates and created an opportunity for a simpler, more affordable solution[27](index=27&type=chunk)[32](index=32&type=chunk)[34](index=34&type=chunk) - A significant opportunity is seen in penetrating the **Type 2 diabetes marketplace** with a simplified insulin pump[33](index=33&type=chunk) [Our Solution and Strategy](index=7&type=section&id=Our%20Solution%20and%20Strategy) The company is developing a proprietary, simple, and low-cost insulin pump using a lean, experienced engineering team - The company's proposed pump aims to be the **simplest and least expensive** on the market, targeting users who find current products too complex, costly, or cumbersome[38](index=38&type=chunk) - An early prototype has been built to test the novel approach, which will require modification for safety features and low-cost manufacturing[39](index=39&type=chunk) - Business strategies include using proprietary technology, keeping development costs low, and utilizing a small, experienced engineering team under the CEO's direct supervision[43](index=43&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) [Government Regulations](index=8&type=section&id=Government%20Regulations) The company's insulin pump is subject to extensive FDA regulation and will likely require a lengthy PMA process - The medical device industry is heavily regulated by the FDA, covering product design, testing, manufacturing, marketing, and post-market surveillance[46](index=46&type=chunk)[47](index=47&type=chunk) - The company anticipates its proposed insulin pump will require the more rigorous, costly, and lengthy **Pre-Market Approval (PMA)** pathway from the FDA, as opposed to the 510(k) clearance process[48](index=48&type=chunk)[49](index=49&type=chunk) - Failure to comply with regulations or obtain timely approval could result in significant sanctions, including fines, recalls, and withdrawal of approvals, materially impacting the business[52](index=52&type=chunk) [Competition, Patents, and Corporate History](index=9&type=section&id=Competition%2C%20Patents%2C%20and%20Corporate%20History) The company targets mainstream patients to avoid direct competition and has applied for two U.S. patents - Key competitors are Medtronic, Tandem Diabetes Care, and Insulet; the company's strategy is to attract mainstream patients with a simple, cost-effective solution rather than competing for sophisticated users[54](index=54&type=chunk) - The company has applied for **two U.S. patents** on its proprietary fluid movement technology and product configuration[56](index=56&type=chunk) - The company acquired Quasuras, Inc. on July 24, 2017, becoming its wholly-owned subsidiary and concurrently completed a private placement raising approximately **$4.73 million** in gross proceeds[59](index=59&type=chunk)[60](index=60&type=chunk) [Item 1A. Risk Factors](index=11&type=section&id=ITEM%201A.%20RISK%20FACTORS) As a smaller reporting company, this disclosure is not required - As a smaller reporting company, Modular Medical is not required to provide this section[65](index=65&type=chunk) [Item 2. Properties](index=11&type=section&id=ITEM%202.%20PROPERTIES) The company's principal executive offices are located in Escondido, California - The company's principal executive offices are located in Escondido, California[66](index=66&type=chunk) [Item 3. Legal Proceedings](index=11&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is not currently a party to any pending legal proceedings - The company is not currently a party to any pending legal proceedings[67](index=67&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=11&type=section&id=ITEM%205%3A%20MARKET%20FOR%20REGISTRANT'S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock trades sporadically on the OTC Pink Markets and it has never paid dividends - The company's common stock is quoted on the OTC Pink Markets under the symbol **"MODD"**, and trading is limited and sporadic[70](index=70&type=chunk) Common Stock Price Range (Fiscal Years 2018-2019) | Fiscal Year Ending March 31 | Quarter | High Bid ($) | Low Bid ($) | | :--- | :--- | :--- | :--- | | **2018** | Q1-Q4 | 0.38 | 0.38 | | **2019** | Q1-Q2 | 0.38 | 0.38 | | | Q3 | 1.01 | 0.20 | | | Q4 | 1.01 | 1.01 | - The company has **never paid dividends** and has no current plans to do so[74](index=74&type=chunk) - In the 2018 Private Placement (from Nov 2018 to Mar 2019), the company sold 1,856,988 shares at $2.25 per share, raising gross proceeds of **$4,142,666**[76](index=76&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=ITEM%207%3A%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The company's net loss increased to $2.54 million in FY2019, driven by a 466% rise in R&D expenses [Results of Operations](index=13&type=section&id=Results%20of%20Operations) The net loss for FY2019 increased to $2.54 million, primarily due to a 466% surge in R&D expenses Results of Operations (Fiscal Years 2019 vs. 2018) | | 2019 | 2018 | | :--- | :--- | :--- | | **Research and development** | $1,882,345 | $332,642 | | **Total operating expenses** | $2,577,299 | $666,164 | | **Operating loss** | ($2,577,299) | ($666,164) | | **Net loss** | **($2,539,498)** | **($659,246)** | - The increase in net loss was primarily due to a **466% increase in research and development expenses**, reflecting higher engineering headcount and costs for designing the insulin pump[83](index=83&type=chunk)[85](index=85&type=chunk) [Liquidity and Capital Resources](index=13&type=section&id=Liquidity%20and%20Capital%20Resources) The company relies on equity financing, raising $4.14 million in FY2019 and holding $6.55 million in cash Summary of Cash Flows (Fiscal Years 2019 vs. 2018) | | 2019 | 2018 | | :--- | :--- | :--- | | **Cash used in operating activities** | ($1,807,934) | ($791,131) | | **Cash used in investing activities** | ($77,124) | ($15,332) | | **Cash provided by financing activities** | $4,142,150 | $4,711,132 | | **Net change in cash** | $2,257,092 | $3,904,669 | - The company has historically raised capital through private placements and expects to continue to raise capital through future equity offerings to finance its operations[88](index=88&type=chunk) Working Capital (As of March 31) | | 2019 | 2018 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $6,553,768 | $4,296,676 | | **Total current assets** | $6,569,358 | $4,313,480 | | **Total current liabilities** | $178,929 | $15,471 | | **Working capital** | **$6,390,429** | **$4,298,009** | [Item 8. Financial Statements and Supplementary Data](index=15&type=section&id=ITEM%208%3A%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) The audited financial statements reflect a development-stage company with no revenue and increasing R&D-driven losses [Consolidated Financial Statements](index=17&type=section&id=Consolidated%20Financial%20Statements) Financial statements show a development-stage company with no revenue, growing losses, and reliance on equity financing Consolidated Balance Sheet Data (As of March 31) | | 2019 | 2018 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $6,553,768 | $4,296,676 | | **Total Assets** | $6,652,986 | $4,334,452 | | **Total Liabilities** | $178,929 | $15,471 | | **Total Stockholders' Equity** | $6,474,057 | $4,318,981 | Consolidated Statement of Operations Data (For the Year Ended March 31) | | 2019 | 2018 | | :--- | :--- | :--- | | **Total Operating Expenses** | $2,577,299 | $666,164 | | **Loss From Operations** | ($2,577,299) | ($666,164) | | **Net Loss** | ($2,539,498) | ($659,246) | | **Net Loss Per Share (Basic & Diluted)** | ($0.153) | ($0.049) | Consolidated Statement of Cash Flows Data (For the Year Ended March 31) | | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($1,807,934) | ($791,131) | | **Net cash provided by financing activities** | $4,142,150 | $4,711,132 | | **Cash and cash equivalents, end of period** | $6,553,768 | $4,296,676 | [Notes to Consolidated Financial Statements](index=21&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key notes detail the 2017 reverse merger, stock option program, NOLs, and a royalty agreement with the founder - The July 24, 2017 acquisition of Quasuras was accounted for as a **reverse merger**, with Quasuras as the accounting acquirer[118](index=118&type=chunk) - An Employee Stock Option Program (ESOP) was approved on October 19, 2017, reserving **3,000,000 shares** of common stock for issuance to employees, directors, and consultants[161](index=161&type=chunk) - As of March 31, 2019, the company had federal net operating loss carryforwards of approximately **$817,000**, which are fully offset by a valuation allowance[170](index=170&type=chunk) - A royalty agreement is in place with the founder, Paul DiPerna, entitling him to a royalty on future product sales, capped at a total of **$10 million**[172](index=172&type=chunk) [Item 9A. Controls and Procedures](index=30&type=section&id=ITEM%209A%3A%20CONTROLS%20AND%20PROCEDURES) Management concluded disclosure controls were ineffective due to a material weakness in financial reporting controls - Management concluded that disclosure controls and procedures were **not effective** as of March 31, 2019[179](index=179&type=chunk) - A **material weakness** was identified related to inadequate internal controls over financial reporting and a lack of segregation of duties[183](index=183&type=chunk)[184](index=184&type=chunk) - Subsequent to the fiscal year-end, the company hired a full-time Accounting Manager to remedy the material weaknesses[186](index=186&type=chunk) Part III [Item 10. Directors, Executive Officers, and Corporate Governance](index=31&type=section&id=ITEM%2010%3A%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%2C%20AND%20CORPORATE%20GOVERNANCE) The company is led by CEO Paul DiPerna, founder of Tandem Diabetes Care, and lacks formal board committees Directors and Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Paul DiPerna | 60 | CEO, CFO, Secretary, Treasurer, Director (Chairman) | | Liam Burns | 53 | Director | | Morgan C. Frank | 47 | Director | - Paul DiPerna, the CEO, previously founded **Tandem Diabetes Care, Inc. (TNDM)** and has significant experience in the diabetes and medical device industries[191](index=191&type=chunk) - The company has **not established an Audit Committee or a Nominating Committee** due to its small size and early stage of operations[207](index=207&type=chunk)[208](index=208&type=chunk) [Item 11. Executive Compensation](index=35&type=section&id=ITEM%2011%3A%20EXECUTIVE%20COMPENSATION) CEO Paul DiPerna's total compensation for FY2019 was $260,271, including salary and option awards Summary Compensation Table (FY 2019) | Name and Principal Position | Salary ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Paul DiPerna, CEO, CFO | 192,510 | 67,761 | 0 | 260,271 | | Liam Burns, Director | 0 | 0 | 10,000 | 10,000 | - As of March 31, 2019, CEO Paul DiPerna held vested options to purchase **64,687 shares** of common stock[216](index=216&type=chunk) - Director Liam Burns was granted **90,000 non-qualified stock options** with a three-year vesting period and an exercise price of $2.25 per share[217](index=217&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=37&type=section&id=ITEM%2012%3A%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Company ownership is highly concentrated, with officers and directors beneficially owning 78.04% of common stock Security Ownership of Beneficial Owners and Management (as of March 31, 2019) | Name of Beneficial Owner | Common Stock Beneficially Owned | Percentage of Common Stock | | :--- | :--- | :--- | | Paul DiPerna (CEO, Director) | 7,588,117 | 42.38% | | Morgan C. Frank (Director) | 6,384,691 | 35.79% | | All officers and directors as a group (3 persons) | 13,972,808 | 78.04% | | James E. Besser / Manchester Group | 6,384,691 | 35.79% | - Ownership is highly concentrated, with the CEO and the Manchester-affiliated group controlling the vast majority of the company's stock[220](index=220&type=chunk) [Item 14. Principal Accounting Fees and Services](index=39&type=section&id=ITEM%2014%3A%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) Audit fees were $23,500 in FY2019 and $22,000 in FY2018, with no other fees billed by the auditor Accountant Fees (Fiscal Years) | Fee Type | 2019 | 2018 | | :--- | :--- | :--- | | Audit Fees | $23,500 | $22,000 | | Audit Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | **Total** | **$23,500** | **$22,000** | Part IV [Item 15. Exhibits and Financial Statement Schedules](index=40&type=section&id=ITEM%2015%3A%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists key filed exhibits, including agreements for reorganization, equity plans, and intellectual property - Key filed exhibits include the Reorganization and Share Exchange Agreement (2.1), 2017 Equity Incentive Plan (4.1), and the Intellectual Property Transfer Agreement (10.3)[232](index=232&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2018 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________________ to __________________________ Commission file number 000-49671 MODULAR MEDICAL, INC. (Exact Name of Registrant as Specified in i ...