UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

the Securities Exchange Act of 1934

 

July 24, 2017

 

Date of Report (date of earliest event reported)

 

 

 
Modular Medical, Inc.
(Exact name of Registrant as specified in its charter)

 

 

         
Nevada   000-49671   87-0620495
(State or other jurisdiction of
incorporation)
  (Commission File Number)   (I.R.S. Employer
Identification Number)

17995 Bear Valley Lane

Escondido, CA 92027

(Address of principal executive offices)

 

949 370-9062

(Registrant’s telephone number, including area code)

 

3 West Hill Place

Boston, MA 02110

(Former name or former address, if changed since last report)

 

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 
 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Current Report on Form 8-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “ Securities Act ”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), which statements involve substantial risks and uncertainties. In some cases, it is possible to identify forward-looking statements because they contain words such as “anticipates,” “believes,” “contemplates,” “continue,” “could,” “estimates,” “expects,” “future,” “intends,” “likely,” “may,” “plans,” “potential,” “predicts,” “projects,” “seek,” “should,” “target” or “will,” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Many factors could cause our actual operations or results to differ materially from the operations and results anticipated in forward-looking statements. These factors include, but are not limited to:

· we are a development stage company with only one proposed product that we are currently designing and developing;
· we currently intend to use substantially all of our financial and other resources to design, develop, obtain all regulatory approvals and commercialize such proposed product;
· our ability to effectively use our current cash to design, develop, obtain all regulatory approvals and commercialize our proposed insulin pump product, and, if successful, thereafter, raise additional funds to build, market and launch such product;
  · our lack of operating history to evaluate our prospects;
  · our ability to successfully operate as a public company;
  · we are dependent currently on Paul DiPerna, our founder, chairman, chief executive officer and controlling shareholder
  · our ability to attract and retain additional personnel including our contemplated engineer team;
  · competition from existing and new market entrants in the insulin pump market;
  · Changing technology that could make our proposed product not desirable to diabetes sufferers an clinicians;
  · our ability if we successfully develop and obtain all regulatory approvals, to successfully transition from a development stage company to a marketing and sales concern;
  · Our ability to protect our current and any future intellectual property; and
  · the other factors contained in the section entitled “Risk Factors” contained in this Current Report on Form 8-K.

We have based the forward-looking statements contained in this Current Report on Form 8-K primarily on our current expectations about future events and trends that we believe may affect our proposed business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements are subject to risks, uncertainties, assumptions, and other factors including those described in the section of this Current Report on Form 8-K entitled “Risk Factors.” Moreover, we will operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements used herein.

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You should not rely on forward-looking statements as predictions of future events. Except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, and we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

EXPLANATORY NOTES

As used in this Current Report on Form 8-K (1) the terms the “ Company ,” “ we ,” “ us ,” and “ our ” refer to the combined enterprises of Modular Medical, Inc., a Nevada corporation, formerly named “Bear Lake Recreation, Inc.” (“ Bear Lake ”) and Quasuras, Inc., a Delaware corporation and our wholly owned subsidiary (“ Quasuras ”), after giving effect to the Acquisition (defined below) and the related transactions described herein, (2) the term “ Bear Lake ” refers to the business of Bear Lake, prior to the Acquisition, and (3) the term “ Quasuras ” refers to the business of Quasuras, prior to the Acquisition, in each case unless otherwise specifically indicated or as is otherwise contextually required. Although Bear Lake Recreation, Inc. changed its name to Modular Medical, Inc. on or about June 27, 2017, to avoid confusion and for purposes of clarity, the historical pre- Acquisition operations of Bear Lake are referred to in this Current Report as “ Bear Lake ”.

This Current Report on Form 8-K is being filed in connection with a series of transactions consummated by us that relate to the Acquisition by us of Quasuras and the related Private Placement (as defined below), which transactions are described herein, together with certain related actions taken by us.

Because Bear Lake prior to the Acquisition and for at least three (3) years prior to the closing date of the Acquisition was a “shell company” (as defined in the Securities Act), the information included in Bear Lake’s financial statements filed with the SEC in quarterly and annual reports of Bear Lake prior to the Acquisition was in our determination non-material, and as a result we have not included any pro-forma financial information of Bear Lake and Quasuras in this current Report on Form 8-K.

The information contained in this Current Report on Form 8-K responds to the following items of Form 8-K: 

  Item 1.01 Entry into a Material Definitive Agreement.
  Item 2.01 Completion of Acquisition or Disposition of Assets.
    Form 10 Information
    Description of Business
    Risk Factors
    Management’s Discussion and Analysis
    Description of Properties
    Security Ownership of Certain Beneficial Owners and Management
    Directors, Executive Officers and Corporate Governance
    Executive Compensation
    Certain Relationships and Related Transactions, and Director Independence
    Legal Proceedings
    Recent Sales of Unregistered Securities
    Controls and Procedures
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    Description of Capital Stock
    Indemnification of Officers and Directors
    Financial Statements and Supplementary Data
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    Exhibits, Financial Statement Schedules
  Item 3.02 Unregistered Sales of Equity Securities.
  Item 4.01 Changes in Registrant’s Certifying Accountant.
  Item 5.01 Changes in Control of Registrant.
  Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
  Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
  Item 5.06 Change in Shell Company Status.
  Item 7.01 Regulation FD Disclosure.
  Item 9.01 Financial Statements and Exhibits.
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Item 1.01. Entry into a Material Definitive Agreement.

The Prior Control Block Acquisition

On April 26, 2017, as previously reported in a Current Report on Form 8-K of Bear Lake (the “ 4/26/2017 8-K ”), filed with the Securities and Exchange Commission (the “ SEC ”), on May 1, 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 ”), Bear Lake and certain person named therein (the “ SPA” ) Manchester purchased from Bear Lake (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 Bear Lake, Manchester owning approximately 83% of our then issued and outstanding common stock and James E. Besser being appointed president and a director and Morgan C. Frank being appointed the chief executive officer, chief financial officer, secretary, treasurer and a director of Bear Lake. Messrs. Besser and Frank may be deemed affiliates (as defined in the Securities Act) of Manchester. See Item 2.01 of this Current Report on Form 8-K – “Certain Relationships and Related Transactions…” for a description of certain relationships and transactions involving the Purchasing Funds (as defined below and including Manchester), Messrs. Besser and Frank, certain of their affiliates and us. The foregoing description of the Control Block Acquisition and the SPA does not purport to be complete and is qualified in its entirety to the 4/26/2017 8-K and the SPA, filed as Exhibit 10 to Bear Lake’s Current Report on Form 8-K filed with the SEC on April 5, 2017 and incorporated herein by reference.

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 who in approximately February 2017 purchased in the aggregate 200,000 shares of Quasuras common stock for an aggregate purchase price of $100,000 (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 shares of Quasuras’ common stock owned by the 3 Quasuras Shareholders (which represented 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 ”) 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, Bear Lake 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.

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The Private Placement and the Share Cancellation

Simultaneously with the closing of the Acquisition and as a condition thereto, we sold (the “ Private Placement ”), in a private placement an aggregate of 7,801,212 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 gross proceeds to us of approximately $5,100,000. Manchester and JEB Partners, L.P. (“ JEBP ”), 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 15,983,272 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. See Item 2.01 – “Securities Ownership of Certain Beneficial Owners and Management.”

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.

The foregoing descriptions of the Acquisition, the Acquisition Agreement, the Private Placement, the IP Agreement and Royalty Agreement do not purport to be complete and are qualified in their entirety by reference to the complete text of the Acquisition Agreement, the Common Stock Purchase Agreement used to effectuate the Private Placement, the IP Transfer Agreement and the Royalty Agreement, filed as Exhibits 2.1, 10.1 and 10.3 and 10.4, respectively, hereto and are incorporated by reference herein.

Item 2.01. Completion of Acquisition or Disposition of Assets.

As described in Item 1.01 above on July 24, 2017, we acquired in the Acquisition all the issued and outstanding shares of Quasuras pursuant to the Acquisition Agreement resulting in Quasuras becoming our wholly-owned subsidiary.

No Longer a Shell Company

As a result of and because prior to the Acquisition Bear Lake had no operations and was a “shell company” (as defined in Rule 405 of the Securities Act), following the closing date of the Acquisition, our business became that of Quasuras and we no longer fell within the definition of a shell company under the Securities Act.

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Accounting Treatment

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. The assets and liabilities of Quasuras have been brought forward at their book value and no goodwill has been recognized.

Smaller Reporting Company

We will continue to be a “smaller reporting company,” as defined in Regulation S-K promulgated under the Exchange Act.

All information set forth in Section 1.01 of this Current Report on Form 8-K is incorporated into this Item 2.01.

FORM 10 INFORMATION

For purposes of this Current Report on Form 8-K, the Company is providing certain information that it would be required to disclose if it were a registrant filing a general form for registration of securities on Form 10 under the Exchange Act. As such, the terms the “ Company ,” “ we ,” “ us ,” “ our ” and words of similar meaning refer to the combined enterprises of Bear Lake and Quasuras, after giving effect to the Acquisition and the related transactions including the Private Placement and the Share Cancellation, except with respect to information for periods before the consummation of the Acquisition which refer expressly to Bear Lake and Quasuras, as specifically indicated.

BUSINESS

Overview

We are a development stage medical device company singularly focused on designing, developing and commercializing an innovative insulin pump to better serve the insulin delivery market and that we believe will substantially improve the quality of life of persons requiring daily administration of fast acing insulin.

We plan to leverage the knowledge and experience of our founder, chairman, and CEO, Mr. DiPerna, to initially target the segment of the United States diabetic population in need of daily administration of fast acting insulin that either are (i) not currently using insulin pumps due to concerns about one or more of the challenges or perceived shortcomings in utilizing insulin pumps, or (ii) currently using pumps but are dissatisfied with their user experience because of one or more of the same challenges or perceived shortcomings.

We believe that the more prominent challenges and shortcomings perceived or experienced by diabetes sufferers in relation to existing insulin pumps can be divided into three general categories:

· Complexity . We believe current insulin pumps are highly technical in nature making them very complex to use and daunting for persons to consider adopting. We believe such pumps were designed for “super users” who have high levels of motivation and technical competence and the degree of complexity of such pumps has impeded adoption. We believe that to achieve market acceptance an insulin pump needs to be simpler, less time consuming to use, and intuitive to both patients and physicians.
· Cumbersome . We believe the majority of existing pumps are cumbersome and in most cases require additional equipment such as a catheter inserted into the user’s body linked to the device with 48 inches of tubing all of which must be changed and replaced frequently. Many of these complex devices also require users to carry spare parts and other equipment all of which makes such pumps more cumbersome to use and maintain.
· Cost . Costs associated with insulin-pump therapy are high and can be cost prohibitive especially for people on fixed or low incomes. Costs vary depending upon the particular insulin pump, but multi thousand dollar upfront payments often with substantial copays and possible daily copays for consumables that exceeds typical reimbursement rates can make these products expensive for users and payors alike. Because of these expenses, we believe many insurance companies do not provide or provide limited coverage for the pumps and pump supplies.
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Based on Mr. DiPerna’s knowledge and experience in the diabetes and medical product device industry and in particular with insulin pumps and his innovative engineering work with insulin pumps, we believe our proposed insulin pump will address directly or indirectly most if not all of the above challenges and shortcomings. We believe that a key driver in overcoming many of such shortcomings is our innovative and unique proprietary technology that will be incorporated into our proposed pump that will deliver both a steady flow (basal rate) of insulin over the day and bursts of insulin (boluses) at meals. We believe such technology, the innovative engineering and the simplicity that will define and be incorporated into our proposed product, will permit us to eventually manufacture and sell our proposed pump in mass to diabetes sufferers across all socioeconomic backgrounds.

Mr. DiPerna, our founder, 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.

The Market

Diabetes is a chronic, life-threatening disease for which there is no known cure. Type 1 diabetes is an auto immune disease whereby the immune system attacks and destroys beta cells in the pancreas leaving it unable to produce insulin. Type 2 diabetes is most commonly caused by the development of insulin resistance that prevents the body from properly using insulin. Insulin is a life sustaining hormone that allows cells in the body to absorb glucose and store it or covert it to energy, Those with diabetes are left unable to properly process sugars resulting in excessive sugar in their bloodstream. If not closely monitored and properly treated, such excess blood sugar can lead to serious medical complications including damage to organs and tissues, seizures, coma, and death. By injecting controlled doses of insulin, people with diabetes can reduce their blood glucose levels to mitigate these complications and allow better processing and storage of sugars.

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Generally, there are two primary therapies used by people with insulin-dependent diabetes: insulin injections and insulin pumps. Each is designed to supplement or replace the insulin-producing function of the pancreas. Insulin injections are often referred to as multiple daily injection (or “ MDIs ”), and involve the use of syringes or insulin pens to inject insulin into the person’s body as required. Insulin pumps are used to provide a steady flow of insulin (often referred to as continuous subcutaneous insulin infusion or basal rate insulin) and bursts of mealtime insulin (boluses). Insulin pump therapy has been shown to provide insulin-dependent diabetics with numerous advantages compared to MDI’s. The steady flow of insulin and the easier application of mealtime boluses has been shown to result in lower HbA1c’s (a measure of the amount of glucose in the bloodstream) when compared to MDI therapy. This results in lower rates of hospitalization and overall adverse events to such diabetics.

We believe that the greater efficacy of pumps compared to MDI makes insulin pumps the more favorable choice for persons in managing diabetes but that the shortcomings and challenges around existing pumps have held back adoption rates.

According to the United States Center for Disease Control and Prevention, (“ CDC ”), in the United States, in 2012, 86 million people, or 1 out of 3 adults, had pre-diabetes, approximately 21 million people had been diagnosed diabetes and an additional 8.1 million people had diabetes that was undiagnosed. CDC also indicated that in the United States, diabetes was the seventh leading cause of death in the United States in 2010 (which according to CDC, may be underreported), was the leading cause of kidney failure, lower-limb amputations, and adult-onset blindness and more than 20% of projected health care spending in 2012 was for people with diagnosed diabetes.

CDC, estimated that in 2012 there were 3.1 million people requiring daily administration of rapid acting insulin. According to the American Diabetes Association, roughly 1 million people worldwide use insulin pumps with over 200 million people diagnosed with diabetes.

We believe due to a number of factors including the large consumption of processed foods and the growing obesity problem in the United States, the number of persons requiring daily administration of insulin is and will continue to grow at rapid rates.

The category of persons with diabetes requiring daily insulin administration is our target market and we believe our proposed product has the potential to substantially improve the day to day quality of life of such persons.

The Opportunity

We believe the insulin pump market is large and growing but generally has been poorly served by existing products that have limited the adoption of insulin pumps. We believe an insulin pump having the correct mix of efficiency, reliability, features that are easy to understand and use and are offered at an affordable price point will drive a substantial percentage of “almost pumpers” to use insulin pumps and persons currently using available, but less than optimum pumps, to switch to such a more desirable product. We believe that such an insulin pump can improve glucose control, and, therefore, the user’s quality of life while substantially mitigating adverse diabetes related health risks and many if not all of the challenges and shortcomings discussed herein.

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We believe there is a substantial opportunity to penetrate the type 2 marketplace, whether through a new insulin pump or simplification of pumps for the type 2 marketplace.

As set forth in general terms herein, we believe existing pumps have numerous shortcomings and challenges including:

Outdated Style . Consumer electronics devices have evolved in both form and function. Diabetes pumps have not experienced similar progress. We believe that consumers will be more receptive of products designed with the user experience in mind and that many have low tolerance for complex, difficult procedures for use and maintenance of products.

Bulky size.      We believe that consumers view traditional pumps, especially those with tubing, to be large, bulky, and inconvenient to carry or wear, especially when compared to modern consumer electronic devices. The size of the pump further contributes to users being embarrassed by the pump. We believe a simple patch style of pump will drive adoption.

Pump mechanism limitations.      Traditional pumps generally utilize a syringe and plunger mechanism to deliver insulin. We believe this design limits the ability to reduce the size of the pump, and also potentially exposes the user to the unintended delivery of the full volume of insulin within the pump, which can cause hypoglycemia or death. We believe that the fear of adverse health events due to technical malfunctions related to traditional pump mechanism limitations deters the adoption of insulin pump therapy.

Costs. Existing pumps are expensive, with the more popular models having purchase prices exceeding $4,000 for individuals without health insurance) and often require significant patient copays. Others have daily use costs that exceed the reimbursement rates of many health insurance plans forcing some users to spend thousands of dollars a year in copays. We believe this makes insurers hesitant to pay for pumps for any but their best and most compliant patients and places them out of reach for many patients who cannot afford such out of pocket expenses.

Our Solution

The Company’s proposed pump is being designed and developed to address the above shortcomings and to appeal to (i) the substantial group of “almost pumpers” currently interested in using an insulin pump, but have not because of the complexity, cost or cumbersome nature of existing products, and (ii) diabetics who are using one of the currently available insulin pumps but are dissatisfied with such products. We believe that, owing to our new proprietary technology, that our proposed insulin pump will be the simplest and least expensive product on the market and the easiest for physicians to prescribe.

An early prototype of our proposed pump has been built to test what the Company believes to be our novel approach to insulin pumps. We believe such prototype will need to be redesigned to meet the failure modes (safety features) required to meet the standards and manufacturing considerations to keep costs low.

By providing a pump that we believe will establish industry standards in terms of technology, simplicity to understand, ease of use and price, we believe our proposed pump will offer the vast majority of benefits afforded by more expensive and complex pumps but are accessible to a substantially greater percentage of diabetes sufferers requiring daily insulin therapy.

We believe people generally will not use technology that intimidates them and physicians are hesitant to prescribe such technology. We believe mass market products, such as is intended for our proposed pump must be “user friendly” and affordable. We believe this approach is fundamentally different from that applied to the existing pump market today where most pumps are continuously adding complex features and are “user friendly” to only the most technically astute and are becoming more complex and difficult to use.

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Our current goal is to successfully design, develop and obtain all required regulatory approvals for our proposed insulin pump, and, thereafter, commercialize, market and sell the finished product. Our long term goal is to become a leading provider of insulin pump therapy by focusing on both consumer and clinical needs.

To achieve our above stated immediate and current goals, we intend to pursue the following business strategies:

Use of Innovative proprietary technology. Based upon Mr. DiPerna’s substantial experience in engineering design and innovative technology in the medical device industry and in particular with insulin pumps, we have created certain critical proprietary technology that will be incorporated into our proposed insulin pump. Generally, this technology is involved in the delivery of insulin to the user at the appropriate and necessary times. We believe this technology will greatly assist us in creating a simpler user friendly pump. The proposed design, engineering and technology being incorporated into our proposed pump, we believe, will make our proposed pump substantially simpler than the currently available and that we will be able to offer it at more affordable prices than those currently available. These features together with the safety and reliability of our proposed pump, we believe will generally provide the next generation of insulin pumps that will be superior to those currently available and make it available to consumers across mostly all socioeconomic groups in the United States.

Keep costs low during our design and development process. To attempt to ensure that we have sufficient funds to design, develop and obtain all required regulatory approvals for our proposed insulin pump without having to sacrifice quality and efficiency, we intend to maintain a tight budget and limit expenditures where possible. We believe this will be possible because of the extensive knowledge and experience of Mr. DiPerna not only in the diabetes industry and more specifically in the insulin pump device market, but also his experience in designing and developing insulin pumps and other medical devices and his ability to manage a small, focused development team. We currently expect various other expenses such as product scale up, sales and marketing costs will not be incurred until such time as development work is completed and regulatory approvals obtained.

Employ experienced engineers picked, supervised and led by Mr. DiPerna, a highly experienced and respected engineer and executive in the insulin pump industry. To attempt to ensure our proposed insulin pump is “state of the art,” functional, and efficient as well as to conserve funds, significantly all of our employees will initially be hand-picked engineers under the direct supervision and leadership of Mr. DiPerna. We believe that there is a strong pool of engineers with significant applicable experience and knowledge who we will be able to initially employ on a contract and/or outsource basis to help us design and develop our proposed insulin pump. We believe by hiring such persons on an out-source basis, we will save substantial resources and by having Mr. DiPerna lead and focus the team on technological and mechanical aspects of our proposed insulin pump, our team will be well guided, focused, cost efficient, and able to efficiently design and develop our product that we believe can eventually be an industry standard.

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Government Regulations

The medical device industry is regulated extensively by governmental authorities, principally the United Stated Food and Drug Administration (the “ FDA ”) and corresponding state regulatory agencies. The regulations are very complex and are subject to rapid change and varying interpretations. Regulatory restrictions or changes could limit our ability to bring our proposed product to the commercialization stage as a result of higher than anticipated costs to obtain regulatory approval. The FDA and other U.S. governmental agencies regulate numerous elements of our proposed product at various stages, including:

    product design and development;
    pre-clinical and clinical testing and trials;
    product safety;
    establishment registration and product listing;
    labeling and storage;
    marketing, manufacturing, sales and distribution;
    pre-market clearance or approval;
    servicing and post-market surveillance;
    advertising and promotion; and
    recalls and field safety corrective actions.

Even if we obtain all regulatory approvals, before we can market or sell our proposed product, we must obtain either clearance under Section 510(k) of the United States Food, Drug and Cosmetic Act or approval of a pre-market approval application (a “ PMA ”) from the FDA, unless an exemption from pre-market review applies. In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. The PMA pathway requires an applicant to demonstrate the safety and effectiveness of the device based on extensive data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, such as our proposed insulin pump. Products that are approved through a PMA application generally need FDA approval before they can be modified. Similarly, some modifications made to products cleared through a 510(k) may require a new 510(k). The process of obtaining regulatory clearances or approvals to market a medical device, such as our proposed insulin pump, can be costly and time-consuming, and we may not be able to obtain such clearances or approvals on a timely basis or at all for our proposed product.

If the FDA requires us to go through a more rigorous examination for our proposed product than we currently expect, we may require substantial additional funding sooner than anticipated and/or our product could be severely delayed or our efforts ceased. We anticipate that our proposed product will require the more costly, lengthy and uncertain PMA approval process.

The FDA can delay, limit or deny clearance or approval of our proposed pump device for many reasons, including:

    our inability to demonstrate that our product is safe and effective for its intended users;
    the data from our clinical trials may be insufficient to support clearance or approval; and
    failure of the manufacturing process or facilities we use to meet applicable requirements.

In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other actions which may prevent or delay approval or clearance of our proposed product.

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Any delay in, or failure to receive or maintain, clearance or approval for our products under development could prevent us from generating revenue therefrom or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on us, could dissuade some customers from using our proposed product and adversely affect our reputation and the perceived safety and efficacy of our proposed product.

Failure to comply with applicable regulations could jeopardize our ability to commercialize and sell our proposed pump and result in enforcement actions such as fines, civil penalties, injunctions, warning letters, recalls of products, delays in the introduction of products into the market, refusal of the FDA or other regulators to grant future clearances or approvals, and the suspension or withdrawal of existing approvals by the FDA or other regulators. Any of these sanctions could result in higher than anticipated costs and have a material adverse effect on our reputation, business and financial condition.

Employees

To conserve our capital, we intend to hire one full time employee to manage the project along with a team of design engineers initially on a “time” basis until we are confident that all required governmental approvals related to our proposed pump will be granted and that commercialization thereof will likely to be achieved. At such time, which we currently believe will occur in the fourth quarter of 2018 or first quarter of 2019, we will employ such persons on a full-time basis. We also intend, as appropriate, to employ software and hardware personnel in connection with software and hardware aspects of our proposed pump. Similarly, Mr. DiPerna will be employed by us part-time until we have such level of confidence. Notwithstanding the above, we believe even as a part-time employee, Mr. DiPerna, because of his extensive experience and knowledge in the design and development of medical devices and in particular with regard to insulin pumps, will be able to handpick, lead and manage a strong core of experienced and well-seasoned engineers. We initially are targeting our design engineering team to consist of approximately 5 engineers.

Legal Proceedings

We are not aware of any legal proceedings or threatened legal proceeding contemplated by any governmental authority or any other party involving us or our properties.

Reports to Security Holders

Our Internet address is modular-medical.com. The content on our website is available for information purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference into this Current Report. The public may read and copy any materials we file with the SEC, including our annual reports, quarterly reports, current reports, proxy statements, information statements and other information, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov .

RISK FACTORS

An investment in the Company’s common stock involves a high degree of risk. In determining whether to purchase the Company’s common stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this report. An investor should only purchase the Company’s securities if he or she can afford to suffer the loss of his or her entire investment.

An investment in our Company involves a significant level of risk. Investors should carefully consider the risk factors described below together with the other information included in this Current Report on Form 8-K. If any of the risks described below occurs, or if other risks not identified below occur, our business, financial condition, and results of operations could be materially and adversely affected. 

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Risks Related to our Business

We have a limited operating history and a history of operating losses, and we may not be able to achieve or sustain profitability. In addition, we may be unable to continue as a going concern.

Bear Lake was incorporated in Nevada in October 1998, and has been a shell company since approximately 2002; and Quasuras was incorporated in April, 2015 and as a result, we have only a limited operating history. To date, substantially all of our operations have consisted of working on the designing of our proposed insulin pump, creating budgets, projections, a business plan, capital raising and other related actions, the Acquisition and developing our intellectual property including filing for a patent with the United States Patent and Trademark Office. Moreover, to date, we have funded such limited operations through sales of our equity securities and from capital contributions by Mr. DiPerna of approximately $600,000. To date, we have not generated any revenues and do not expect to until such time, if ever, as we successfully design, develop, obtain all regulatory approvals and commence sales of our proposed insulin pump.

We incurred a net loss of approximately $20,000 for the year ended March 31, 2016 and $28,000 for the year ended March 31, 2017 and a cumulative net loss of approximately $48,000 from April 15, 2015 (date of inception) to March 31, 2017. 

We expect to continue to incur losses for the foreseeable future, and these losses will likely increase initially as we ramp up for the design and development of our proposed product, purchase and develop our intellectual property and work to obtain regulatory approval for our proposed insulin pump. The amount of future losses and when, if ever, we will achieve profitability are uncertain. If our proposed product is completed, but we do not achieve market acceptance, we may never become profitable. The initial cost of completing our proposed product and thereafter attempting to commercialize our product and penetrating our anticipated markets will be substantial, and there is no assurance that we will be successful in doing so. Additionally, if we are not successful in generating revenues and controlling costs, we will not achieve profitable operations or positive cash flow, and even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. 

We are an early-stage company, and as such, we have no meaningful operating or financial history, we have no products in the marketplace, and we are pre-revenue at this time.

Quasuras commenced operations in April 2015. Therefore, there is limited historical financial information upon which to base an evaluation of our performance and future prospects. Due to our lack of operating history, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in the early-stage of operations, including, without limitation, the following:  

  · absence of an operating history;

 

  · absence of any revenues;

 

  · absence of any products in the marketplace;

 

  · insufficient capital;

 

  · expected continual losses for the foreseeable future;

 

  · no history on which to evaluate our ability to anticipate and adapt to a developing market;

 

  · uncertainty as to market acceptance of our initial and future products;

 

  · limited marketing experience and lack of sales organization; and

 

  · competitive and highly regulated environment.

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Because we are subject to these risks, potential investors may have a difficult time evaluating our business and their investment in our Company. We may be unable to successfully overcome these risks, any of which could irreparably harm our business. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with a new enterprise, the commercial launch of a new product which still requires testing, and the operation in a competitive industry. We expect to sustain losses in the future as we implement our business plan. There can be no assurance that we will ever generate revenues or operate profitably. 

We will require substantial additional funding, which may not be available to us on acceptable terms, or at all.

As a result of the Private Placement we received gross proceeds of approximately $5,100,000. Those funds constitute all of our currently available cash. We currently believe based upon our projected costs and expenses that such funds will enable us to complete the design and submission for approval to the regulated bodies. However, if for any number of reasons including, but not limited to, our costs and expenses are higher than anticipated, unexpected delays and/or faults in our design and development process and/or in obtaining regulatory approvals, such funds are not sufficient to allow us to submit, or even if our current funds are sufficient to allow us to submit, we still will need additional funds to create the sales marketing and operational expertise to support the marketplace with this new product. In either event, we will need additional funds which could be substantial. If we are not successful in securing additional financing when needed and on terms acceptable to us, we may be unable to execute our business plan which could result in us curtailing or ceasing operations. Our ability to raise additional capital is uncertain and dependent on numerous factors beyond our control including, but not limited to, market, economic conditions, availability or lack of availability of credit, the medical device industry, the status of our proposed insulin pump at the time capital is needed and other related and non-related factors. We currently do not have any committed external source of funds. In either event we will need to raise additional funds, we currently cannot provide assurances when and the amount. We currently believe that the gross proceeds that we received in the Private Placement, will allow us to build the required regulatory, quality and technical teams to design our proposed product in compliance with International Organization for Standardization (ISO) design standards, build our proposed pump to ISO manufacturing standards and perform the prescribed testing required to submit our proposed insulin pump to the FDA and other regulatory bodies for approval and/or clearance.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, then-existing stockholders’ interests may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect their rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

We are currently dependent on Paul DiPerna. If we fail to attract and retain additional management and other critical personnel, we may be unable to successfully develop or commercialize our products.

Although initially being employed by us on a part-time basis, we are wholly-dependent on Mr. DiPerna. The loss of his services would have a material adverse effect on us. We currently do not have an employment agreement with Mr. DiPerna and have not obtained key-man insurance on Mr. DiPerna. To successfully implement and manage our business plan, we will be dependent upon, among other things, Mr. DiPerna hiring a competent team of engineers and eventually other personnel. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain such qualified personnel to join the Company on acceptable terms. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we will experience constraints that will impede significantly our ability to achieve our objectives, our ability to raise additional capital when needed and our ability to implement our business strategy. In particular, the loss of Mr. DiPerna would have a material adverse effect on us. 

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Our success is dependent on our proposed product.

We intend to initially devote all of our time, effort and resources on designing, developing, obtaining regulatory approvals and bringing our proposed insulin pump to the point of readiness for commercial sale. If we are unsuccessful in such efforts, we will have spent all or a substantial portion of our available funds on an unsuccessful product. Moreover, even if we reach the point where we are able to commercially sell such proposed product, other factors that could adversely affect ultimate success, of our proposed insulin pump includes pricing, demand, market acceptance, regulatory compliance and approval.

If we are able to successfully bring our insulin pump product to the point of commercial sales, we will depend on third-party suppliers for materials and components for manufacturing.

If we are able to successfully design, construct and obtain required approvals for our proposed product, we may become dependent on a limited number of third-party suppliers for the materials and components required to manufacture any such products on a commercial scale and a third party manufacturer (if we elect not to manufacture our product ourselves). At such time, a delay or interruption by our suppliers or manufacturer may harm our business, results of operations, and financial condition, and could also materially and adversely affect our business. In addition, the lead time needed to establish a relationship with a new supplier or 3 rd party manufacturers can be lengthy, and we could then experience delays in meeting demand in the event we must change or add new suppliers or a new 3 rd party manufacturer. Our dependence on suppliers and a 3 rd party manufacturer would expose us to numerous risks, including but not limited to, suppliers and/or manufacturers may cease or reduce production or deliveries, raise prices, or renegotiate terms; we may be unable to locate a suitable replacement supplier and/or manufacturer on acceptable terms or on a timely basis, or at all; and delays caused by supply and manufacturing issues may harm our then reputation, frustrate our customers, and cause them to turn to our competitors for future needs. 

Our failure to effectively manage growth could impair our business.

We intend to increase our personnel and other costs as we develop our proposed products. Such may put a strain on our administrative and operational resources, and our funding requirements. Our ability to effectively manage growth will require us to successfully create and expand operational and management systems and hire, attract, train, manage, and retain qualified personnel. There can be no assurance that we will be able to do so, particularly if we are unable to obtain sufficient financing. If we are unable to appropriately manage growth, our business, prospects, financial condition, and results of operations could be materially and adversely affected.

We operate in a very competitive industry and will compete against competitors who have greater resources than us.

The medical device industry in general and the diabetic insulin therapy market and in particular the insulin pump market is intensely competitive, subject to rapid change and highly sensitive to the introduction of new products, treatment techniques or technologies, or other activities of industry participants. We believe our product when, if ever, ready for commercial sale will compete directly with a number of traditional and well established insulin pumps as well as other methods for the treatment of diabetes.

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We believe our primary competitors will be major medical device companies that are either publicly traded companies or divisions or subsidiaries of publicly traded companies. For instance, Medtronic MiniMed, a division of Medtronic, Inc., has been the market leader for many years and has the majority share of the traditional insulin pump market in the United States. Other significant insulin pump suppliers in the United States include Animas Corporation, a division of Johnson & Johnson, and Insulet Corporation. However, we believe that the market for insulin pumps is currently undergoing significant changes. For instance, in late 2016, Roche Diabetes Care, a division of F. Hoffman-La Roche discontinued sales of new insulin pumps in the United States, and in early 2017, Johnson & Johnson announced that it is evaluating strategic options for its diabetes business unit, including Animas. It is too early to evaluate the potential impact of these changes on our competitive landscape. There are also newer companies entering the field.

Some of our believed competitors will enjoy a variety of advantages over us, including:

 

    greater financial and human resources for sales and marketing, product development, customer service and clinical resources;

 

    greater financial resources to respond to competitive pressures and regulatory uncertainty;

 

    established relationships with healthcare providers and third-party payors;

 

    established reputation and name recognition among healthcare providers and other key opinion leaders in the diabetes industry;

 

    Existing product in the market resulting in an established base of customers;

 

    products supported by long-term clinical data;

 

    larger and more established distribution networks;

 

    greater ability to cross-sell products or provide incentives to healthcare providers to use their products; and

 

    more experience in conducting research and development, manufacturing, clinical trials, and obtaining regulatory approval or clearance.

 

As a result of the above, we may not be able to compete successfully against such competitors.

Even if our proposed insulin pump reaches the point of readiness for commercial sale, competitive products or other technological breakthroughs for the monitoring, treatment or prevention of diabetes or technological developments may render our proposed product obsolete or less desirable.

Even if we are successful in developing our proposed product to the point of commercial sale, our ability to sell our product will depend, among other things, whether our product will be accepted by and appeal to our target market which will in large part depending upon whether our proposed product will offer user-friendly features, is easy to use and is offered at price points affordable to our target market, receive adequate coverage and reimbursement from third-party payor, and are more appealing than available alternatives. Our primary competitors, as well as a number of other companies, medical researchers and existing pharmaceutical companies are pursuing new delivery devices, delivery technologies, sensing technologies, procedures, drugs and other therapies for the monitoring, treatment and prevention of diabetes. Any technological breakthroughs in diabetes monitoring, treatment or prevention could reduce the potential market for our product candidates or render our product candidates obsolete altogether, which would significantly reduce our sales.

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Because of the size of the insulin-dependent diabetes market, we anticipate that companies will continue to dedicate significant resources to developing competitive products. The frequent introduction by competitors of products that are or claim to be superior to any of our proposed product may create market confusion that may make it difficult to differentiate the benefits of our proposed product over competitive products. In addition, if our proposed product became commercially successful, competitors may elect to employ pricing strategies that could adversely affect the pricing of any of our proposed product.

Moreover, it is our goal to design our products to resemble modern consumer electronic devices to address certain embarrassment and functionality concerns consumers have raised with respect to traditional pumps. The consumer electronics industry is itself highly competitive, and characterized by continual new product introductions, rapid developments in technology, and subjective and changing consumer preferences. If consumers do not view our proposed product as contemporary or convenient as compared to then-existing consumer electronics technology, our proposed product may not be desirable.

We may be subject to product liability claims, and may not have sufficient product liability insurance to cover any such claims, which may expose us to substantial liabilities.

We may be exposed to product liability claims from consumers of any of our to be developed products. It is possible that any product liability insurance coverage we obtain will be insufficient to protect us from future claims. Further, we may not be able to obtain or maintain insurance on acceptable terms or such insurance may be insufficient to cover any potential product liability claim or recall. Failure to obtain or maintain sufficient insurance coverage could have a material adverse effect on our business, prospects, and results of operations if claims are made that exceed our coverage.

No assurance of target market acceptance.

Even if we are able to commence commercial sales of our proposed insulin product, to achieve profitability and become a viable industry product, we will need wide consumer and market acceptance. No assurances can be given that consumers will purchase our product in sufficient amounts and on a continuous basis for us to reach a level of revenues and income necessary to continue as a viable participant in the industry. The failure to do so would have a material adverse effect on us and investors.

Increased costs as a result of being a public company.

We have incurred, and expect to continue to incur costs associated with becoming and continuing as a public company, including, but not limited to, legal, accounting, filing and other related costs and expenses.

We may need to license patents, intellectual property, and proprietary technologies from third parties, which may be difficult or expensive to obtain.

We may need to obtain licenses to patents and other proprietary rights held by third parties to successfully develop, manufacture and market one our proposed product. As an example, it may be necessary to license an electronic component such as a sensor from a third party’s proprietary technology to develop a product. If we are unable to timely obtain any such license on reasonable terms, our ability to successfully develop or commercially exploit our proposed product may be inhibited or prevented.  

If we are unable to adequately protect our technology or enforce our intellectual property rights, our business could suffer.

We believe a significant factor to the success of our proposed insulin pump will be our intellectual property. To date, we have filed with the USPTO one provisional patent and one non-provisional patent. As a result of the significance of our intellectual property to our overall success, we will be required to adequately obtain and maintain patent protection for our intellectual property. The coverage claimed in a patent application can be significantly reduced before the patent is issued, and the patent’s scope can be modified after issuance. Furthermore, if our patent applications are not approved or, if approved, are not upheld in a court of law if challenged, our ability to competitively exploit our proposed insulin pump would be substantially harmed. Additionally, if patents are issued with respect to our patent applications, such patents may or may not provide competitive advantages for our proposed product or such patents may be challenged or circumvented by our competitors, in which case our ability to commercially exploit our proposed product may be severely diminished.

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We also will intend on trade secret and contractual protections for our unpatented, confidential, and proprietary technology. Trade secrets are difficult to protect. While we will enter into proprietary information agreements with certain of our employees, consultants, and others, these agreements may not successfully protect our trade secrets or other confidential and proprietary information. It is possible that these agreements will be breached, or that they will not be enforceable in every instance, and that we will not have adequate remedies in the case of any such breach. It is also possible that our trade secrets will become known or independently developed by our competitors. If we are unable to adequately protect our technology, trade secrets, or proprietary know-how, or enforce any patents we obtain, our then business, financial condition, and prospects could suffer. 

 

Intellectual property litigation is increasingly common and increasingly expensive, and may result in restrictions on our business and substantial costs, even if we prevail.

Patent and other intellectual property litigation is becoming more common, and such litigation may be necessary to defend against or assert claims of infringement, to protect trade secrets, to determine the scope and validity of proprietary rights of third parties, or to enforce any patent rights we have or acquire, including those we may license from others. While we do not believe our intellectual property infringes upon a third party’s patent or other intellectual property rights, no assurances can be given that no, litigation asserting such claims against us will not in the future be initiated and if initiated no assurances can be given we would prevail, or result in us not able to obtain or use the necessary intellectual property on reasonable terms, if at all. All such litigation, whether meritorious or not, as well as litigation initiated by us against third parties, is time-consuming and very expensive to defend or prosecute and to resolve. In addition, if we infringe the intellectual property rights of others, we could lose our right to develop, manufacture, or sell our products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. An adverse determination in a judicial or administrative proceeding or a failure to obtain necessary licenses could prevent us developing, manufacturing or selling any proposed products, which would harm our then business, financial condition, and prospects. 

We may encounter unanticipated obstacles to execution of our business plan which may cause us to change or abandon our current business plan.

Because we are a new and early stage development company there is greater chance our business plan may change significantly based on our encountering unanticipated obstacles. Our business endeavor is capital intensive, and may be subject to statutory or regulatory requirements and other factors that we cannot control, and which could be detrimental to our business plan. We reserve the right to make significant modifications to our proposed business plan depending on future events.

Risks Related to Our Common Stock

There is not an active liquid trading market for the Company’s common stock.

The Company’s common stock is quoted on the OTC Pink Market under the symbol “MODD”. To date, however, there has been minimal reported trading in our common stock, and no assurances can be given that an active trading market will ever develop or if developed will be sustained. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our shares. This severely limits the liquidity of the common stock, and may adversely affect the market price of our common stock. A limited market may also impair our ability to raise capital by selling shares and may impair our ability to acquire other companies or assets by using common stock as consideration.

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If an active market for our common stock develops, there is a significant risk that the Company’s stock price may fluctuate dramatically in the future in response to any of the following factors, some of which are beyond our control:

  · variations in our quarterly operating results;
  · announcements that our revenue or income are below analysts’ expectations;
  · general economic slowdowns;
  · sales of large blocks of our common stock; and
  · announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments.

 

Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

Because we became a public by means of a reverse acquisition, we may not be able to attract the attention of brokerage firms.

Because we became public through a “reverse acquisition”, securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. Moreover, no assurance can be given that brokerage firms will want to conduct capital raises on our behalf in the future.

The market price of our common stock may be highly volatile and such volatility could cause you to lose some or all of your investment.

The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:

 

  · Announcements relating to new products or product enhancements by us or our competitors;

 

  · developments concerning intellectual property rights;

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  · changes in legal, regulatory, and enforcement frameworks impacting our products;

 

  · variations in our and our competitors’ results of operations;

 

  · fluctuations in earnings estimates or recommendations by securities analysts, if our common stock is covered by analysts;

 

  · the results of product liability or intellectual property lawsuits;

 

  · future issuances of common stock or other securities;

 

  · the addition or departure of key personnel;

 

  · announcements by us or our competitors of acquisitions, investments or strategic alliances; and

 

  · general market conditions and other factors, including factors unrelated to our operating performance.

 

Further, the stock market has recently experienced extreme price and volume fluctuations. The volatility of our common stock could be further exacerbated due to low trading volume. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock and the loss of some or all of our investors’ investment.

Compliance with the reporting requirements of federal securities laws can be expensive.

We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act of 2002. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders are substantial. If we do not provide current information about our Company to market makers, they will not be able to trade our stock. Failure to comply with the applicable securities laws could result in private or governmental legal action against us or our officers and directors, which could have a detrimental impact on our business and financials, the value of our stock, and the ability of stockholders to resell their stock.

Our investors’ ownership in the Company may be diluted in the future.

In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of ownership interests of our present stockholders. We expect to need to issue a substantial number of shares of common stock or other securities convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, raising additional capital in the future to fund our operations, and other business purposes. We currently anticipate offering stock option plans for officers, directors and others. Additional shares of common stock issued by us in the future will dilute an investor’s investment in the Company. 

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Directors, executive officers, principal stockholders and affiliated entities own a significant percentage of our capital stock, and they may make decisions that our stockholders do not consider to be in their best interests.

As of the date of this Current Report on Form 8-K, our directors, executive officers, principal stockholders and affiliated entities beneficially own, in the aggregate, approximately 82% of our issued and outstanding shares of common stock as of the date hereof. Mr. DiPerna, our chairman, chief executive officer, chief financial officer, secretary and treasurer, beneficially owns approximately 47% of our issued and outstanding common stock and the Purchasing Funds may be deemed to beneficially own approximately 34% of our issued and outstanding common stock. Manchester Management Company, LLC, a Delaware limited liability company, the general partner of both of the Purchasing Funds (“ MMC ”) may be deemed the control person of each of the Purchasing Funds. Mr. Frank, a director of the Company is a portfolio manager and consultant of MMC and Mr. Besser a former executive officer and director of Bear Lake may be deemed Affiliates of MMC. As a result, if some or all of such persons acted together, they would have the ability to control the election of our board of directors and the outcome of issues requiring approval by our stockholders. This concentration of ownership may also have the effect of delaying or preventing a change in control of our Company that may be favored by other stockholders. This could prevent transactions in which stockholders might otherwise recover a premium for their shares over current market prices. This concentration of ownership and influence in management and board decision-making could also harm the price of our capital stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our capital stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of our Company. For a more detailed discussion of the relationships and certain transactions involving the Purchasing Funds, MMC and Messrs. Besser and Frank with each other and with us see “Certain Relationships and Related Party Transactions and Director Independence” set forth in this Item

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.

We must maintain effective internal controls to provide reliable financial reports and to detect and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as would be possible with an effective control system in place. We have not performed an in-depth analysis to determine if historical undiscovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

We have been assessing our internal controls to identify areas that need improvement. We are in the process of implementing changes to internal controls, but have not yet completed implementing these changes. Failure to implement these changes to our internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our common stock. 

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, Quasuras’ audited annual financial statements and the related notes thereto which appears elsewhere in this Current Report on Form 8-K. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading “Forward-Looking Statements” in this Current Report on Form 8-K. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see the disclosure under the heading “Risk Factors” elsewhere in this Current Report on Form 8-K . The Management Discussion and Analysis of Financial Condition and Results of Operations below is based upon only the financial performance of Quasuras.

For information regarding the financial results of Bear Lake, you should refer to Bear Lake’s Annual Report on Form 10-K for the year ended June 30, 2016, filed with the SEC on September 26, 2016, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, filed with the SEC on May 18, 2017, and the financial statements of Bear Lake including the financial statements included therein.    For the purposes of this “MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” Section, the terms the “Company,” “we,” “us,” and “our” refers to Quasuras, Inc., a Delaware corporation.

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Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations set forth below under the headings “Results of Operations” and “Liquidity and Capital Resources” have been prepared in accordance with accounting principles generally accepted in the United States (“ GAAP ”) and should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this Current Report Form 8-K. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates, including stock-based compensation and long-lived assets. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. A more detailed discussion on the application of these and other accounting policies can be found in Note 2 of the Notes to Financial Statements set forth in our financial statements as of and for the years ended March 31, 2017 and 2016, which is attached as Exhibit 99.1 to this Current Report on Form 8-K. Actual results may differ from these estimates under different assumptions and conditions.

While all accounting policies impact the financial statements, certain policies may be viewed as critical. Critical accounting policies are those that are both most important to the portrayal of financial condition and results of operations and that require management’s most subjective or complex judgments and estimates. Our management believes the policies that fall within this category are the policies on accounting for stock-based compensation, intellectual property and long-lived assets. 

Results of Operations

Results of Operations - For the Year Ended March 31, 2017

Revenue

For the year ended March 31, 2017, the Quasuras had no revenues. The Company is in the research and development stage, but projects its first product will be released in 2018. 

Operating Expenses

Legal and professional expenses (“ L&P ”) costs and expenses were approximately $17,830 for the year ended March 31, 2017.

General and administrative expenses (“ G&A ”) include costs for accounting and audit services, taxes and various other general operating expenses. G&A costs and expenses were approximately $11,588 for the year ended March 31, 2017.  

Net Loss

We incurred a loss of approximately $29,256 for the year ended March 31, 2017, and had an accumulated deficit of approximately $49,000 as of March 31, 2017 for the reasons cited above. 

Operating Activities

For the year ended March 31, 2017, our operating activities used cash in the amount of $21,137 which is was caused primarily by our net loss of $29,256. 

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Investing Activities

For the year ended March 31, 2017 cash used in investing activities totaled $0. 

Financing Activities

For the year ended March 31, 2017, our net cash provided by financing activities was $23,521, which proceeds were received from the sale of $100,000 of our common stock and the exercise of $100,000 of stock options and was offset by the repurchase of $187,951 for shares of our common stock.

Liquidity

As of March 31, 2017, we had cash and cash equivalents of approximately $392,000. Our cash and cash equivalents increased by approximately $2,400 during the year ended March 31, 2017. As of March 31, 2016, we had cash and cash equivalents of approximately $390,000. 

Results of Operations - For the Year Ended March 31, 2016

Revenue

From April 20, 2015, the Company’s inception through, March 31, 2016, the Company had no revenues. The Company is in the research and development stage, but projects its first product will be released in 2019. 

Operating Expenses

G&A and L&P costs and expenses were $17,401 and $4,457, respectively, for the year ended March 31, 2016.

Net Loss

The Company incurred a net loss of $20,161 for the year ended March 31, 2016 for the reasons cited above. 

Operating Activities

For the year ended March 31, 2016, our operating activities used cash in the amount of $20,161. 

Investing Activities

For the year ended March 31, 2016 cash used in investing activities totaled $0. 

Financing Activities

For the year ended March 31, 2016, our net cash provided by financing activities was $409,784, which was primarily from the sale of our Common Stock.

Liquidity

As of March 31, 2016, we had cash and cash equivalents of approximately $390,000. 

Liquidity and Capital Resources

Our principal sources of cash have been proceeds from the sale of our common stock. 

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

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Contractual Obligations 

None

DESCRIPTION OF PROPERTIES

 

The Company owns no properties and currently uses office space provided by Mr. DiPerna.

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 July 24, 2017, with respect to the beneficial ownership of our shares of common stock (our only class of outstanding voting securities), taking into account the completion of the Acquisition, the Private Placement and the cancellation by Manchester of the 2,900,000 share Control Block in the Share Cancellation described in Items 1.01, 2.01 and 3.02 of this Current Report on Form 8-K 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 17995 Bear Valley Lane Escondido CA 92027.

Name of Beneficial Owner  

Common
Stock
Beneficially
Owned

    Percentage of
Common
Stock (1)
 
Directors and Officers:                
                 
Paul DiPerna (2)     7,523,430       47.07 %
                 
Morgan Frank (3)     5,483,860       34.31 %
                 
All officers and directors as a group (2 person) (4)     13,007,291       81.38 %
                 
Beneficial owners of more than 5%:                
                 
Manchester Explorer, L.P. (5)     5,664,690       35.44 %
                 
JEB Partners, L.P. (6)     5,664,690       35.44 %

 

* Less than 1%

  (1) Based upon 15,983,272 shares of common stock outstanding on July 24, 2017.
  (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) 5,303,030 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. Mr. Frank, however, disclaims beneficial ownership of all 5,303,030 shares owned by the Purchasing Funds.  The address for Mr. Frank is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA, 02110.

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  (4) See “2” and “3” above.  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) 4,545,455 shares purchased by such person in the Private Placement, (ii) 757,576 shares owned by JEBP, (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. Such person, however, disclaims beneficial ownership of all shares other than the 4,545,455 shares directly owned by it.   The address for Manchester Explorer, L.P. is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA, 02110
  (6) 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. Such person, however, disclaims beneficial ownership of all shares other than the 757,576 shares directly owned by it.  The address for JEB Partners, L.P. is c/o Manchester Management Company, LLC, 3 West Hill Place, Boston, MA, 02110

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Effective July 24, 2017, in connection with the Acquisition, Mr. Besser resigned as president and a director and Mr. Frank as chief executive officer, chief financial officer, secretary and treasurer of the Company and Mr. DiPerna was appointed our chief executive officer, chief financial officer, secretary, treasurer and Chairman.

The table below sets certain information concerning our executive officers and directors as of the date of this Current Report on Form 8-K, including their names, ages and positions with us. Our executive officers are chosen by our Board and hold their respective offices until their resignation or earlier removal by the Board. 

In accordance with our articles of incorporation, incumbent directors are elected to serve until our next annual meeting and until each director’s successor is duly elected and qualified. 

Name   Age   Position
Paul DiPerna   58   Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, Director (Chairman of the Board)
Morgan C. Frank   45   Director
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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.

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;

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  · 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

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.

The disclosures set forth in Item 1.01, Item 2.01 and Item 5.01 of this Current Report on Form 8-K are incorporated by reference herein. 

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 Current Report on Form 8-K. Our corporate secretary will forward stockholder communications to our board of directors prior to the board’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 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.

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Board Committees

There are currently no committees of our board of directors, and we do not presently have a director who meets the definition of an “audit committee financial expert”.

Code of Ethics

Our board of directors intends to adopt a code of ethics that our officers, directors and any person who may perform similar functions will be subject to.

EXECUTIVE COMPENSATION 

Quasuras became our wholly owned subsidiary as a result of the consummation of the Acquisition. The following table summarizes all compensation earned in each of Quasuras’ last two fiscal years ended March 31, 2017 and 2016 by: (i) its principal executive officer; and (ii) its most highly compensated executive officer other than the principal executive officer who was serving as an executive officer of Quasuras as of the end of the last completed fiscal year. The tables below reflect the compensation for the Quasuras executive officers who are also named executive officers of the combined company.

Summary Compensation Table

The following table lists the summary compensation of Quasuras’ named executive officers for the prior two fiscal years (Quasuras was incorporated in April 2015): 

Name and principal position   Year
ended
March 31
    Salary     Bonus     Stock
awards
    Option
awards
    All
other
comp.
    Total  
                                           
Paul DiPerna     2017     $ 0-     $ 0-     $ 0-     $ 0-     $ 0-     $ 0-  
Chief Executive Officer     2016     $ 0-     $ 0-     $ 0-     $ 0-     $ 0-     $ 0-  

 

 

Employment Agreements with Named Officers

We have not entered into employment agreements our officer but anticipate entering into such agreement in the near future. It is anticipated that such agreement would contain provisions regarding compensation, and other applicable terms relating to competition and term of employment.

Outstanding Equity Awards at Fiscal Year-End

We have not granted any equity or option awards to our executive officers as of March 31, 2017.

Director Compensation

We have not paid any compensation to our directors as of March 31, 2017. 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE  

Transactions with Related Persons  

On April 26, 2017, pursuant the SPA, Manchester purchased from Bear Lake 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 Bear Lake 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 Bear Lake, and immediately following such appointments, such prior directors and officers of Bear Lake resigned as directors and officers of the Company.

In approximately February 2017, Mr. Besser and Mr. Frank purchased in the aggregate approximately four and a 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 a 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 a 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 Bear Lake 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.

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 as an independent directors pursuant to Nasdaq Stock Market Rule 5605(a)(2) and applicable SEC rules and regulations.

Potential Conflicts of Interest  

Since we did not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees were performed by our directors. Thus, there was an inherent conflict of interest. 

LEGAL PROCEEDINGS 

From time to time we may be involved in claims arising in the ordinary course of business. No legal proceedings, governmental actions investigations or claims are currently pending against us or involve us.

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RECENT SALES OF UNREGISTERED SECURITIES 

On January 31, 2017, Quasuras entered into a Common Share Purchase Agreement (the “ Share Purchase Agreement ”) with Messrs. Frank and Besser pursuant to which Messrs. Frank and Besser each purchased from Quasuras, 100,000 shares of Quasuras’ common stock at a price of $0.50 per share. On or about February 15, 2017, Paul DiPerna exercised an option and acquired 200,000 shares of Quasuras’ common stock at a price of $0.50.

The description of the Control Block Acquisition and the Private Placement in Item 1.01 and Item 2.01 of this Current Report is incorporated herein by reference. The issuance of the shares of our common stock related to such offerings and sales were made in reliance on exemption from the registration requirements of the Securities Act provided by Section 4(2) and Rule 506 of Regulation D.

CONTROLS AND PROCEDURES 

This report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of the company’s registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 

Our common stock is currently quoted on the OTC Pink Market under the symbol “MODD.”

On July 24, 2017, the closing bid price and closing ask price of our common stock on the OTC-Pink Market was $0.38 and $5.00, respectively.

Based upon publicly available information we obtained from Bloomberg, L.P., since approximately August 30, 2012, no shares of our common stock publicly traded.

As of July 24, 2017 we had approximately 80 record holders of our common stock.

We paid no dividends or made any other distributions in respect of our common stock since inception and we have no plans to pay any dividends or make any other distributions in the future.

DESCRIPTION OF CAPITAL STOCK 

Our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock with a par value of $0.001.

Common Stock

The holders of our common stock are entitled to receive dividends from our funds legally available therefor only when, as and if declared by our Board, and are entitled to share ratably in all of our assets available for distribution to holders of our common stock upon the liquidation, dissolution or winding-up of our affairs. Holders of our common stock do not have any preemptive, subscription, redemption or conversion rights. Holders of our common stock are entitled to one vote per share on all matters which they are entitled to vote upon at meetings of stockholders or upon actions taken by written consent pursuant to Nevada corporate law. The holders of our common stock do not have cumulative voting rights, which mean that the holders of a plurality of the outstanding shares can elect all of our directors. All of the shares of our common stock currently issued and outstanding are fully-paid and nonassessable. No dividends have been paid to holders of our common stock since our incorporation, and no cash dividends are anticipated to be declared or paid in the reasonably foreseeable future. 

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Preferred Stock

Our board of directors is empowered, without further action by stockholders, to issue from time to time one or more series of preferred stock, with such designations, rights, privileges and preferences as the Board may determine. The rights, preferences and limitations of separate series of preferred stock may differ with respect to such matters among such series as may be determined by our board of directors, including, without limitation, the rate of dividends, method and nature of payment of dividends, terms of redemption, amounts payable on liquidation, sinking fund provisions (if any), conversion rights (if any) and voting rights. Certain issuances of preferred stock may have the effect of delaying or preventing a change in control of our company that some stockholders may believe is not in their interest.  As of the date hereof, there are no shares of our preferred stock outstanding.

Equity Compensation Plan Information

None.

Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, our By-Laws and Delaware Law

Anti-takeover Effects of Nevada Law  

Business Combination 

The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes (“NRS”), generally prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status; and extends beyond the expiration of the three-year period, unless: 

  · the transaction was approved by the board of directors prior to the person becoming an interested stockholder or is later approved by a majority of the voting power held by disinterested stockholders, or

 

  · if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher.

 

A “combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder.

In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our Company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price. 

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Currently, we have no Nevada shareholders and since this offering will not be made in the State of Nevada, no shares will be sold to its residents. Further, we do not do business in Nevada directly or through an affiliate corporation and we do not intend to do so. Accordingly, there are no anti-takeover provisions that have the effect of delaying or preventing a change in our control. 

Control Share Acquisition 

The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations,” which are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and which conduct business directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights. 

A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the tenth day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes, and will be subject to these statutes if we are an “issuing corporation” as defined in such statutes.

At this time, we do not have 100 stockholders of record resident of Nevada. Therefore, the provisions of the control share acquisition act do not apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply to us, the provisions of the control share acquisition act may discourage companies or persons interested in acquiring a significant interest in or control of the Company, regardless of whether such acquisition may be in the interest of our stockholders.

Shares Eligible for Future Sale

As of the date hereof 15,983,272 shares of our common stock were issued and outstanding. We are authorized to issue by our articles of incorporation, 50,000,000 shares of our common stock. 

Rule 144

 

  · Pursuant to Rule 144 of the Securities Act, a person who has beneficially owned restricted shares of our common stock (or longer in the case of former shell companies as described below) would be entitled to sell their securities provided that (1) such person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (2) we are subject to the Exchange Act reporting requirements for at least 90 days before the sale and (3) if the sale occurs prior to satisfaction of a one-year holding period, we provide current information at the time of sale.

 

  · Persons who have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of, or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of: 1% of total shares outstanding and the average weekly trading volume of such securities during the four calendar weeks preceding the filing of a 144 notice with respect to such sale (which average volume criteria only applies if the company’s securities become listed on NASDAQ or an exchange).

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Provided, in each case that we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale.

However, since our shares are quoted on the OTC Markets, which is not an “automated quotation system,” our stockholders will not be able to rely on the market-based volume limitation described in the second bullet above. If, in the future, our securities are listed on an exchange or quoted on NASDAQ, then our stockholders would be able to rely on the market-based volume limitation. Unless and until our stock is so listed or quoted, our stockholders can only rely on the percentage based volume limitation described in the first bullet above. 

Such sales by affiliates must also comply with the manner of sale, current public information and notice provisions of Rule 144. The selling stockholders will not be governed by the foregoing restrictions when selling their shares pursuant to this prospectus. 

Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies 

Bear Lake was a shell company prior to the filing of this Current Report on Form 8-K. Historically, the SEC staff has taken the position that Rule 144 is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies, like us. The SEC has codified and expanded this position in the amendments discussed above by prohibiting the use of Rule 144 for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer that has been at any time previously a shell company. The SEC has provided an important exception to this prohibition, however, if the following conditions are met: 

  · the issuer of the securities that was formerly a shell company has ceased to be a shell company;

 

  · the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

 

  · the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

 

  · at least one year has elapsed from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not a shell company.

 

As a result, it is likely that pursuant to Rule 144 our stockholders will be able to sell their shares of our common stock from and after the one year anniversary of our filing of current comprehensive disclosure following in this Current Report on Form 8-K without registration.

INDEMNIFICATION OF DIRECTORS AND OFFICERS 

Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised Statute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.

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NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

NRS Section 78.7502(2) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

NRS Section 78.747 provides that except as otherwise provided by specific statute, no director or officer of a corporation is individually liable for a debt or liability of the corporation, unless the director or officer acts as the alter ego of the corporation. The court as a matter of law must determine the question of whether a director or officer acts as the alter ego of a corporation.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed hereby in the Securities Act and we will be governed by the final adjudication of such issue. 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 

The financial statements set forth in Item 9.01(a) of this Current Report on Form 8-K are incorporated by reference into this item.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 

The disclosures set forth in Item 4.01 of this Current Report on Form 8-K are incorporated by reference into this item.

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EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The exhibits described in Item 9.01 of this Current Report on Form 8-K are incorporated by reference into this item. 

Item 5.01. Changes in Control of Registrant.

The disclosures set forth in Item 1.01 and Item 2.01 of this Current Report on Form 8-K are incorporated by reference into this Item. 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

The disclosures set forth in Item 1.01 and Item 2.01 of this Current Report on Form 8-K are incorporated by reference herein.

The disclosures set forth under the headings “Form 10 Information— Directors, Executive Officers and Corporate Governance,” “Form 10 Information—Executive Compensation” and “Form 10 Information—Certain Relationships and Related Transactions and Director Independence” of this Current Report on Form 8-K are incorporated by reference into this Item 5.02. 

Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

  On or about June 27, 2017, we amended our articles of incorporation to change our corporate name from “Bear Lake Recreation, Inc.” to “Modular Medical, Inc.” 

Item 5.06. Change in Shell Company Status.

As the result of the transactions effected by the closing of the Acquisition, as described above under Item 1.01 and Item 2.01 of this Current Report, we are no longer a shell company as that term is defined under the Federal Securities Laws. Such disclosure is incorporated by reference into this Item 5.06. 

Item 9.01. Financial Statements and Exhibits.
  (a) Financial Statements of the Businesses Acquired and of Bear Lake
     

In accordance with Item 9.01(a): Quasuras’ audited financial statements for the years ended March 31, 2017 and March 31, 2016, is filed as Exhibit 99.1 to this Current Report on Form 8-K.

  (b) Pro Forma Financial Information is filed in this Current Report on Form 8-K as Exhibit 99.2
  (d) Exhibits
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The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.

  Exhibit 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.*
3.1   Second Amended and Restated Articles of Incorporation (1)
3.3   Amended By-Laws (2)
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 (3)
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*
10.4   Technology and Royalty Agreement dated as of July 24, 2017  by and between Modular Medical, Inc., Quasuras, Inc.  and Paul DiPerna*
23.1   Consent of Lichter, Yu and Associates, Inc. *
99.1   Quasuras, Inc.’s audited financial statements for the years ended March 31, 2017 and 2016
99.2   Pro Forma Financial Information

 

 

* Filed herewith

(1) Incorporated by reference to the Company’s Current Report on Form 8-K filed with the SEC on June 29, 2017.
  (2) Incorporated by reference to the Company’s Annual Report on Form 10-K filed with the SEC on June 30, 2008.
  (3) Incorporated by reference to the Company’s Form 8-K filed with the SEC on April 5, 2017.
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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
  Modular Medical, Inc.
   
Date: July 28, 2017 By:  /s/ Paul M. DiPerna
   
  Paul DiPerna
  Chief Executive Officer
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Exhibit 2.1

 

REORGANIZATION AND SHARE EXCHANGE AGREEMENT

               This Reorganization and Share Exchange Agreement   dated as of July 24, 2017 (the “ Agreement ”), among Quasuras, Inc.,   a Delaware corporation (the “ Target ”), Modular Medical, Inc., a Nevada corporation (the “ Company ”), Paul M. DiPerna, the sole officer and director and the controlling stockholder of the Target (the “ Target Controlling Stockholder ”) and the two (2) other stockholders of the Target (each a “Target Minority Stockholder ” and collectively, the “ Target Minority Stockholders ,” and together with the Target Controlling Stockholder, collectively, the “ Target Stockholders ”). Schedule A hereto sets forth the names and addresses of, the number of shares of Target Stock (as defined below) owned by and the number of Company Exchange Shares (as defined below) to be received by each Target Stockholder in the Acquisition (as defined below).

INTRODUCTION

                WHEREAS, the Target Stockholders own in the aggregate 4,400,000 shares (the “ Target Stock ”) of common stock, par value, $0.0625 per share of Target (the “ Target Stock ”) in such amounts set forth next to each Target Stockholder’s name on Schedule A hereto;

                WHEREAS , other than the 4,400,000 shares of Target Stock owned by the Target Stockholders, the Target has no other securities (as defined in the Securities Act of 1933, as amended (the “ Securities Act ”)), and/or rights to acquire any securities of the Target issued and outstanding;

                WHEREAS , the Company desires to acquire all of the 4,400,000 issued and outstanding shares of Target Stock from the Target Stockholders solely in exchange for an aggregate of 7,582,060 shares (the “ Company Exchange Shares ”) of authorized, but unissued, shares of common stock, par value $0.001 per share, of the Company (the “ Company Common Stock ”), and  the Target Stockholders each desire to acquire all such Company Exchange Shares solely in exchange for their respective shares of Target Stock (the “ Acquisition ”);

                WHEREAS , on or prior to the date hereof, the respective boards of directors or analogous governing body of each of the Company and the Target and each of the Target Stockholders have, approved and adopted this Agreement and it is the intent of the parties hereto that the Acquisition contemplated hereby be structured so as to qualify as a tax-free reorganization within the meaning of the Internal Revenue Code of 1986, as amended (the “ Code ”), and the provisions of this Agreement will be interpreted in a manner consistent with this intent.

                WHEREAS , as a condition to and substantially contemporaneously with the Closing (as hereinafter defined) of the Acquisition (i) the Company shall sell in a private placement (the “ Offering ”) pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder, no less than $4,500,000 (or 6,818,000 shares) of Company Common Stock (which the Company may increase by an additional $500,000 (or 757,576 shares), and (ii) the owner of 2,900,000 shares of outstanding Company Common Stock (the “ Company Controlling Shareholder ”), shall cancel all such 2,900,000 shares (the “ Company Share Cancellation ”).

 
 

                NOW, THEREFORE , in consideration of the mutual representations, warranties and covenants herein contained, and for such other good and valuable consideration and receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:

ARTICLE I

ACQUISITION AND EXCHANGE OF SHARES

        1.1.                  The Agreement .    The parties hereto hereby agree that, at the Closing, the Company shall acquire all 4,400,000 shares of Target Stock from the Target Stockholders (in the amount for each Target Stockholder set forth opposite each Target Stockholder’s name on Schedule A hereto) in exchange solely for the 7,582,060 Company Exchange Shares (in the amount for each Target Stockholder set forth opposite each Target Stockholder’s name on Schedule A hereto). The parties hereto agree that at the Closing, the Target will become a wholly-owned subsidiary of the Company.                      

        1.2.                  Exchange of Shares .

 

                                (a)                At the Closing, the Company will cause to be issued and held for delivery to the Target Stockholders, stock certificates representing in the aggregate the 7,582,060 Company Exchange Shares, in exchange for all of the issued and outstanding Target Stock, all of which shares of Target Stock will be delivered to by the Target Stockholders (with duly executed stock transfer powers) the Company at the Closing.
                                (b)                The 7,582,060 Company Exchange Shares to be issued to the Target Shareholder pursuant to Section 1.2(a) will be authorized, but theretofore unissued shares of Company Common Stock, and will be issued to the Target Stockholders in the amounts as set forth in  Schedule A  hereto.
                                (c)                The 7,582,060 Company Exchange Shares to be issued to the Target Stockholders hereunder will be “ restricted securities ” as defined in Rule 144 of the Securities Act and each Target Stockholder hereby represents severally but not jointly that each is acquiring its portion of the 7,582,060 Company Exchange Shares for investment purposes only and without the intent to make a further distribution of any of such Company Exchange Shares being issued to it.  All 7,582,060 Company Exchange Shares being issued to the Target Stockholders pursuant to this Agreement shall be issued by the Company pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(2) and/or Rule 506 of the Securities Act and the rules and regulations promulgated thereunder.  Certificates representing all 7,582,060 Company Exchange Shares to be issued hereunder shall bear a restrictive legend in substantially the following form:

The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered for sale, sold, or otherwise disposed of, except in compliance with the registration provisions of such Act or pursuant to an exemption from such registration provisions, the availability of which is to be established to the satisfaction of the Company.

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                                (d)                The 4,400,000 shares of Target Stock owned by the Target Stockholders are the only securities (as defined in the Securities Act) of the Target issued and outstanding and there are no options, warrants and/or other securities of the Target and/or any rights to acquire from the Target any other Target securities and/or from any of the Target Stockholders any Target Stock.

        1.3.                  Closing; Closing Date .  The Closing shall be held at 10:00 a.m. (New York City Time) on July 24, 2017, or, if the conditions set forth in Section 3.1 and Section 3.2 have not been satisfied (or waived) by such date, as soon as practicable following the satisfaction (or waiver) of the conditions set forth in Section 3.1 and Section 3.2 (the date of the Closing, “ Closing Date ”), and shall be effectuated remotely by facsimile or other electronic transmission of documents, or at such other time and place as the parties agree.

        1.4.                  Closing .               At the Closing:

                                (a)                The Target Stockholders will deliver to the Company stock certificates or other evidences representing all of the issued and outstanding Target Stock duly endorsed (or otherwise to the satisfaction of the Company), so as to make the Company the sole owner thereof, free and clear of all liens, claims and other encumbrances in the amounts per Target Stockholder as set forth on Schedule A ;
                                (b)                the Target and the Target Controlling Stockholder shall have each satisfied the other conditions precedent to Closing including the delivery of such documents and agreements all as set forth in Section 3.2 ;
                                (c)                the Company will deliver to the Target Stockholders, stock certificates of the Company representing the 7,582,060 Company Exchange Shares, which certificates will bear a standard restrictive legend in the form customarily used with restricted securities and as set forth in Section 1.2(c) above in the amounts per Target Stockholder as set forth on Schedule A ; and
                                (d)                the Company shall have satisfied the other conditions precedent to Closing including the delivery of the other documents and agreements all as set forth in Section 3.1

        1.5.                  Approval by Board of Directors .    The Company and the Target each has taken all necessary and requisite corporate and other action, including without limitation, actions of their respective Board of Directors to approve this Agreement and all transactions contemplated hereby and in connection herewith that each is a party to.

        1.6.                  Incorporation by Reference . The parties hereto agree that the “WHEREAS” clauses are incorporated herein as terms of this Agreement.

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ARTICLE II

REPRESENTATIONS AND WARRANTIES

                

        2.1.                  Representations and Warranties of the Company .  the Company hereby represents and warrants to the Target and the Target Stockholders as follows:

                                (a)(i)            the Company Common Stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and the Company is subject to the periodic reporting requirements of Section 13 or Section 15 of the Exchange Act.  The Company has provided to the Target and the Target Stockholders (i) a copy of the Current Report on Form 8-K to be filed by the Company with the SEC within four (4) business days following the Closing (the “ Super 8-K ”), and (ii) copies of all forms, reports, schedules, statements, and other documents required to be filed by it under the Exchange Act not otherwise available on the Edgar System and requested by the Target and/or any Target Stockholder (collectively, the “ SEC Reports ”). The SEC Reports (i) filed with the SEC prior to April 26, 2017, to the Company’s knowledge, and (ii) filed with the SEC following April 26, 2017 (i) did not contain any untrue statement of a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the applicable rules and regulations thereunder.
                                (ii)                the shares of Company Common Stock are DTC eligible securities in the Depository Trust Company book entry system.
                                (b)                The Company has no Subsidiaries (as hereinafter defined).  The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada with full power and authority to own, lease and operate its properties and conduct its business. To the knowledge of the Company, the Company is not in violation of its certificate of incorporation or bylaws (the “ Company Documents ”) or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness, or in any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which it is a party or by which it or its properties or assets may be bound, which violation or default would have a material adverse effect on the business, prospects, financial condition or results of operations of the Company; and the Company is not in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or over its properties or assets, which violation would have a material adverse effect on the business, prospects, financial condition or results of operations of the Company taken as a whole.  The Company is an issuer described in Rule 144(i)(1) of the Securities Act. For purposes of this Agreement (i) “ Subsidiary ” means any Person in which another Person, directly or indirectly, (a) owns any of the outstanding capital stock or holds any equity or similar interest of such Person, or (b) controls or operates all or any part of the business, operations or administration of such Person; (ii) “ Person ” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed in this “(ii),” and (iii) “ Affiliate ” or “ affiliate ” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with a Person, and as used in this “(iii),” the term “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and/or policies of a Person, whether through ownership of voting securities or other ownership interest by contract, or otherwise.
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                                (c)                the Company has all requisite power and authority to execute, deliver, and perform this Agreement.  All necessary proceedings of the Company have been duly taken to authorize the execution, delivery, and performance of this Agreement by the Company. This Agreement has been duly authorized, executed, and delivered by the Company, constitutes the legal, valid, and binding obligation of the Company, and is enforceable against it in accordance with its terms.  No consent, approval, authorization or order of, or qualification with, any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or over its properties or assets is required for the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions herein contemplated, except such as may be required under the Securities Act or under state or other securities or blue sky laws, all of which requirements have been, or prior to the Closing Date will be, satisfied in all material respects.  No consent of any party to any material contract to which the Company is a party is required for the execution, delivery, or performance of this Agreement by the Company; and the execution, delivery, and performance of this Agreement by the Company will not violate, result in a material breach of any material contract to which the Company is a party to.
                                (d)                The authorized capital stock of the Company consists of (i) 50,000,000 shares of Company Common Stock, of which 3,500,000 shares are issued and outstanding, and (ii) 5,000,000 shares of “blank check” preferred stock, none of which are outstanding.  Each outstanding share of Company Common Stock is to the knowledge of the Company, duly and validly authorized, validly issued, fully paid, and non-assessable.
                                (e)                Immediately prior to the Closing, the Company shall have no properties or assets other than immaterial intangible assets.
                                (f)                No current officer or director of the Company has been, within the five years ending on the Closing Date, a party to any bankruptcy petition against such person or against any business of which such person was affiliated; convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; or found by a court of competent jurisdiction in a civil action, 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.
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        2.2.                  Representations and Warranties of the Target and the Target Controlling Stockholder .  The Target and the Target Controlling Stockholder hereby jointly represent and warrant to and agree with the Company as follows:

                

               (a)            Target has no Subsidiaries.  Target has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full power and authority (corporate and other) to own, lease and operate its respective properties and conduct its respective business as conducted on the date hereof. The Target is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on its business, prospects, condition (financial or otherwise), and results of operations of the Target. No proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. The Target is in possession of, and operating in compliance with, all authorizations, licenses, certificates, consents, orders and permits from state, federal, foreign and other regulatory authorities that are material to the conduct of its business, all of which are valid and in full force and effect. Target is not in violation of its charter or bylaws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness, or in any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which it is a party or by which it or its properties or assets may be bound, which violation or default would have a material adverse effect on the business, prospects, financial condition or results of operations of Target and the subsidiaries thereof taken as a whole; and the Target is not in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over Target or over its properties or assets, which violation would have a material adverse effect on the business, prospects, financial condition or results of operations of the Target.

                

               (b)           The Target has all requisite power and authority to execute, deliver, and perform this Agreement and all other documents, agreements and related items to be entered into by the Target pursuant hereto including, but not limited to, the IP Assignment Agreement, the Royalty Agreement and the Termination Agreement (each as hereinafter defined) (collectively, the “ Target Transaction Documents ”) and all transactions contemplated thereby.  All necessary proceedings of Target have been duly taken to authorize the execution, delivery, and performance of this Agreement and the other Target Transaction Documents. This Agreement and the other Target Transaction Documents have each been duly authorized, executed, and delivered by Target, constitute legal, valid, and binding obligation of Target, and is enforceable as to Target in accordance with its terms.  Except as otherwise set forth in this Agreement, no consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal is required by Target for the execution, delivery, or performance of this Agreement and the other Target Transaction Documents.  No consent, approval, authorization or order of, or qualification with, any court, government or governmental agency or body, domestic or foreign, having jurisdiction over Target or over its properties or assets is required for the execution and delivery of this Agreement and the other Target Transaction Documents by Target and the consummation by Target of the transactions herein and therein contemplated, except such as may be required under the Securities Act or under state or other securities or blue sky laws.   Schedule 2.2(b) hereto sets forth all contracts, agreements and/or understandings that the Target is a party to (or to which its or any of its respective businesses, properties, or assets are subject) including, but not limited to, all contracts, agreements, licenses, leases, debt documents, understandings, letters of intent or otherwise whether oral or in writing (the “ Contracts ”). No consent of any party to any Contract (as defined below) is required for the execution, delivery, or performance of this Agreement and the other Target Transaction Documents by Target; and the execution, delivery, and performance of this Agreement and the other Target Transaction Documents by Target will not violate, result in a breach of, conflict with, or (with or without the giving of notice or the passage of time or both) entitle any party to terminate or call a default under, entitle any party to receive rights or privileges that such party was not entitled to receive immediately before this Agreement and the other Target Transaction Documents were executed under, or create any obligation on the part of Target to which it was not subject immediately before this Agreement and the other Target Transaction Documents were executed under, any term of any such material contract, agreement, instrument, lease, license, arrangement, or understanding, or violate or result in a breach of any term of the certificate of incorporation or by-laws of Target or violate, result in a breach of, or conflict with any law, rule, regulation, order, judgment, decree, injunction, or writ of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over Target or over its properties or assets.

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               (c)           There is not any pending, or to the best of Target’s and Target Controlling Stockholder’s knowledge, threatened, action, suit, claim or proceeding against Target and/or the Target Controlling Stockholder, or any of Target’s current or past officers or any of the respective properties, assets or rights of Target, before any court, government or governmental agency or body, domestic or foreign, having jurisdiction over Target or over Target’s current or past officers or the properties of Target, or otherwise that (i) is reasonably likely to result in any material adverse change in the respective business, prospects, financial condition or results of operations of Target or might materially and adversely affect its properties, assets or rights taken as a whole, (ii) might prevent consummation of the transactions contemplated by this Agreement and the other Target Transaction Documents, or (iii) alleging violation of any Federal or state securities laws.

                

               (d)           The authorized capital stock of Target consists of 20,000,000 shares of common stock, par value, $0.0625 per share, of which 4,400,000 are issued and outstanding and owned by the Target Stockholders in the amounts set forth on Schedule A hereto.  Each of such outstanding shares of Target Stock is duly and validly authorized, validly issued, fully paid, and nonassessable, has not been issued and is not owned or held in violation of any preemptive or similar right of stockholders.  There is no commitment, plan, or arrangement to issue, and no outstanding option, warrant, or other right calling for the issuance of, any share of capital stock of, or any security or other instrument convertible into, exercisable for, or exchangeable for capital stock of the Target and there is outstanding no security or other instrument convertible into or exchangeable for capital stock of Target.  When delivered by the Target Stockholders in accordance with the terms of this Agreement, the Target Stock will be duly and validly issued and fully paid and nonassessable, and will be sold free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest of any kind; and no preemptive or similar right, co-sale right, registration right, right of first refusal or other similar right of stockholders exists with respect to any shares of Target Stock or the issuance and sale thereof  No further approval or authorization of any stockholder, the Board of Directors of Target or its stockholders or others is required for the issuance and sale or transfer of the Target Stock by the Target Stockholders to be delivered pursuant hereto.  The Target has no stock option, stock bonus and other stock plans or arrangements.

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               (e)           Other than as set forth in the Target Financial Statements (as defined below), the Target has no Indebtedness. “ Indebtedness ” means of any Person means, without duplication, (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, “capital leases” in accordance with GAAP) (other than trade payables entered into in the ordinary course of business consistent with past practice), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations (as defined below) in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above. “ Contingent Obligation ” means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

                

               (f)           Attached hereto as Exhibit 1 are copies of the Target’s certificate of incorporation and by-laws of Target (or, in each case, the comparable charter documents, if any, under applicable law) and all amendments thereto, as presently in effect and will be in effect on the Closing Date.

                

               (g)           Target has been advised concerning the Investment Company Act of 1940, as amended (the “ Investment Company Act ”), and the rules and regulations thereunder, and has in the past conducted its affairs in such a manner as to ensure that it is not and will not become an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act and such rules and regulations.

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               (h)           (i)                 Target has not, and no Person or entity acting on behalf or at the request of Target has, at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other Person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any other applicable jurisdiction.

                

                                (ii)                No director, officer, agent, employee, or other person associated with, or acting on behalf of, Target, has, directly or indirectly used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment.  Target’s internal accounting controls and procedures are sufficient to cause Target to comply in all respects with the Foreign Corrupt Practices Act of 1977, as amended.
                                (iii)               Neither the Target, nor any officer, director or affiliate of Target, has been, within the ten years ending on the date of this Agreement, a party to any bankruptcy petition against such person or against any business of which such person was affiliated; convicted in a criminal proceeding or subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; or found by a court of competent jurisdiction in a civil action, by the Securities and Exchange Commission 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.

                

               (g)            Target has not incurred any liability, direct or indirect, for finders’ or similar fees on behalf of or payable by Target and the Target Stockholders in connection with the transactions contemplated hereby, in the other Target Transaction Documents and/or any other transaction involving Target and/or the Target Stockholders.

               (h)           No stockholder of Target has any right to request or require Target to register the sale of any shares owned by such stockholder under the Securities Act on any registration statement.

               (i)             Target is in compliance with, and is not in violation of, applicable federal, state, local or foreign statutes, laws and regulations (including without limitation, any applicable building, zoning or other law, ordinance or regulation) affecting its properties or the operation of its business, the violation of which would have a material adverse effect on the business, prospects, financial condition, or results of operations of Target.  Target is not subject to any order, decree, judgment or other sanction of any court, administrative agency or other tribunal.

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               (j)            Attached hereto as Schedule 2.2(j) are true and correct copies of the following:  (i) audited balance sheets of Target as of December 31, 2016; (ii) unaudited balance sheets of Target as of March 31, 2017; audited statements of income, statements of stockholders’ equity, and statements of cash flows of Target for the years ended December 31, 2015 and December 31, 2016; and the unaudited statements of income, statements of stockholders’ equity, and statements of cash flows of Target for the three (3) months ended March 31, 2017 and the notes thereto (collectively, the “ Target Financials ”).  Each such balance sheet presents fairly the financial condition, assets, liabilities, and stockholders’ equity of Target as of its respective date; each such statement of income and statement of stockholders’ equity presents fairly the results of operations of Target for the period indicated; and each such statement of cash flows fairly represents the financial condition of Target in a material respects.

               (k)             Intellectual Property . Schedule 2.2(k)(i) hereto, sets forth all Intellectual Property (as defined below) owned by the Target (“ Target IP ”) prior to entering into the IP Assignment Agreement; and Schedule 2.2(k)(ii) hereto, sets forth all of the Intellectual Property owned by the Target Majority Stockholder. Each item of Intellectual Property is owned solely and exclusively by the Persons set forth on Schedule 2.2(k)(i) and (ii) (“ TCS-IP ,” and together with the Target IP, collectively, the “ Combined IP ”).  Without limiting the generality of the foregoing, the Intellectual Property owned by such Persons, or to which such Persons have legal and sufficient rights to use, constitutes all of the Intellectual Property necessary to design, develop and commercialize the proposed insulin pump (the “ Device ”) and all other intended related actions and business of the Target. Neither the Target nor the Target Controlling Stockholder believes that none of the Combined IP infringe on the Intellectual Property of others. There is no claim, action or proceeding being made or brought, or to the knowledge of the Target and/or the Target Controlling Stockholder, being threatened, against the Target and/or the Target Controlling Stockholder regarding any of the Combined IP. Neither the Target nor the Target Controlling Stockholder is aware of any facts or circumstances that could reasonably be expected to give rise to any infringements or claims, actions or proceedings. Intellectual Property ” means (i) all inventions and discoveries (whether patentable or not patentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, industrial designs, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof; (ii) all trademarks, service marks, domain names, trade dress, logos, trade names and corporate names, together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith; (iii) all copyrightable works, all copyrights and all applications, registrations and renewals in connection therewith; (iv) all broadcast rights; (v) all mask works, designs, industrial designs, and all applications, registrations and renewals in connection therewith; (vi) all know-how, trade secrets and confidential business information, whether patentable or unpatentable and whether or not reduced to practice (including ideas, research and development, know-how, formulas, compositions and manufacturing and production process and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals); (vii) all computer software (including data and related documentation); (viii) all other proprietary rights; (ix) all copies and tangible embodiments thereof (in whatever form or medium); and (x) any rights or licenses to or from a third party in connection therewith.

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        2.3.                  Representations and Warranties of the Target Stockholders .    Each Target Stockholder severally and not jointly hereby represent and warrant to, and agree with, the Company as follows:

               (a)            Such Target Stockholder has full power and authority under the laws of the jurisdictions of residence thereof to execute, deliver, and perform this Agreement and the transactions contemplated hereby and in connection herewith that it is required to as provided herein.

               (b)           Such Target Controlling Stockholder beneficially and of record owns the number of shares of Target Stock set forth on Schedule A . Such Target Stockholder has full power and authority to transfer its shares of Target Stock to the Company under, pursuant to, and in accordance with, this Agreement, and such shares of Target Stock owned by such Target Stockholder are free and clear of any liens, charges, mortgages, pledges or encumbrances and such shares are not subject to any claims as to the ownership thereof, or any rights, powers or interest therein, by any third party.

               (c)           (i)                 Such Target Stockholder represents that each is acquiring its applicable Company Exchange Shares to be issued pursuant to Section 1.2(a) hereof for its own account, for investment purposes only and not with a view to distribution or resale thereof within the meaning of such phrase as defined under the Securities Act.  

                               (ii)                The certificate or certificates representing the Company Exchange Shares shall bear a legend in substantially the form set forth in Section 1.2(c) hereof.

                               (iii)               Such Target Stockholder acknowledges being informed and understands that the Company Exchange Shares to be issued to it pursuant to Section 1.2(a) hereof shall be unregistered, shall be “ restricted securities ” as defined in paragraph (a) of Rule 144 under the Securities Act, and must be held indefinitely unless (a) they are subsequently registered under the Securities Act, or (b) an exemption from such registration is available.  Such Target Stockholder further acknowledges that the Company is an issuer identified in Rule 144(i)(1) (a “ Shell ”), and that the Company does not have an obligation and/or any intention to register any Company Exchange Shares for resale with the SEC or otherwise for the account of such Target Stockholder. Such Target Stockholder is familiar with and understands Rule 144 including its applicability to shells and/or former Shells and further understands that until the Company files its Super 8-K with Form 10 information, it will continue to be a Shell.

                               (iv)              Such Target Stockholder acknowledges that it has been afforded access to all material information which they have requested from the Company and/or the Target relevant to their decision to acquire the Company Exchange Shares pursuant to this Agreement and to ask questions of the Company’s and the Target’s management and that, except as set forth herein, neither the Company nor anyone acting on behalf of the Company has made any representations or warranties to such Target Stockholder which have induced, persuaded, or stimulated the Target Stockholders to acquire such Company Exchange Shares.

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                               (v)               Such Target Stockholder has the knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the purchase of the Company Exchange Shares and each Target Stockholder is and will be able to bear the economic risk of the investment in such Company Exchange Shares.

        2.4.                  Additional Representations and Warranties of the Target Controlling Stockholder .    In addition to the representations, warranties and agreements set forth of the Target Controlling Stockholder provided in Section 2.2 and Section 2.3 hereof, the Target Controlling Stockholder hereby represents and warrants to, and agrees with, the Company as follows:

               (a)            The Target Controlling Stockholder has (i) the full power and authority as an executive officer of the Target to execute, deliver and perform this Agreement and the other Target Transaction Documents and the transactions contemplated hereby and thereby on behalf of the Target, and (ii) the sole right and authority to, in his individual capacity, execute, deliver and perform his obligations under this Agreement and the Target Transaction Documents to which he is a party and such other transactions contemplated hereby or thereby. When executed by the Target Controlling Stockholder this Agreement and the other Target Transaction Documents will be a binding obligation of the Target Controlling Stockholder enforceable against him in accordance with the terms hereof and thereof.

               (b)           The Target Controlling Stockholder beneficially and of record owns the 4,200,000 shares of Target Stock which constitutes approximately ninety-five (95%) of the issued and outstanding shares of Target Stock as provided in Schedule A hereto, and other than the Target Minority Stockholders to the extent and as set forth on Schedule A hereto, no other Person owns and/or has any right to acquire any shares of Target Stock and/or any other securities of the Target. Upon execution of the Termination Agreement, each of the Target Minority Stockholders shall have full power and authority to transfer its respective Target Stock to the Company under, pursuant to, and in accordance with, this Agreement, and such shares of Target Stock are free and clear of any liens, charges, mortgages, pledges or encumbrances and such shares are not subject to any claims as to the ownership thereof, or any rights, powers or interest therein, by any third party and are not subject with respect to preemptive or similar rights of stockholders.

               (c)            The Target Controlling Stockholder (i) is the sole owner of all of the TCS-IP, no person has any right to acquire any interest therein and there is no lien thereon, and (ii) has the sole right and power to transfer the TCS-IP to the Target pursuant to the IP Assignment Agreement and when so transferred shall provide the Target with sole ownership and full use to such Target Controlling Stockholder’s Intellectual Property.

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               (d)           The Target Controlling Stockholder has received from the Company copies of each SEC Report (so requested by the Target Controlling Stockholder), and each of the following Disclosure Documents to the extent not available on the EDGAR System (i) the Super 8-K (as defined below), (ii) the Company’s Current Reports on Form 8-K filed by the Company with the SEC on or about, April 5, 2017 and May 11, 2017, (iii) the Company’s Information Statement on Schedule 14f-1 filed by the Company with the SEC on or about April 5, 2017, (iv) the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2017 filed by the Company with the SEC on or about May 17, 2017, (v) the Company’s Annual Report on Form 10-K for the year ending June 30, 2016 filed by the Company with the SEC on or about September 26, 2016, (vi) the Target Acquisition Agreement, and (vii) the Common Stock Purchase Agreement (including the Exhibits and Schedules thereto) relating to the Offering. The Super 8-K and the other documents (and all schedules and exhibits to each) set forth in (i) – (vii) of this Section 2.4(d) are hereinafter collectively referred to as the “ Disclosure Package ;” with each item in (i) – (vi) of this Section 3.1 being a “ Disclosure Document ” and collectively, the “ Disclosure Documents ”). The Target Controlling Stockholder has fully read and fully understands each Disclosure Document in the Disclosure Package (including, but not limited to, the “risk factors” set forth in the Super 8-K) and the other SEC Reports and has been afforded to its complete satisfaction (a) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from the Company and its representatives concerning the Disclosure Documents including, but not limited to, the Offering, the capital structure before and after the Closing of the Acquisition and the Share Cancellation and the terms and conditions of the Offering; (b) access to information about the Company; and (c) the opportunity to obtain such additional information that the Company possesses or could acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the Shares. (i) All information in the Super 8-K directly and/or indirectly regarding and/or relating to the Target and the Target Controlling Stockholder including the Target’s business and proposed business, risk factors, capital structure, biographies of the Target Controlling Stockholder and his nominees to the Company Board and appointees to officer positions in the Target and the Company, all such Persons beneficial ownership of securities in the Company , the capital structure of the Target, the Target Controlling Stockholder’s Intellectual Property and all other information related to the above, and (ii) the Target Financial Statements, are true and correct in all material respects and do not include any untrue statement of a material fact or omit to state any material fact required to be stated or necessary to make such information and statements, in light of the circumstances under which they were made, not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Target or the Target Controlling Stockholder with respect to the transactions contemplated herein and in the other Target Transaction Documents contains an untrue statement of a material fact or omits to state a material fact necessary to make such not misleading in light of the circumstances in which they were made.

ARTICLE III

CONDITIONS PRECEDENT TO CLOSING

                

        3.1.                  Company’s Conditions Precedent .    The obligations of the Company to effectuate the Closing is subject to the fulfillment, prior to the date of Closing, of each of the following conditions (any one or more of which may be waived by the Company unless such condition is a requirement of law).

               (a)           All representations and warranties of the Target and the Target Controlling Stockholder contained in this Agreement and any of the other Target Transaction Documents and/or in any written statement, schedule or other documents delivered pursuant hereto or in connection with the transactions contemplated hereby shall be true and correct in all material respects as of the date hereof.

               (b)           The Target and the Target Controlling Stockholder shall have performed and complied in all material respects with all covenants and other agreements required by (or contained in) this Agreement and the other Target Transaction Documents to be performed or complied with or by them prior to or at the Closing.

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               (c)            No action, suit, proceeding or investigation shall have been instituted against any of the Target and the Target Controlling Stockholder, and be continuing before a court or before or by a governmental body or agency, and be unresolved, to restrain or to prevent or to obtain damages in respect of, the carrying out of the transactions contemplated hereby or which might materially and adversely affect the rights of the Company to consummate the transactions contemplated hereby and in the other Target Transaction Documents.

               (d)           Each of the Target and the Target Controlling Stockholder shall have obtained all approvals and consents to consummate this Agreement and the transactions to be consummated at or immediately following the Closing, in accordance with all applicable laws, rules and regulations.

               (e)            The Company shall have entered into in form and substance satisfactory to the Company (i) a termination agreement (the “ Termination Agreement ”) by and among the Target Controlling Shareholder, Target and the Target Minority Stockholders pursuant to which the Common Share Purchase Agreement dated as of January 31, 2017 by and between the Target, the Target Controlling Stockholder and the Target Minority Stockholders including, but not limited to, the “Summary Proposal Term for Additional Funding” attached thereto is terminated in its entirety as of the Closing Date except for Sections 1, 2, 3, 5.1, 5.2, 5.10 and 5.13 therein, (ii)the Royalty Agreement, (iii) an intellectual property transfer agreement with Target and the Target Controlling Shareholder transferring to the Target all of the Target Controlling Stockholder’s Intellectual Property set forth in Schedule 2.2(k)(i) hereto (the “ IP Assignment Agreement ”), and (iv) the Target entering into the Royalty Agreement.

               (f)            The Target shall have delivered to the Company an officer’s and secretary’s certificate, dated as of the Closing Date, certifying as to the (A) incorporation and good standing of the Target in the State of Delaware based upon a certificate issued by the Secretary of State of the State of Delaware as of a date within thirty (30) days of the Closing Date, (B) the Certificate of Incorporation of the Target, as amended, through the Closing Date, (C) the bylaws of the Target, each as in effect as of the Closing Date (the “ By-Laws ”), and (D) the accuracy of the representations and warranties of and the satisfaction of all Closing conditions precedent by the Target and the Target Controlling Stockholder.

               (g)           The Company shall have received this Agreement signed by (i) a duly authorized officer of the Target, and (ii) each Target Stockholder.

               (h)           The Company shall have received duly executed copies of each of the Target Transaction Documents in form and substance satisfactory to the Company.

               (i)            Substantially contemporaneously with the Closing (i) the Company shall have effectuated the sale of no less than $4,500,000 of shares of Company Common Stock in the Offering at a price of $0.66 per share, (ii) the Company Share Cancellation shall have occurred , and (iii) all officers and directors of the Company shall have resigned except that Morgan Frank shall remain a director, and the Company’s Board of Directors (the “ Company Board ”) shall have appointed the Target Controlling Stockholder as the Chairman and Chief Executive Officer of the Company.

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               (j)            The Company shall have received a unanimous written consent of the Board or Directors of the Target approving this Agreement, the other Target Transaction Documents, the transactions contemplated herein and therein and such related matters.

               (k)           The Target and each Target Stockholder shall have taken all actions and delivered all documents as so requested by them pursuant to Section 1 hereof including the delivery to the Company of stock certificates representing all shares of Target Stock owned by such Persons as set forth on Schedule A .

        3.2.                  Target and Target Controlling Stockholders Conditions Precedent . The obligations of the Target and the Target Stockholders to effectuate the Closing and subject to the fulfillment, prior to the date of Closing, of each of the following conditions (any one or more of which may be waived by the Target and/or the Target Stockholders unless such condition is a requirement of law).

               (a)           All representations and warranties of the Company contained in this Agreement and in any written statement, schedule or other documents delivered pursuant hereto or in connection with the transactions contemplated hereby shall be true and correct in all material respects as of the date hereof and as of the Closing.

               (b)           The Company shall have performed and complied in all material respects with all covenants and other agreements required by (or contained in) this Agreement to be performed or complied with by it prior to or at the Closing.

               (c)           No action, suit, proceeding or investigation shall have been instituted against the Company, and be continuing before a court or before or by a governmental body or agency, and be unresolved, to restrain or to prevent or to obtain damages in respect of, the carrying out of the transactions contemplated hereby, or which might materially and adversely affect the rights of the Company to consummate the transactions contemplated hereby.

               (d)           The Company shall have obtained all required consents and approvals to this Agreement and the transactions to be consummated at or immediately following the Closing, in accordance with all applicable laws, rules and regulations.

               (e)           Substantially contemporaneously with the Closing (i) the Company shall have effectuated the sale of no less than $4,500,000 of shares of Company Common Stock in the Offering at a price of $0.66 per share, (ii) the Company Share Cancellation shall have occurred , and (iii) all officers and directors of the Company shall have resigned except that Morgan Frank shall remain a director, and the Company’s Board of Directors (the “ Company Board ”) shall have appointed the Target Controlling Stockholder as the Chairman and Chief Executive Officer of the Company.

               (f)            The Company shall have delivered to the Target this Agreement duly executed by the Company.

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               (g)           The Company shall have delivered to the Target an officer’s and secretary’s certificate, dated as of the Closing Date, certifying as to the (A) incorporation and good standing of the Company in the State of Nevada based upon a certificate issued by the Secretary of State of the State of Nevada as of a date within thirty (30) days of the Closing Date, (B) the Company Documents, each as in effect as of the Closing Date, and (C) the accuracy of the representations and warranties of the Company and the Company has satisfied its other Closing conditions precedent set forth in this Section 3.2 .

               (h)           A unanimous written consent of the Board or Directors of the Company approving this Agreement and the related transactions and the appointment of the Persons to the Company’s Board as set forth in Section 3.1(e) .

ARTICLE IV

MISCELLANEOUS

                

        4.1.                  Expenses .    Whether or not the transactions contemplated in this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, will be paid by the party incurring such expense or as otherwise agreed to herein.

        4.2.                  Necessary Actions .    Subject to the terms and conditions herein provided, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement.  In the event at any time after the Closing, any further action is necessary or desirable to carry out the purposes of this Agreement, the proper executive officers and/or directors of the Company or Target, as the case may be, or the relevant Target Stockholders or Target Stockholders will take all such necessary action.

        4.3.                  Notices .    Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) or electronic mail; or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same.  The addresses, facsimile numbers and e-mail addresses for such communications shall be:

If to the Company:                

Modular Medical, Inc.

17995 Bear Valley Lane

Escondido, California 92027

Telephone: (949) 370-9062

Facsimile: (201)353-8868

Attn: Paul M. DiPerna, Chief Executive Officer

Email: paul@modular-medical.com

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with a copy (for informational purpose only) to:

                

Gusrae Kaplan Nusbaum PLLC

120 Wall Street

New York, NY 10005

Telephone (212) 269-1400

Facsimile: (212) 809-4147

Attention: Lawrence G. Nusbaum, Esq.

Email: lnusbaum@gusraekaplan.com                

If to the Target or the Target Controlling Stockholder:

                

Modular Medical, Inc.

17995 Bear Valley Lane

Escondido, California 92027

Telephone: (949) 370-9062

Facsimile: (201)353-8868

Attn: Paul M. DiPerna, Chief Executive Officer

Email: paul@modular-medical.com

                

If to either or both of the Target Minority Stockholders:

                

Manchester Management Company, LLC

3 West Hill Place

Boston, MA 02114

Telephone: (617) 339-1741

Email: jbesser@mgfund.com

        4.4.                  Parties in Interest .    This Agreement will inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns.  Nothing in this Agreement is intended to confer, expressly or by implication, upon any other person any rights or remedies under or by reason of this Agreement.

        4.5.                  Counterparts .  This Agreement may be executed in one or more counterparts, each of which will be deemed an original and all together will constitute one document.  The delivery by facsimile or .pdf of an executed counterpart of this Agreement will be deemed to be an original and will have the full force and effect of an original executed copy.

        4.6.                  Severability .    The provisions of this Agreement will be deemed severable and the invalidity or unenforceability of any provision hereof will not affect the validity or enforceability of any of the other provisions hereof.  If any provisions of this Agreement, or the application thereof to any person or any circumstance, is illegal, invalid or unenforceable, (a) a suitable and equitable provision will be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances will not be affected by such invalidity or unenforceability, nor will such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

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        4.7.                  Headings .    The Article and Section headings are provided herein for convenience of reference only and do not constitute a part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.

        4.8.                  Governing Law . This Agreement and the terms and conditions set forth herein, shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereto covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York, New York. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other parties hereto of all of its reasonable counsel fees and disbursements.

        4.9.                  Survival of Representations and Warranties .    All terms, conditions, representations and warranties set forth in this Agreement or in any instrument, certificate, opinion, or other writing providing for in it, will survive the Closing and the Closing for a period of one year after Closing, regardless of any investigation made by or on behalf of any of the parties hereto.

        4.10.               This Agreement will not be assignable by operation of law or otherwise and any attempted assignment of this Agreement in violation of this subsection will be void ab initio.

        4.11.                Amendment .    This Agreement may only be amended or modified with the express written consent of each of (i) the Target Stockholders, and (ii) the unanimous written consent of the Company’s board of directors of each of the Company and Target.  This Agreement may not be amended except by an instrument, in writing, signed on behalf of such above parties.

        4.12.                Extended Meanings . In this Agreement words importing the singular number include the plural and vice versa; words importing the masculine gender include the feminine and neuter genders. The word “person” includes an individual, body corporate, partnership, trustee or trust or unincorporated association, executor, administrator or legal representative.

        4.13.                Entire Agreement .  Except as otherwise expressly provided herein, this Agreement and the other Target Transaction Documents sets forth the entire understanding of the parties with respect to the subject matter hereof, and supersedes all existing agreements among them concerning such subject matter.

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        4.14.                No Shop . In consideration for the Company, its officers and directors and each of their affiliates allocating their time and other resources to conduct the Offering and take other actions relating to the Acquisition, the Target Controlling Stockholder and the Target both hereby covenant and agree that neither the Target nor the Target Controlling Stockholder (nor any of their respective affiliates) shall directly and/or indirectly (a)  initiate contact with, solicit or encourage any inquiries or proposals by, or (b) enter into any discussions or negotiations with, or disclose directly or indirectly any information concerning its business, prospects, and properties to, or afford any access to its properties, books and records to, any corporation, partnership, person, or other entity or group (other than the Company and its affiliates, employees, representatives, and agents) regarding a sale of all or a portion of the Target’s and/or the Target Controlling Stockholder’s securities of the Target or a merger, consolidation, or sale of all or a substantial portion of the assets of the Target or the Target Controlling Stockholder’s Intellectual Property or any similar transaction until termination of this Agreement by mutual agreement of the parties hereto.

        4.15.                Company Board of Directors, Etc. Matters. The Company Board shall for a period of five (5) years following the Closing Date consist of no more than five (5) and no less than two (2) directors of which (i) Manchester Management, LLC (“ Manchester ”) shall have the right to appoint two (2) such Directors to the Company Board (and/or terminate any of such directors and re-appoint other directors chosen by it) at any time and from time to time following the Closing Date, one of who shall be Morgan Frank, a current director of the Company who shall remain a director of the Company until his successor is appointed by Manchester, and (ii) the Target Controlling Stockholder shall have the right, in addition to being the Chairman of the Company Board and the Company’s Chief Executive Officer, to appoint 2 additional directors to the Company Board (and/or terminate any of such directors appointed by him and replace them with other directors so chosen by him) at any time and from time to time following the Closing Date. Manchester and the Target Controlling Stockholder will take any and all actions necessary and/or requested by the other to effectuate the same including, but not limited to, voting all voting securities of the Company each has beneficial ownership of and cause its Affiliates to do the same to effectuate the provisions of this Section 4.15 .

        4.16.                Bank Account . For a period of one (1) year following the Closing Date the sole bank account of the Company and the Target shall be such bank account set forth on Schedule 4.16 hereto and any withdrawals from such bank account shall require two (2) signatures one of which shall be that of Morgan C. Frank, a director of the Company (and/or any successor director appointed by Manchester) and the other shall be the Target Controlling Stockholder. The Target Controlling Stockholder shall take any and all actions requested by the Target Minority Shareholders relating to the bank account of Target including, but not limited to closing and/or requiring that Morgan C. Frank (or such other persons designated by the Target Minority Shareholders) become a signatory to any withdrawals from such bank account.

        4.17.                Super 8-K . No later than the date four (4) business days following the Closing Date, the Company shall file with the SEC the Super 8-K which shall include the Target Financial Statements.

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        4.18.                Possible Payments to Target Controlling Stockholder . The parties, as a condition to closing, will enter a written agreement generally providing that the Target Controlling Stockholder shall be entitled to a payment by the Company of the lesser of (a) $0.75 per Device and (b) 5% of the gross sales for each Device sold. The obligation of the Company to make such payment to the Target Controlling Stockholder shall cease upon such time that the total aggregate amount of payments made to Target Controlling Stockholder equals $10,000,000 (the “ Royalty Agreement ”). The obligations to make such payments and the specific terms of such agreement shall be subject to the Target Controlling Stockholder, the Company and the Target entering into a written and approved in all respects by the unanimous written consent of the Board of Directors of the Company.

                

        4.19.                Inventions . Target Controlling Stockholder acknowledges and agrees that all discoveries, concepts, ideas, inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports, patent applications, copyrightable work and mask work and all registrations or applications related thereto, all other proprietary information and all similar or related information (whether or not patentable) which relate to the Company’s or any of its wholly-owned subsidiaries’ (including the Target) actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Target Controlling Stockholder (whether alone or jointly with others) while affiliated in any way with Modular and/or the Target including, but not limited to, owning beneficially and/or of record any securities of Modular, the Company or any of their respective subsidiaries (“ Work Product ”), belongs to Modular, the Company or such subsidiary and the Target Controlling Stockholder hereby expressly and automatically assigns all of the above Work Product to the Company.

                

        4.20.                Non-Compete . The Target Controlling Stockholder covenants and agrees that (i) during his affiliation with the Company and/or the Target including, but not limited to, owning beneficially and/or of record any securities of Modular and for a period of twelve (12) months following the date Target Controlling Stockholder ceases being subject to (i) or (ii) above, Target Controlling Stockholder will not alone, or in any capacity with any other Person:

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(a) directly or indirectly participate in, or support in any capacity (e.g., as an employee, consultant, director, advisor, principal, agent, officer, or otherwise, or as a partner, member, shareholder or owner of securities of any other Person or entity), the invention, development, manufacture, sale, solicitation or sale, marketing, testing, research, or other business aspect of any actual product, product under development, or product line, service or technology or product concept conceived, investigated, studied, designed, developed, manufactured, marketed, or sold by anyone other than the Company, the Target and any wholly-owned subsidiary of either, anywhere in the world where the Company, the Target and any wholly-owned subsidiary of either sells, markets or has implemented a plan to sell or market any of its products or services, and that performs similar functions, is used for the same general purposes as, or is, or will be marketed and sold as a replacement, substitution, or alternative for any Company, the Target and any wholly-owned subsidiary of either product;
(b) call upon, solicit, contact, or serve any of the then-existing clients, customers, vendors, or suppliers of the Company, the Target and any wholly-owned subsidiary of either any clients, customers, vendors, or suppliers that have had a relationship with the Company, the Target and any wholly-owned subsidiary of either during the preceding six (6) months, or any potential clients, customers, vendors, or suppliers that were solicited by the Company, the Target and any wholly-owned subsidiary of either during the preceding six (6) months for the purpose of selling a product or service;
(c) disrupt, damage, impair, or interfere with the business of the Company, the Target and any wholly-owned subsidiary of either whether by way of interfering with or disrupting the relationship of the Company with its clients, customers, representatives, vendors or suppliers; or
(d) employ, contract, affiliate, or create any relationship with (by soliciting or assisting anyone else in the solicitation of any of the Company’s, the Target’s and any wholly-owned subsidiary’s of either current employees, or any person who had worked for the Company, the Target and any wholly-owned subsidiary of either within the six (6) months prior to the Target Controlling Stockholder’s departure from the Company, the Target and any wholly-owned subsidiary of either, on behalf of the Target Controlling Stockholder or any other entity, whether or not such entity competes with the Company, the Target and any wholly-owned subsidiary of either.

[REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE TO FOLLOW]  

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                 [SIGNATURE PAGE OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT]

                 

                 IN WITNESS WHEREOF,  the parties hereto have executed and delivered this Agreement in a manner legally binding upon them as of the date first above written.                

                

  MODULAR MEDICAL, INC. (the Company)
     
  By:       
    Name: Morgan Frank
 

Title: Chief Executive Officer
     
  QUASARUS, INC. (the Target)
     
  By:     
    Name: Paul M. DiPerna
    Title: Executive Officer; Chairman
     
     
  Paul M. DiPerna
  (individually, the Target Majority Stockholder)
     
     
  Morgan C. Frank
  (individually, a Target Minority Stockholder)
     
     
  James E. Besser
  (individually, a Target Minority Stockholder)

                              

                

[END OF SIGNATURE PAGE OF REORGANIZATION AND SHARE EXCHANGE AGREEMENT]

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Schedule A

                

Target Stockholder Information

                

                

Shareholder Name

Number of Target Shares
Owned Prior to Closing
and to be Exchanged in
the Acquisition

Number of Company
Exchange Shares to be received
in Exchange for Target Stock
Owned

Paul M. DiPerna

Modular Medical, Inc.

17995 Bear Valley Lane

Escondido, California 92027

Telephone: (949) 370-9062

Facsimile: (201)353-8868

Attn: Paul M. DiPerna,
Chief Executive Officer

Email: paul@modular-medical.com

                

4,200,000 7,220,400

Morgan C. Frank

c/o Manchester Management
Company, LLC

3 West Hill Place

Boston, MA 02114

Telephone: (617) 339-1741

Email: jbesser@mgfund.com

                

100,000 180,830

James E. Besser

c/o Manchester Management
Company, LLC

3 West Hill Place

Boston, MA 02114

Telephone: (617) 339-1741

Email: jbesser@mgfund.com

                

100,000 180,830
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Schedule 2.2(b)

Target Contracts

None.

24
 

Schedule 2.2(j)

Target Financial Statements

See Attached.

25
 

Schedule 2.2(k)(i)

 

Target Intellectual Property

                

U.S. Provisional Patent Application No. 61/947,032, filed March 3, 2014, naming Paul DiPerna as inventor, and titled “Fluid Delivery Damping and Delivery Pump”

                

International Patent Application No. PCT/US2015/018525, filed March 3, 2015, naming Paul DiPerna as inventor, and titled “Fluid Delivery Pump”

                

U.S. Non-provisional Patent Application No. 15/122,132, filed August 26, 2016, naming Paul DiPerna as inventor, and titled “Fluid Delivery Pump”

                

U.S. Provisional Patent Application No. 62/529,086, filed July 6, 2017, naming Paul DiPerna as inventor, and titled “Variable Flow Orifice with Dynamic Control Feedback.”

26
 

Schedule 2.2(k)(ii)

 

Target Controlling Stockholder Intellectual Property

 

See Schedule 2.2(k)(ii)

27
 

Schedule 4.16

Bank Accounts

28
 

Exhibit 1

                

Certificate of Incorporation and By-Laws of Target

 

See Officers Certificate.

29
 

Exhibit 10.2

 

                

COMMON STOCK PURCHASE AGREEMENT

                 

by and among

                 

MODULAR MEDICAL, INC.

                 

and

                 

THE INVESTORS REFERRED TO HEREIN

                 

July 24, 2017 

 
 
 

MODULAR MEDICAL, INC.

COMMON STOCK PURCHASE AGREEMENT

               This Common Stock Purchase Agreement (this “ Agreement ”) is dated as of July 24, 2017, by and among MODULAR MEDICAL, INC ., a Nevada corporation (the “ Company ”), and each investor listed on the Schedule of Investors attached hereto (individually an “ Investor ” and collectively the “ Investors ”).

                WHEREAS , the Company has authorized the issuance and sale (the “ Offering ”) of 7,395,576 shares (each a “ Share ” and collectively, the “ Shares ”) of common stock, par value $0.001 per share, of the Company (the “ Common Stock ”); and

                WHEREAS , subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”) and/or Rule 506(b) of Regulation D (“ Rule 506 ”) promulgated thereunder (“ Regulation D ”), the Company desires to sell, and each Investor, severally and not jointly, desires to purchase from the Company, the number of Shares and for the aggregate purchase price (as to each Investor, the “ Aggregate Purchase Price ”), set forth opposite each such Investor’s name on the Schedule of Investors , which aggregate number of Shares for all Investors shall be 6,818,000 Shares for an aggregate purchase price of $4,500,000 (excluding the sale of the 757,576 Over-Subscription Shares (as hereinafter defined));

                WHEREAS , JEB Partners, L.P. (“ JEB Partners ”) and Manchester Explorer, L.P. (the “ Company Controlling Shareholder ,” and together with JEB Partners, collectively, the “ Purchasing Funds ”) have agreed to purchase in the Offering no less than an aggregate of $2,500,000 of Shares (3,787,879 Shares);

                WHEREAS , the Company may sell on or no later than the third (3rd) business day following the Closing Date (as hereinafter defined), up to an additional $500,000 of Shares (757,576 Shares) (the “ Over-Subscription Shares ”); provided that except as otherwise provided herein, all references to Share amounts, the aggregate purchase price for all Shares purchased by Investors in the Offering, shares of Common Stock issued and outstanding following the Closing (as hereinafter defined) (whether expressed numerically or as a percentage basis) and/or otherwise shall exclude all Over-Subscription Shares; and

                WHEREAS , as a condition to and contemporaneously with the Closing (i) the Company shall effectuate the Target Acquisition (as hereinafter defined), and (ii) the Company Controlling Shareholder shall cancel all 2,900,000 shares of Common Stock owned by it (the “ Share Cancellation ”).

                NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Investor agree as follows:

 
 

SECTION 1

Purchase and Sale of Shares

        1.1.                Agreement to Sell and Purchase .  At the Closing, the Company, subject to the terms and conditions set forth in this Agreement, will issue and sell the 6,818,000 Shares to the Investors, and each Investor will, severally and not jointly, purchase from the Company, the number of such Shares and for the Aggregate Purchase Price set forth opposite such Investor’s name on the Schedule of Investors . The purchase price per Share is $0.66 and the aggregate purchase price for all 6,818,000 Shares is $4,500,000.

        1.2.                Closing; Closing Date .  The consummation of the sale and purchase of the 6,818,000 Shares (the “ Closing ”) shall be held at 10:00 a.m. (New York City Time) on such date as soon as reasonably practicable following the satisfaction (or waiver) of the conditions set forth in Section 1.4(a) and Section 1.4(b) (the “ Closing Date ”), and shall be effectuated remotely by facsimile or other electronic transmission of documents, or at such other time and place as the Company and the Investors may agree.

         1.3.                Deliveries .

                (a)          Deliveries of the Company . On the Closing Date, the Company shall deliver or cause to be delivered to each Investor the following:

                               (i)                one or more stock certificates, representing the Shares being purchased by such Investor, and registered in the name of such Investor, as set forth on the Schedule of Investors ; or at such Investor’s request, a statement or other written evidence that the Shares issuable to such Investor have been issued and are held in book entry form at the Company’s transfer agent, in either case dated as of the Closing Date;
                              (ii)               A copy of this Agreement executed by the Company;
                               (iii)              An officer’s and secretary’s certificate, dated as of the Closing Date, certifying as to the (A) incorporation and good standing of the Company in the State of Nevada based upon a certificate issued by the Secretary of State of the State of Nevada as of a date within thirty (30) days of the initial Closing Date, (B) the Certificate of Incorporation of the Company, as amended, through the Closing Date (the “ COI ”), (C) the bylaws of the Company, each as in effect as of the Closing Date (the “ By-Laws ”), and (D) the consummation of the Acquisition and the Share Cancellation; and
                              (iv)              A unanimous written consent of the Board or Directors of the Company approving this Agreement and related transactions including the issuance and sale of the 6,818,000 Shares and the Over-Subscription Shares as provided herein and the Target Acquisition.

                (b)          Deliveries of each Investor . On the Closing Date, each Investor shall deliver or cause to be delivered to the Company the following:

                               (i)                This Agreement duly executed by such Investor; and
1
 
                              (ii)              Except as provided on Schedule 1.3(b)(ii) , such Investor’s Aggregate Purchase Price in cash by wire transfer to the account specified in writing by the Company (unless other means of payment shall have been agreed upon by the Investor and the Company).

        1.4.                Closing Conditions .

               (a)          Closing Condition of the Company . The obligation of each Investor hereunder to purchase Shares at the Closing is subject to the satisfaction, at or before the  Closing Date, of each of the following conditions, provided that these conditions are for each Investors ’s sole benefit and may be waived by such Investor at any time in its sole discretion by providing the Company with prior written notice thereof:

                               (i)                the accuracy in all material respects on the Closing Date of the representations and warranties of the Investors contained herein;
                               (ii)               all obligations, covenants and agreements of the Investors required to be performed at or prior to the Closing Date shall have been performed;
                               (iii)              the delivery by the Investors of the items set forth in Section 1.3(b) of this Agreement;
                               (iv)              the Share Cancellation shall have occurred contemporaneously with the Closing; and
                               (v)               the Target Acquisition shall have occurred contemporaneously with the Closing.

               (b)          Closing Conditions of the Investors . The obligation of the Company hereunder to issue and sell the Shares to each Investor at the  Closing is subject to the satisfaction, at or before the  Closing Date, of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing each Investor with prior written notice thereof:

                               (i)                the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained herein;
                               (ii)               all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
                               (iii)              the delivery by the Company of the items set forth in Section 1.3(a) of this Agreement;
                               (iv)              the Share Cancellation shall have occurred contemporaneously with the Closing; and
                              (v)              the Target Acquisition shall have occurred contemporaneously with the Closing.
2
 

SECTION 2

Representations and Warranties of the Company

The Company hereby represents and warrants the following as of the Closing Date:

        2.1.                Organization, Good Standing, Qualifications, Etc . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as presently being conducted and as proposed to be conducted and to enter into this Agreement. The Company does not have any Subsidiaries. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned or leased by it makes such qualification necessary, other than those in which the failure so to qualify or be in good standing would not have a Material Adverse Effect. For purposes of this Agreement the term (i) “ Material Adverse Effect ” means any material adverse effect on the business, assets and/or financial condition of the Company, provided none of the following shall constitute a Material Adverse Effect: the effects of conditions or events that are generally applicable to the capital, financial, banking or currency markets and the medical device industry, and changes in the market price of the Common Stock; (ii) “ Subsidiary ” means any Person in which the Company, directly or indirectly, (a) owns any of the outstanding capital stock or holds any equity or similar interest of such Person, or (b) controls or operates all or any part of the business, operations or administration of such Person; (iii) “ Person ” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed in this “(iii),” and (iv) “ Affiliate ” or “ affiliate ” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with a Person, and as used in this “(iv),” the term “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and/or policies of a Person, whether through ownership of voting securities or other ownership interest by contract, or otherwise.

        2.2.                Authorization . (i) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement; (ii) the execution and delivery of this Agreement by the Company and the issuance, sale and delivery of the Shares have been duly authorized by all necessary corporate action and no further consent or authorization of the Company, its Board of Directors (the “ Board ”) or stockholders is required; and (iii) this Agreement has been duly executed and delivered and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, securities, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies, or indemnification or by other equitable principles of general application.

        2.3.                Valid Issuance of Shares . When issued, sold and delivered in accordance with the terms of this Agreement, the Shares will be duly and validly issued, fully paid, and nonassessable, and free of restrictions on transfer other than restrictions on transfer under this Agreement, under applicable state and federal securities laws and liens and/or encumbrances created or imposed by the Investor.

3
 

        2.4.               No Disqualification Events. With respect to the Shares to be offered and sold hereunder in reliance on Rule 506 (the “ 506 Securities ”), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the Offering, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “ Issuer Covered Person ” and, together, “ Issuer Covered Persons ”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “ Disqualification Event ”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506, and has furnished to each Investor a copy of any disclosures provided thereunder.

        2.5.               Other Covered Persons. The Company is not aware of any Person (other than any Selling Agent) that has been or will be paid (directly or indirectly) remuneration for solicitation of Investors or potential Investors in connection with the sale of any of the 506 Securities.

        2.6.                Notice of Disqualification Events . The Company will notify the Investors and any Selling Agent in writing, prior to the Closing Date (i) any Disqualification Event related to any Issuer Covered Person, and (ii) any event that with the passage of time, become a Disqualification Event relating to any Issuer Covered Person.

        2.7.                No Conflict . The execution, delivery and performance of this Agreement, and any other document or instrument contemplated hereby, by the Company and the issuance and sale by the Company of the Shares contemplated hereby, do not: (i) violate any provision of the COI or Bylaws, (ii) constitute an event of default under any material agreement which the Company is a party where such event of default would have a Material Adverse Effect, (iii) create a lien or encumbrance on any material property of the Company under any agreement by which the Company is bound, which would have a Material Adverse Effect, (iv) result in a violation of any federal, state, local or foreign statute, rule, regulation, order, writ, judgment or decree (including federal and state securities laws and regulations) applicable to the Company where such violation would have a Material Adverse Effect, or (v) require any consent of any third-party that has not been obtained pursuant to any material contract to which the Company is subject where the failure to obtain such would have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Shares in accordance with the terms hereof (other than any filings that may be required to be made by the Company with the Securities and Exchange Commission (the “ Commission ” or the “ SEC ”), the OTC Pink Market and/or any state securities commissions subsequent to the Closing); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of each Investor herein.

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        2.8.                The Target Acquisition and the Super 8-K . The Company has previously delivered to each Investor a copy of, among other Disclosure Documents (as hereinafter defined), the (i) Stock Exchange and Reorganization Agreement by and among, the Company, the Purchasing Funds including the Company Controlling Shareholder who owns 2,900,000 shares of Common Stock, all of which shall be cancelled contemporaneously with the Closing in the Share Cancellation, Quasuras, Inc., a Delaware corporation (the “ Target ”), Paul M. DiPerna, the owner of approximately 95% of the issued and outstanding capital stock of the Target (the “ Target Controlling Shareholder ”) and James E. Besser and Morgan C. Frank, the Company’s current sole officers and directors and the owners of in the aggregate approximately 5% of the issued and outstanding capital stock of the Target (Messrs. Besser and Frank and together with the Target Controlling Shareholder shall collectively be referred to as the “ Target Shareholders ”) pursuant to which (the “ Target Acquisition Agreement ”) and contemporaneously with the Closing (A) the Company shall acquire (the “ Target Acquisition ”) all of the issued and outstanding capital stock of the Target from the Target Shareholders in exchange for an aggregate of 7,582,000 shares of Common Stock resulting in the Target becoming a wholly-owned Subsidiary of the Company with the sole business of the Company being that of the Target, (B) the Target Controlling Shareholder shall become the Chief Executive Officer and Chairman of the Company and shall own 7,202,727 shares of Common Stock (approximately 48.0% of the then issued and outstanding Common Stock), and (C) the Company Controlling Shareholder shall cancel its 2,900,000 shares of Common Stock in the Share Cancellation, and (ii) the Company’s Current Report on Form 8-K (the “ Super 8-K ”), in substantially the form and substance that the Company will file with the SEC on or before the date four (4) business days following the Closing Date, disclosing, among other items, the closing of the Offering, the Target Acquisition, the Share Cancellation, the business and proposed business of the Company following the Target Acquisition and other “Form 10 information” (as defined in Rule 144(i)(3)). The Company, the Purchasing Funds (including the Company Controlling Shareholder), Manchester Management Company, LLC, the general partner of each of the Purchasing Funds (“ Manchester Management ”) and Messrs. Besser and Frank may be deemed Affiliates of each other. For additional information regarding such Persons, including certain relationships with each other and certain transactions between each other relating to the Company and/or the Target and between one or more of such Persons and the Company and the Target, Investors should fully read and understand Section 3.1 , Schedule 1.3(b)(ii) , Schedule 2.24 and the other Disclosure Documents.

        2.9.                Capitalization . The authorized capital stock of the Company consists of (i) 50,000,000 shares of Common Stock, of which (A) 3,500,000 shares; and (B) 15,000,000 shares (after giving effect to (x) the sale of the 6,818,000 Shares in the Offering, (y) the issuance in the Target Acquisition of the 7,582,000 shares of Common Stock to the Target Shareholders, and (z) the cancellation of the 2,900,000 shares of Common Stock in the Share Cancellation by the Company Controlling Shareholder), will be issued and outstanding immediately (I) prior to, and (II) following the Closing, respectively; and (ii) 5,000,000 shares of preferred stock, par value $.001 per share, of which none are and/or will be issued and outstanding and/or designated immediately prior to and following the Closing. Schedule 2.9 hereto provides the capital structure of the Company immediately prior to and following the Closing. To the knowledge of the Company, all issued and outstanding shares of capital stock have been (x) duly authorized and validly issued, are fully paid and non-assessable, and (y) issued and sold in compliance with the federal securities laws or the applicable statutes of limitation have expired. Other than as contemplated by this Agreement, to the knowledge of the Company, there are no (i) outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party and relating to the issuance or sale of any capital stock or convertible or exchangeable security of the Company; (ii) obligations of the Company to purchase redeem or otherwise acquire any of its outstanding capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof; and/or (iii) anti-dilution or price adjustment provisions, co-sale rights, registration rights, rights of first refusal or other similar rights contained in the terms governing any outstanding security of the Company that will be triggered by the issuance of the Shares and no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.   

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        2.10.              SEC Reports, Documents and Financial Statements . The Company has filed all periodic reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), including pursuant to Section 13(a) or 15(d) thereof, for the preceding twelve (12) month period (the foregoing materials being collectively referred to herein as the “ SEC Reports ”), to the knowledge of the Company, on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  To the knowledge of the Company, as of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  To the knowledge of the Company, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  To the knowledge of the Company, such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“ GAAP ”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.. As of their respective dates, to the knowledge of the Company the financial statements of the Company included in the SEC Reports filed with the Commission during the past twelve months complied as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the Commission or other applicable rules and regulations with respect thereto.

        2.11.              Material Adverse Change . Since April 26, 2016, no event or series of events have occurred that would, individually or in the aggregate, have a Material Adverse Effect on the Company.

        2.12.              No Undisclosed Liabilities . To the Company’s knowledge, the Company has no liabilities, obligations, claims or losses that would be required to be disclosed on a balance sheet of the Company that are not disclosed in any SEC Report, other than those incurred in the ordinary course of the Company’s business.

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        2.13.              No Undisclosed Events or Circumstances . Except for the transactions contemplated by this Agreement, to the knowledge of the Company, no event or circumstance has occurred, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed and which, individually or in the aggregate, would have a Material Adverse Effect.

        2.14.              Actions Pending . To the knowledge of the Company, there is no action, suit, claim, investigation or proceeding pending or threatened against the Company which questions the validity of this Agreement or the issuance and sale of the Shares hereby. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against the Company that would have a Material Adverse Effect. There is no judgment, order, writ, injunction or decree or award has been issued by or, to the knowledge of the Company, requested of any court, arbitrator or governmental agency which would result in a Material Adverse Effect.

        2.15.              Compliance with Law . The businesses of the Company is currently being conducted in accordance with all applicable federal, state and local governmental laws, rules, regulations and ordinances, except as would not reasonably be expected to cause a Material Adverse Effect. The Company has all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of its business as now being conducted by it, except for such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, the failure to possess which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

        2.16.              Exemption from Registration, Valid Issuance, Other Offering . Subject to, and in reliance on, the representations, warranties and covenants made herein by each Investor, the issuance and sale of the Shares in accordance with the terms and on the bases of the representations and warranties set forth in this Agreement, shall be properly issued pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D and/or any other applicable federal and state securities laws.

        2.17.              DTC Status . The shares of Common Stock are eligible for quotation on the OTC- Pink Open Market under the symbol “BLKE,” ** are DTC eligible securities and the Company’s transfer agent, Colonial Stock Transfer Co., Inc. (including any other transfer agent the Company may retain, the “ Transfer Agent ”), is a participant in the DTC Automated Securities Transfer Program.

        2.18.              Investment Company . The Company is not and, after giving effect to the Offering and sale of the Shares, will not be an “investment company” as defined in the Investment Company Act of 1940, as amended.

 

 

** The trading symbol of the Company will be changed as soon as practicable following the name change of the Company which is expected to occur on or following June 14, 2017.

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        2.19.              Shell Company Status . Following the Closing of the Offering and the Target Acquisition and the filing with the SEC of the Super 8-K, the Company will no longer be an issuer identified in Rule 144(i)(1) of the Securities Act. The Company shall file the Super 8-K no later than the fourth (4 th ) business day following the Closing Date.  

        2.20.              No Integrated Offering .  Assuming the accuracy of the Investors’ representations and warranties set forth in Section 3 and other than with respect to any transaction described in any SEC Report or on 8-K, neither the Company, any of its Affiliates, nor any Person acting on its behalf has, directly or indirectly, made any offers or sales of any security that would cause this offering of the Shares to be integrated with prior offerings by the Company of its securities for purposes of the Securities Act.

        2.21.             No General Solicitation; Selling Agent Fees. Neither the Company, any of its Affiliates nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. The Shares will be offered and sold by the Company’s officers and directors and affiliates, who will receive no commissions or other payments directly from any such sales. The Company, however, reserves the right to retain broker/dealers registered as such under Section 15 of the Exchange Act (“ Selling Agents ”), to assist the Company in the offer and sale of the Shares and to pay to any such Selling Agents up to 7.0% of the gross purchase price received by the Company therefrom. The Company shall hold each Investor harmless against, any liability, loss or expense (including, without limitation, attorney’s fees and out-of-pocket expenses) arising in connection with any such claim by any such Selling Agent.  The  Company shall not be  responsible  for the payment of any  fees, if any, including but not limited to, financial advisory fees, finder’s fees or brokers’ commissions for Persons engaged by any Investor, its Affiliates and /or related persons or its investment advisor or otherwise) relating to or arising out of the transactions contemplated hereby. To date, the Company has not engaged any Selling Agents.

        2.22.              Foreign Corrupt Practices .  To the knowledge of the Company, no agent or other person acting on behalf of the Company, has (i) used any Company funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign political activity, (ii) made any unlawful payment to foreign government officials or employees, or (iii) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

        2.23.              Acknowledgment Regarding Investor’s Status . Except as disclosed on Schedule 2.24 , the Company acknowledges and agrees that the Investor is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transaction contemplated hereby. The Company further acknowledges that the Investor is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transaction contemplated hereby and any advice given by the Investor or any of its representatives or agents in connection with this Agreement and the transaction contemplated hereby is merely incidental to the Investor’s purchase of the Shares.

        2.24.             Transactions with Affiliates. Except as set forth on  Schedule 2.24 , none of the current  officers, directors or employees of the Company  is presently a party to any transaction with the Company (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

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SECTION 3

Representations and Warranties of the Investor

Each Investor severally, and not jointly represents, warrants and acknowledges as of the date hereof and as of the Closing Date as follows:

        3.1.                Access to Information; Certain Disclosure . Investor has received from the Company copies of each SEC Report (so requested by an Investor), and each of the following Disclosure Documents to the extent not available on the EDGAR System (i) the Super 8-K, (ii) the Company’s Current Reports on Form 8-K filed by the Company with the SEC on or about, April 5, 2017 and May 11, 2017, (iii) the Company’s Information Statement on Schedule 14f-1 filed by the Company with the SEC on or about April 5, 2017, (iv) the Company’s Quarterly Report on Form 10-Q for the quarter ending March 31, 2017 filed by the Company with the SEC on or about May 17, 2017, (v) the Company’s Annual Report on Form 10-K for the year ending June 30, 2016 filed by the Company with the SEC on or about September 26, 2016, (vi) the Company’s Information Statement pursuant to Section 14C filed with the SEC on or about May 25, 2017 (the “ 14C Information Statement ”), and (vii) the Target Acquisition Agreement. The Super 8-K and the other documents (and all schedules and exhibits to each) set forth in (i) – (vii) of this Section 3.1 are hereinafter collectively referred to as the “ Disclosure Package ;” with each item in (i) – (vii) of this Section 3.1 being a “ Disclosure Document ” and collectively, the “ Disclosure Documents ”). Such Investor has fully read and fully understands each Disclosure Document in the Disclosure Package (including, but not limited to, the “risk factors” set forth in the Super 8-K) and the other SEC Reports and has been afforded to its complete satisfaction (a) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from the Company and its representatives concerning, among other items, the Disclosure Documents, the relationships and related party transactions involving the Company, the Purchasing Funds (including the Company Controlling Shareholder), Manchester Management and Messrs. Besser and Frank and the transactions with each other involving the Company and/or the Target and with one or more of such Persons and the Company and/or the Target, the Target Acquisition, the Target, the risk factors set forth in the Super 8-K, the Target Controlling Shareholder, the officers and directors of the Company following the Target Acquisition, the terms and conditions of the Offering, the Shares and various risks of investing in the Shares; (b) access to information about the Company and the Target and their respective representatives, financial condition, results of operations, business, proposed business, properties, management and prospects sufficient to enable it to evaluate its investment in the Shares; and (c) the opportunity to obtain such additional information that the Company possesses or could acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the Shares.

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        3.2.                Experience . The Investor is experienced in evaluating companies such as the Company, both before and following the Closing and giving effect to the sale of the Shares in the Offering, the Target Acquisition and the Share Cancellation, among other items, and has knowledge and experience in financial and business matters such that the Investor is capable of evaluating the merits and risks of the Investor’s prospective investment in the Company, before and after the Closing, and has the ability and financial wherewithal to bear the economic risks of its purchase of the Shares including a complete loss of its Aggregate Purchase Price.

        3.3.                Purchase Entirely for Own Account . This Agreement is made with Investor in reliance upon Investor’s representation to the Company, which, by Investor’s execution of this Agreement, Investor hereby confirms, that the Shares to be acquired by Investor pursuant to this Agreement will be acquired for investment for Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Investor further represents that Investor does not presently have any contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to such Person or to any third Person with respect to any of the Shares.

        3.4.                Restricted Securities; Rule 144; Shell Company . Investor understands that the Shares have not been registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Investor’s representations as expressed herein. Investor understands that the Shares are “restricted securities” under applicable U.S. federal and state securities laws and that, pursuant to these laws, Investor must hold the Shares indefinitely unless they are registered with the SEC and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Investor acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and on requirements relating to the Company which are outside of Investor’s control, and which the Company is under no obligation and may not be able to satisfy. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions. In connection therewith, the Investor acknowledges that the Company will make a notation on its stock books regarding the restrictions on transfers set forth in this Section 3.4 , subject to Sections 4.1(a) and (b) , and will transfer the Shares on the books of the Company only to the extent not inconsistent herewith and therewith. Investor acknowledges and agrees that the Company prior to the date of filing of its Super 8-K with the Sec that it is pursuant to Rule 144(i) under the Securities Act, securities issued by a current or former shell company that otherwise meet the holding period and other requirements of Rule 144 nevertheless cannot be sold in reliance on Rule 144 until one year after the date on which such company filed current “Form 10 information” with the SEC reflecting that such entity ceased being a shell company and provided that at the time of a proposed sale pursuant to Rule 144, the issuer is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and 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 issuer was required to file such reports and materials), other than Current Reports on Form 8-K.

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        3.5.                Authorization . This Agreement when executed and delivered by the Investor will constitute a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, subject to: (i) judicial principles respecting election of remedies or limiting the availability of specific performance, injunctive relief, and other equitable remedies; and (ii) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect generally relating to or affecting creditors’ rights.

        3.6.                Investor Status .  At the time such Investor was offered the Shares, it was, and at the date hereof it is, and on each date on which it receives the Shares it will be, either:  (i) an “accredited investor” as defined in Rule 501 of the Securities Act, and/or (ii) a “qualified institutional buyer” as defined in Rule 144A under the Securities Act.  Such Investor was not organized for the purpose of acquiring the Shares and is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

        3.7.                General Solicitation .  Such Investor is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement. Such Investor further acknowledges that he or it, or his or its Affiliate, has a pre-existing relationship with the Company such as (i) as a holder of currently outstanding securities of the Company or (ii) another affiliation with the Company.

        3.8.                Fees and Commissions .  The Investor has not retained any intermediary with respect to the transactions contemplated by this Agreement and agrees to indemnify and hold harmless the Company from any liability for any compensation to any intermediary retained by such Investor and the fees and expenses of defending against such liability or alleged liability.

        3.9.                No Prior Short Selling . Investor has not prior to the date of this Agreement either through itself, its agents, representatives and/or Affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any (i) “Short Sale” (as such term is defined in Section 242.200 of Regulation SHO of the Exchange Act), of the Common Stock or (ii) hedging transaction, which establishes a net short position with respect to the Common Stock.

SECTION 4

Other Agreements of the Parties

        4.1.                Legends; Removal of Legends, Etc

               (a)         Each Investor acknowledges and agrees that such Investor’s Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Shares other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of such Investor or in connection with a pledge as contemplated in Section 4.1(b) , the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Shares under the Securities Act.

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               (b)         Each Investor agree to the imprinting, so long as is required by this Section 4.1 , of a legend on such Investor’s Shares in the following form: 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

               (c)          The Company acknowledges and agrees that an Investor may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of such Investor’s Shares to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and, if required under the terms of such arrangement, such Investor may transfer pledged or secured Shares to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the Investor’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Shares may reasonably request in connection with a pledge or transfer of the Shares.

               (d)         Certificates evidencing the Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): (i) following the resale of Shares pursuant to an effective registration statement under the Securities Act covering the resale of such Shares, or (ii) following any sale of such Shares pursuant to Rule 144, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). Investor, at the Company’s request, shall cause its counsel to issue a legal opinion to the Transfer Agent to effect the removal of the legend hereunder.

               (e)         Each Investor, severally and not jointly with the other Investors, agrees with the Company that each Investor will only sell or otherwise transfer any Shares pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Shares are sold pursuant to an effective registration statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Shares as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.

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        4.2.                Furnishing of Information .  Commencing on the date an Investor is able to resell Shares under Rule 144, until the date all Shares may be sold under Rule 144(b)(1) with regard to meeting the requirements of Rule 144(c), the Company agrees to use its reasonable best efforts to timely file (or obtain extensions in respect thereof and file with the SEC within the applicable grace period) all reports required to be filed with the SEC by the Company after the date hereof pursuant to the Exchange Act.  

        4.3.                Form D Filing .  The Company agrees to timely file a Form D with respect to the Shares as required under Regulation D. 

        4.4.                Indemnification of Investors .  Subject to the provisions of this Section 4.4 , the Company will indemnify and hold the Investors and their directors, officers, shareholders, members, partners, employees and agents (each, a “ Investor Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs that any such Investor Party may suffer or incur as a result of or relating to any material breach of any of the representations, warrants, covenants or agreements made by the Company in this Agreement. If any action shall be brought against any Investor Party in respect of which indemnity may be sought pursuant to this Agreement, such Investor Party shall promptly notify the Company in writing which writing shall explain in reasonable detail and attach relevant documents the reason such indemnification is sought, the basis thereof and under why such Investor Party is entitled to such indemnification; and in addition, such Investor Party shall full cooperate with the Company to assist the Company in understanding the basis why the Investor Party is seeking such indemnification (an “ Indemnification Notice ”). Thereafter, the Company shall have the right to assume the defense thereof with counsel of its own choosing.  Any Investor Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the sole expense of such Investor Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time after receipt of an Indemnification Notice to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, as providing in writing to the Company by such counsel, a material conflict on any material issue between the position of the Company and the position of such Investor Party.  The Company will not be liable to any Investor Party under this Agreement (i) for any settlement by an Investor Party effected without the Company’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed; or (ii) to the extent that a loss, claim, damage or liability is attributable to any Investor Party’s breach of any of the representations, warranties, covenants or agreements made by the Investors in this Agreement.

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        4.5.                Short Sales and Confidentiality After the Date Hereof .  Each Investor severally and not jointly with the other Investors covenants that neither it nor any Affiliates acting on its behalf or pursuant to any understanding with it will execute any Short Sales during the period after the time such Investor and/or the Company started discussing the transactions contemplated in this Agreement and ending at the time that the transactions contemplated by this Agreement are first publicly disclosed by the Company through the filing with the SEC of the Super 8-K.  Each Investor, severally and not jointly with the other Investors, covenants that until such time as the transactions contemplated by this Agreement are first publicly disclosed by the Company through the filing with the SEC of the Super 8-K, such Investor will maintain, the confidentiality of all disclosures made to it in connection with this Offering, the Target Acquisition, the Target and/or any related information and/or transactions (including the existence and terms of this Agreement).  Notwithstanding the foregoing, no Investor makes any representation, warranty or covenant hereby that it will not engage in Short Sales in the Shares after the time that the transactions contemplated by this Agreement are first publicly disclosed by the Company through the filing with the SEC of the Super 8-K.  Notwithstanding the foregoing, in the case of an Investor that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Investor’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of such Investor’s assets, the covenant set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Shares covered by this Agreement.

        4.6.                Use of Proceeds . The Company will use the net proceeds from the sale of the Shares for (i) general corporate purposes of the Company, and (ii) general corporate purposes and working capital of the Target, but in either case not for the repayment of any outstanding indebtedness or the redemption of any securities.

        4.7.                No Variable Rate Transactions . From the date hereof until the earlier of 18 months from the Closing Date, the Company shall not effect or enter into an agreement to effect a subsequent financing involving a Variable Rate Transaction. The Term “ Variable Rate Transaction ” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock.

        4.8.                Listing . The Company shall promptly secure the listing of all of the Shares upon each national securities exchange and automated quotation system that requires an application by the Company for listing, upon which shares of Common Stock shall become listed on (subject to official notice of issuance) and shall maintain such listing, so long as any other shares of Common Stock shall be so listed.

        4.9.                Filing of Super 8-K, Etc . The Company agrees that no later than the fourth (4 th ) business day following the Closing Date, it shall file with the SEC the Super 8-K disclosing, among other items (i) this Agreement and the sale of the Shares in the Offering, (ii) the Target Acquisition, and (iii) other Form 10 information required by Rule 144(i)(3).

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SECTION 5

Miscellaneous

        5.1.                Governing Law . This Agreement and the terms and conditions set forth herein, shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereto covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York, New York. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other parties hereto of all of its reasonable counsel fees and disbursements.

        5.2.                Survival . The representations and warranties, covenants and agreements made by each Investor and the Company herein shall survive the Closing Date for a period of 18 months.

        5.3.                Successors, Assigns . Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. This Agreement may not be assigned by either party without the prior written consent of the other; except that either party may assign this Agreement to an Affiliate of such party or to any third party that acquires all or substantially all of such party’s business, whether by merger, sale of assets or otherwise. 

        5.4.               Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile or electronic mail (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:

                

                              If to the Company:

                              Modular Medical, Inc.

                              17995 Bear Valley Lane

                              Escondido, California 92027

                              Telephone: (949) 370-9062

                              Facsimile: (201353-8868

                              Attn: Paul M. DiPerna, Chief Executive Officer

                              Email: paul@modular-medical.com                

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                              With a copy (for informational purposes only) to:

                                              

                              Gusrae Kaplan Nusbaum PLLC

                              120 Wall Street

                              New York, NY 10005

                              Telephone: (212) 269-1400

                              Facsimile: (212) 809-4147

                              Attn: Lawrence Nusbaum, Esq.

                              Email: lnusbaum@GusraeKaplan.com

                

If to an Investor, to its address, e-mail address and facsimile number set forth on the Schedule of Investors , or to such other address, e-mail address and/or facsimile number and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine or e-mail containing the time, date, recipient facsimile number and, with respect to each facsimile transmission, an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.

        5.5.                Expenses . Each of the Company and each Investor shall bear its own expenses and legal fees incurred on its behalf with respect to this Agreement and the transactions contemplated hereby.

        5.6.                Finder’s Fees . Each of the Company and each Investor shall indemnify and hold the other harmless from any liability for any commission or compensation in the nature of a finder’s fee, placement fee or underwriter’s discount (including the costs, expenses and legal fees of defending against such liability) for which the Company or the Investor, or any of its respective partners, employees, or representatives, as the case may be, is responsible it being understood that the Company is only responsible for the commission and/or other compensation payable to Selling Members, if any.

        5.7.               Counterparts. This Agreement may be executed in counterparts, each of which shall be enforceable against the party actually executing the counterpart, and all of which together shall constitute one instrument.

        5.8.                Severability . In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.

        5.9.                Entire Agreement . This Agreement including the exhibits and schedules attached hereto and thereto, constitute the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. No party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein.

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        5.10.              Waiver . The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. None of the terms, covenants and conditions of this Agreement can be waived except by the written consent of the party waiving compliance.

        5.11.              Independent Nature of Investors’ Obligations and Rights .  The obligations of each Investor under this Agreement are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement.  Nothing contained herein and no action taken by any Investor pursuant hereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations.  Each Investor has been represented by its own separate legal counsel in their review and negotiation of this Agreement.  The Company has elected to provide all Investors with the same terms and Offering Documents for the convenience of the Company and not because it was required or requested to do so by the Investors.

[SIGNATURE PAGES FOLLOW]

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                IN WITNESS WHEREOF,  each Investor and the Company have caused their respective signature page to this Common Stock Purchase Agreement to be duly executed as of the date first written above. 

                                                      
                COMPANY:               
         
  MODULAR MEDICAL, INC.    
         
  By:                                                                                                                 
    Name: Morgan C. Frank    
    Title: Chief Executive Officer    
         
  ENTITY INVESTOR:   INDIVIDUAL INVESTOR:
       
         
  Print Name of Entity Investor   Print Name
         
         
  Print Name of Investment Manager of Investor Signature
   (if applicable)    
         
  By:      
    Name:    
    Title:    
         
  Check as appropriate:   Check as appropriate:
         
  Accredited Investor q   Accredited Investor q
  QIB q   QIB q

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SCHEDULE OF INVESTORS

               

                 

Name of

Investor

                

Address and other
information of Investor:

Aggregate
Number of
Shares
Purchased

Aggregate Purchase
Price of Shares
Purchased

 

Address: ________

Email: __________

Facsimile: _______

Telephone Number: _______

Attention: ________________

                

  $___
 

Address: ________

Email: __________

Facsimile: _______

Telephone Number: _______

Attention: ________________

                                  

  $___
 

Address: ________

Email: __________

Facsimile: _______

Telephone Number: _______

Attention: ________________

                                 

  $___
 

Address: ________

Email: __________

Facsimile: _______

Telephone Number: _______

Attention: ________________

                

  $___
 

Address: ________

Email: __________

Facsimile: _______

Telephone Number: _______

Attention: ________________

                

  $___

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SCHEDULE 1.3(b)(ii)

               

               The Purchasing Funds have agreed to purchase in the Offering no less than 3,787,879 Shares in the aggregate for a $2,500,000 Aggregate Purchase Price ($0.66 per Share). Such Aggregate Purchase Price shall be paid in cash (by wire transfer to the account specified by the Company to the other Investors), except that (i) $375,000 of such Purchasing Funds’ Aggregate Purchase Price shall be paid by the Purchasing Funds crediting such $375,000 against the Aggregate Purchase Price to be paid by the Purchasing Funds, as such $375,000 was the purchase price paid by the Company Controlling Shareholder (who is one of the two Purchasing Funds) to acquire the 2,900,000 shares of Common Stock in the Control Block Acquisition (as defined in Schedule 2.24 ), all of which shares are being cancelled by the Company Controlling Shareholder in the Share Cancellation as a condition to and contemporaneously with the Closing (the per share purchase price paid by the Company Controlling Shareholder in the Control Block Acquisition for the 2,900,000 shares of Common Stock was paid in cash and equaled approximately $0.13 per share as compared to the $0.66 per Share purchase price paid by each Investor in the Offering, including the Purchasing Funds (of which the Company Controlling Shareholder is one of such two Purchasing Funds)), and (ii) $50,000 of such Purchasing Funds’ Aggregate Purchase Price shall be paid by the cancellation of $50,000 owed by the Company to JEB Partners (one of the Purchasing Funds) resulting from a cash payment made by JEB Partners on behalf of the Company to satisfy a Company payable. The Purchasing Funds may be deemed Affiliates of each other, the Company, Manchester Management and Messrs. Besser and Frank.

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SCHEDULE 2.9

Capitalization

                               

    Authorized     Issued &
Outstanding
(Actual prior
to Closing)
    Issued &
Outstanding
(Pro-Forma
immediately
following
Closing)
 
Common Stock, Par Value $0.001     50,000,000       3,500,000       15,000,000 (1)(2)
                         
Total Common Stock     50,000,000       3,500,000         15,000,000 (1)(2)
                         
Undesignated Preferred Stock, Par Value $0.001     5,000,000       0       0  
                         
Total Preferred Stock     5,000,000       0       0  
                         
Total Capital Stock     55,000,000       3,500,000       15,000,000 (1)(2)
                         
Additional Possible Issuance of Shares                        
                         
Over-Subscription Shares in the Offering                     757,576  
                         
Total Possible Common Stock                     15,757,576 (1)(3)

 

 
1 Assumes (i) the sale of 6,818,000 Shares to Investors in the Offering for $4,500,000, (ii) the issuance of 7,582,000 shares of Common Stock to the Target Company Shareholders in the Target Acquisition, and (iii) the cancellation of 2,900,000 shares of Common Stock by the Company Controlling Shareholder in the Share Cancellation.
2 Excludes up to 757,756 Over-Subscription Shares.
3 Includes all 757,576 Over-Subscription Shares.
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SCHEDULE 2.24

Certain Relationships and Related Party Transactions

               On April 26, 2017, pursuant to a Common Stock Purchase Agreement dated as of April 5, 2017 by and among the Company, the Company Controlling Shareholder (one of the Purchasing Funds) and certain former officers, directors and a related person to the Company (the “ SPA ”), the Company Controlling Shareholder purchased from the Company 2,900,000 shares of restricted Common Stock for $375,000, approximately $0.13 per share (the “ Control Block Acquisition ”), which following the closing thereof, such 2,900,000 shares represented approximately 83% of the issued and outstanding Common Stock.

               Pursuant to the SPA, the directors and officers of the Company simultaneously with such closing but immediately prior to the Control Block Acquisition, appointed Mr. Besser as Chief Executive Officer and a director of the Company; and Mr. Frank as President, Chief Financial Officer, Secretary, Treasurer and a director of the Company, and immediately following such appointments, such prior directors and officers resigned as directors and officers of the Company.

               In approximately February 2017, Mr. Besser and Mr. Frank purchased in the aggregate five (5%) percent of the capital stock of the Target for $100,000, and as a result will receive 379,100 shares of Common Stock in the Target Acquisition, representing five (5%) percent of the 7,582,000 Shares being issued by the Company to the Target Shareholders (including Messrs. Besser and Frank) in the Target Acquisition, with the remaining ninety-five (95%) percent, or 7,202,900 shares, being issued to the Target Controlling Shareholder.

               Contemporaneously with and as a condition to the closing of the Offering and the Target Acquisition, the Company Controlling Shareholder shall cancel in the Share Cancellation the 2,900,000 shares of Common Stock purchased by it in the Control Block Acquisition.

               Mr. Besser is the managing member of Manchester Management, the general partner of each of the Purchasing Funds, one of who is the Company Controlling Shareholder; and Mr. Frank is the portfolio manager of and consultant to Manchester Management. As a result of the above and Messrs. Besser and Frank being the Company’s sole officers and directors prior to the Target Acquisition, Messrs. Besser and Frank, the Company, the Purchasing Funds (including the Company Controlling Shareholder) and Manchester Management may be deemed Affiliates of each other including 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 (i) the 2,900,000 shares of Common Stock owned by the Company Controlling Shareholder (all of which such shares shall be cancelled in the Share Cancellation), and (ii) all Shares purchased by the Purchasing Funds in the Offering, which in no event shall be less than 3,787,879 Shares for the $2,500,000 Aggregate Purchase Price to be paid collectively by the Purchasing Funds. Messrs. Besser and Frank, however, disclaim all such beneficial ownership.

               For additional information regarding the relationships between Messrs. Besser and Frank, the Company, Manchester Management and the Purchasing Funds (including the Company Controlling Shareholder) with each other and with the Company and the Target and certain transactions between such Persons and each other and with the Company and the Target as well as the beneficial ownership of such Persons in the Company prior to and following the Closing of the Offering and the contemporaneous closing of the Target Acquisition and the Share Cancellation, Investors should carefully read Section 3.1 , Schedule 1.3(b)(ii) , this Schedule 2.24 and each Disclosure Document including, but not limited to, the Super 8-K.

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Exhibit 10.3

 

INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT

                This INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT (this “ Agreement ”) is made and entered into as of July 24, 2017 (the “ Effective Date ”), by and between Paul M. DiPerna, having an address at 17995 Bear Valley Lane, Escondido CA 92027 (the “ Assignor ”), Quasuras, Inc., a Delaware corporation (“ Assignee ”) and Modular Medical, Inc. (“ Modular ”).

R E C I T A L S

                 WHEREAS , Assignor is the owner of the Assigned IP (as defined below);

                 WHEREAS , Assignee wishes to acquire all right, interest and title in the Assigned IP pursuant to and in accordance with the terms and conditions set forth therein;

                 WHEREAS , as a condition to Modular taking the following actions on or prior to the Effective Date, Modular shall, among other items, (i) acquire (the “ Acquisition ”) Assignee by issuing to Assignor (and the other shareholders of Assignee) shares of common stock in Modular in exchange for all such persons’ shares of the Assignee (which equals 100% of the issued and outstanding share of the Assignee), and (ii) agree to sell and certain investors agree to buy shares of common stock of Modular, certain of the net proceeds which will be used in the business of Assignee;

                 WHEREAS , as a result of the Acquisition, Assignee will become a wholly-owned subsidiary of Modular;

                 NOW THEREFORE , in consideration of the above recitals and of the mutual promises and conditions in this Agreement, and other valuable consideration, receipt of which is hereby acknowledged, it is agreed as follows:

A G R E E M E N T

                1.              Definitions . As used in this Agreement, the following terms shall have the meanings set forth in this Section 1 .

                                (a)               “ Assigned IP ” (a) the patents and patent applications listed on Schedule A hereto, and any future patents that claim priority from or the benefit of the filing date of any of the patents listed on Schedule A , and including any and all continuations, divisions, reissues, extensions, supplementary protection certificates and the like with respect to any of the foregoing (the “ Patents ”); (b) issued, pending and abandoned U.S. and foreign trademarks and trademark applications set forth on Schedule B hereto (the “ Trademarks ”); and (c) all rights of any kind whatsoever of Assignor accruing under any of the foregoing provided by applicable law of any jurisdiction, by international treaties and conventions and otherwise throughout the world.

                                (b)               “ Intellectual Property ” means all intellectual and technological property of whatever kind including but not limited to all source code, object code, text, graphics, photos, database technology, ecommerce technology, server technology, operating systems, algorithms, development tools relating to the Assigned IP.

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                                (c)               “ Intellectual Property Rights ” means copyrights (including rights in software), patents, patent applications, trademarks, trademark applications, trade names, service marks, business names (including internet domain names), design rights, database rights, rights in undisclosed or confidential information (such as know-how, proprietary ideas, trade secrets, techniques, methods, specifications, inventions (whether patentable or not) and the like) and all other intellectual property or similar proprietary rights of whatever nature (whether registered or not and including applications to register or rights to apply for registration) in and to the Intellectual Property which may now or in the future subsist anywhere in the world.

                2.              Transfer and Assignment . For good and valuable consideration including, but not limited to, the Acquisition and the Capital Raise, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby assigns, sells and transfers to Assignee all of Assignor’s right, title and interest in and to the Assigned IP, the Intellectual Property and the Intellectual Property Rights, together with all goodwill related thereto and all rights to fully exploit, and to enforce all infringement claims in respect of any of, such Intellectual Property (the “ Assignment ”).

                3.              Ownership of Intellectual Property . Assignor represents and warrants to the Assignee and Modular that Assignor is the developer and sole and exclusive owner of the Assigned IP, the Intellectual Property and Intellectual Property Rights, no person has rights with respect thereto including, but not limited to, receive any proceeds herefrom or therefrom whether in a sale, license and/or otherwise, has the full exclusive rights and power to enter into and perform this Agreement and to effect the Assignment and that the execution and performance of this Agreement by such does not and will not violate or interfere with any agreement, understanding or contract to which Assignor and/or any of his Affiliates is a party to and/or is effected by, does not violate any rights of any other Person; does not violate any law, rule and/or regulation that no part of the Assigned IP, the Intellectual Property or Intellectual Property Rights or the exercise of the rights granted hereunder violates or infringes upon any rights of any Person, including, but not limited to, any such Person’s copyrights, trademark rights, patent rights, trade secrets rights, or contractual, common law or statutory rights and no Person has any rights to, including the proceeds from any sale, and/or Lien (as defined below) on any of the Assigned IP, the Intellectual Property and/or the Intellectual Property Rights. The term “ Lien ” means any lien, security interest, mortgage, deed of trust, charge, claim, encumbrance, pledge, option, right of first offer or first refusal and any other right or interest of others of any kind or nature, actual or contingent, or other similar encumbrance of any nature whatsoever.; and the term “ Person ” means an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

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                4.              Governing Law; Venue . This Agreement shall be governed by and construed solely and exclusively under and pursuant to the laws of the State of New York as applied to releases among New York residents entered into and to be performed entirely within New York. Each of the Parties expressly and irrevocably (i) agrees that any legal suit, action or proceeding arising out of or relating to this Agreement will be instituted exclusively in either the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York; (ii) waives any objection they may have now or hereafter to the venue of any such suit, action or proceeding; and (iii) consents to the in personam jurisdiction of either the New York State Supreme Court, County of New York, or the United States District Court for the Southern District of New York in any such suit, action or proceeding. Each of the Parties hereto further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in either the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agrees that service of process upon it mailed by certified mail to its address will be deemed in every respect effective service of process upon it, in any such suit, action or proceeding.

                5.              Execution and Counterparts . This Agreement and any amendments, waivers, consents, or supplements may be executed in one or more counterparts, each of which when so executed and delivered shall be deemed an original, but all of which counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Delivery of an executed counterpart of a signature page to this Agreement, any amendments, waivers, consents or supplements, by facsimile or email shall be as effective as delivery of a manually executed counterpart thereof.

                6.              Severability . If any portion of this Agreement is held and/or found to be invalid, superseded and/or unenforceable, in whole or in part, the remainder of this Agreement shall nevertheless remain in full force and effect and the invalid and unenforceable portions hereof shall be deemed modified to the extent necessary to render that portion valid and enforceable to the maximum extent permitted by law.

                7.              Entire Agreemen t . This Agreement contains the entire understanding and agreement between the Parties with respect to the matters contained herein, and replaces and supersedes any prior understandings or agreements between any and all of them, with respect to the subject matter hereof.

                8.              Successors and Assign s . This Assignment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

                9.              Third Party Beneficiary . The parties hereto expressly acknowledge and agree that Modular is a third-party beneficiary to this Agreement and is entitled to the rights, remedies and benefits hereunder and may enforce the provisions hereof as if it were a party hereto. Except as set forth in the preceding sentence, this Agreement shall not confer any rights, benefits or remedies to any Person not a party hereto.

[Remainder of page intentionally left blank]

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[SIGNATURE PAGE OF IP ASSIGNMENT AGREEMENT]

                IN WITNESS WHEREOF, the parties hereto have hereby executed and delivered this Agreement as of the date first written above.

                                                       
  ASSIGNOR
     
     
  Paul DiPerna
     
  ASSIGNEE
     
  QUASURAS, INC.
     
  By:   
  Name: Paul DiPerna
  Title: Chief Executive Officer
     
  MODULAR MEDICAL, INC.
     
  By:  
  Name: Morgan C. Frank
  Title: Chief Executive Officer

[END OF SIGNATURE PAGE OF IP ASSIGNMENT AGREEMENT]

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SCHEDULE A

Patents and Patent Applications

U.S. Provisional Patent Application No. 61/947,032, filed March 3, 2014, naming Paul DiPerna as inventor, and titled “Fluid Delivery Damping and Delivery Pump”

                  

International Patent Application No. PCT/US2015/018525, filed March 3, 2015, naming Paul DiPerna as inventor, and titled “Fluid Delivery Pump”

                  

U.S. Non-provisional Patent Application No. 15/122,132, filed August 26, 2016, naming Paul DiPerna as inventor, and titled “Fluid Delivery Pump”

                  

U.S. Provisional Patent Application No. 62/529,086, filed July 6, 2017, naming Paul DiPerna as inventor, and titled “Variable Flow Orifice with Dynamic Control Feedback.”

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SCHEDULE B

Trademarks and Trademark Applications

None.

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Exhibit 10.4

 

TECHNOLOGY ROYALTY AGREEMENT

 

This Technology Royalty Agreement (hereinafter referred to as the “Agreement”), is entered into as of the 24 th day of July, 2017 by and among Paul M. DiPerna, an individual (“DiPerna”) and Quasuras, Inc., a Delaware corporation (the “Company”) and Modular Medical, Inc., a Nevada corporation and owner of all of the issued and outstanding capital stock of the Company (“Modular”). DiPerna, Modular and the Company are sometimes collectively referred to as the “Parties”, and individually as a “Party”.

 

RECITALS :

 

WHEREAS, DiPerna, the Company and Modular have entered into an Intellectual Property Assignment Agreement dated as of July 24, 2017 (the “IP Assignment Agreement”) pursuant to which DiPerna is assigning and transferring to the Company all of DiPerna’s right, title and interest in and to certain intellectual property and related items.

 

NOW, THEREFORE , in consideration for the promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do hereby agree as follows:

 

AGREEMENT

 

1. Definitions .

 

1.1 The capitalized terms “Assigned IP”, “Intellectual Property” and “Intellectual Property Rights” as used herein shall have the meaning set forth in the IP Assignment Agreement.

 

1.2 “Royalty Product” shall mean (i) any product or device which is covered in whole or claimed in any of the Assigned IP; (ii) any product or device incorporating, utilizing or made by any process which utilizes the Assigned IP, the Intellectual Property, or the Intellectual Property Rights and (iii) any other insulin or diabetes related product or device sold, licensed or otherwise commercialized by the Company, Modular or any of their respective subsidiaries during the term of this Agreement. For the avoidance of doubt, “Royalty Product” shall not include any devices or products of any entity that acquires the Company or Modular that are in existence on the date of such acquisition;

 

2. Royalties . In consideration for the assignment by DiPerna to the Company of the Assigned IP, the Intellectual Property and the Intellectual Property Rights pursuant to the IP Assignment Agreement, Company shall pay DiPerna royalties as follows:

 

2.1  Royalty Rate .  Subject to the Royalty Cap set forth in Section 2.2, the Company shall pay DiPerna a royalty on sales of any Royalty Product sold by the Company and/or Modular and each of their respective, subsidiaries and/or affiliate companies anywhere in the world equal to: (i) US $0.75 on each Sale of a Royalty Product, or (ii) five percent (5%) of the Gross Sales Price of a Royalty Product, whichever is less. For purposes of this Agreement, a “Sale” of a Royalty Product shall be deemed to have been made when the Royalty Product is delivered to a customer and the Company and/or its parents, subsidiaries and/or affiliate companies receives payment and such funds clear and become immediately available funds from the customer. “Gross Sales Price” means the gross amount of money received by the Company and/or its parents, subsidiaries and/or affiliate companies in connection with the Sale of a Royalty Product to customers, minus sales, use, V.A.T. and other taxes, shipping, insurance and related costs and expenses paid by the Company, its parents, subsidiaries relating to such Royalty Product. Royalty Product sold by a sublicensee pursuant to a sublicense agreement are subject to the royalties due DiPerna hereunder.

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2.2  Royalty Cap . Payment of the royalties set forth in Section 2.1 shall cease, and this Agreement shall terminate, at such time as the total sum of royalty payments actually paid to DiPerna pursuant to this Agreement equals Ten Million Dollars (US $10,000,000); provided, however, that the Company shall have the option to terminate this Agreement at any time upon the payment to DiPerna of the difference between (i) the total royalty payments actually paid to DiPerna to date and (ii) $10,000,000.

 

2.3 Best Efforts .   The Company shall use its commercially reasonable best efforts to promote and market the sale of Royalty Product and to maximize royalty payments to DiPerna pursuant to this Section 2.  “Best efforts” means, with respect to a given goal, the efforts consistent with the practice of comparable technology companies with respect to similar products of comparable market potential that a reasonable person in the position of the Company would use so as to achieve that goal as expeditiously as possible.

 

2.4 Effective Date . This Agreement shall have no force and effect until such time that the Company and/or Modular sells or licenses its first Royalty Product, at which time this Agreement shall become effective. For the avoidance of doubt, DiPerna shall be paid the royalty payment due hereunder on the first sale or license of a Royalty Product.

 

3. Payments, Reporting and Records .

3.1 Payment of the royalties specified in Section 2.1, if any such royalty is due, for the preceding calendar quarter shall be made by the Company to DiPerna within forty-five (45) days after March 31, June 30, September 30 and December 31 of each year during the term of this Agreement. After termination or expiration of this Agreement, a final payment shall be made by the Company covering the last whole or partial calendar quarter. Each quarterly payment shall be accompanied by a written statement of royalties due, as described in Section 3.4 hereunder.      

3.2 All monetary payments due hereunder are expressed in and shall be paid by check or wire transfer payable in United States dollars, without deduction of exchange, collection or other charges, to DiPerna.     

3.3 The Company shall keep and preserve, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), consistently applied, complete and accurate books, records and accounts containing particulars that are necessary for the purpose of showing the amounts payable to DiPerna hereunder. Said books, records and accounts shall be kept at the Company’s principal place of business or the principal place of business of the appropriate division of the Company to which this Agreement relates. No more than once per annum said books and supporting data shall be open, upon reasonable notice at all reasonable times and places during business hours for two (2) years following the end of the calendar year to which they pertain, to the inspection of an independent auditor engaged at DiPerna’s cost mutually agreeable to the parties for the purpose of verifying the Company’s royalty statement or compliance in other respects with this Agreement.

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3.4 The Company shall, within forty five (45) days after March 31, June 30, September 30 and December 31, of each year, deliver to DiPerna true and accurate reports, giving such particulars of the business conducted by the Company and its sublicensees during the preceding calendar quarter under this Agreement as shall be pertinent to a royalty accounting hereunder. These reports shall be duly signed by an authorized signatory of the Company on behalf of the Company and shall include at least the following: (a) true and accurate information regarding sales of Royalty Product sufficient to determine and verify the royalties due and owing, if any, pursuant to Section 2.1; (b) total royalties due, if any; and (c) names and addresses of all sublicensees of the Company.      

3.5 With each such report submitted, the Company shall pay to DiPerna the royalties due and payable under this Agreement. If no royalties are due, the Company shall so report.

4. [Reserved]

 

5. [Reserved] .   

 

6. Assignment . During the term of this Agreement, neither Party shall assign any benefit or burden under this Agreement without prior written consent of the other Party, which shall not be unreasonably withheld, delayed or conditioned, except that (i)  the Company may assign its rights and obligations under this Agreement to Modular or any company or person with which it may merge or consolidate or to any company or person to whom it may transfer substantially all of its assets or to any company or person which may acquire such Party (including, in each case, any company created as a new vehicle upon any such merger, transfer or acquisition), and (ii) DiPerna may freely assign his royalty payment amount (and related information access, audit and other rights) in whole  or in part but not to any direct and/or indirect competitor of the Company and/or affiliate, officer, director, employee or shareholder of such competitor.  Any assignment by any Party of any benefit or burden under this Agreement in accordance with the provisions of this Section 6 shall not release the assigning Party from any of its obligations under this Agreement. This Agreement shall be binding on and inure to the benefit of the Parties hereto and their respective permitted successors and assigns.

 

7. Dispute Resolution .

7.1 This Agreement is entered into in and shall be governed, construed and enforced in all respects solely and exclusively under the laws of the State of New York, without giving effect to any law which would result in the application of a different body of law.      

7.2 Any and all claims, disputes or controversies arising under, out of, or in connection with this Agreement, including any dispute relating to patent validity or infringement, which the Parties shall be unable to resolve within sixty (60) days, shall be mediated in good faith. The Party raising such dispute shall promptly advise the other Party of such claim, dispute or controversy in a writing which describes in reasonable detail the nature of such dispute. By not later than five (5) business days after the recipient has received such notice of dispute, each Party shall have selected for itself a representative who shall have the authority to bind such Party, and shall additionally have advised the other Party in writing of the name and title of such representative. By not later than ten (10) business days after the date of such notice of dispute, the Party against whom the dispute shall be raised shall select a mediation firm in New York, New York and such representatives shall schedule a date with such firm for a mediation hearing. The Parties shall enter into good faith mediation and shall share the costs equally.      

7.3 If the representatives of the Parties have not been able to resolve a dispute within fifteen (15) business days after a mediation hearing, as set forth in Section 7.2, the Parties shall have the right to pursue any other remedies legally available to resolve such dispute solely and exclusively in, and the parties hereby irrevocably consent to the exclusive jurisdiction and proper venue of, the state and federal courts located in the County of New York, State of New York, USA, and waive any objections thereto based on any ground including improper venue or Forum Non-Conveniens. The Parties agree that service of process may be effected in accordance with Section 8.1. Any decision rendered by such court shall be binding, final and conclusive upon the Parties, and a judgment thereon may be entered in, and enforced by, any court having jurisdiction over the Party against which an award is entered or the location of such Party’s assets.      

3
 

7.4 Notwithstanding anything to the contrary herein, each Party shall be entitled to seek injunctive or other equitable relief, wherever such Party deems appropriate in any jurisdiction, in order to preserve or enforce such Party’s rights for any breach or threatened breach of the other Party of any of the provisions of this Agreement.

8. Miscellaneous .

 

8.1 Notices .  Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of delivery if sent to such Party by recognized overnight courier or delivery service for next day delivery, addressed to it at its address below or as it shall designate by written notice given to the other Party as follows:

 

If to DiPerna :

Paul M. DiPerna

17995 Bear Valley Lane

Escondido, CA 92027

Email: pmdiperna@gmail.com

 

If to Company or Modular :

3 West Hill Place

Boston, MA 02114

Attention: Morgan Frank

Email: mfrank@mgfund.com 

8.2 Integration .  This Agreement constitutes the entire understanding and agreement among the Parties with respect to the transactions contemplated herein and supersede any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof, all of which are merged herein.  This Agreement shall not be modified, amended or in any way altered except by an agreement in writing signed by authorized representatives of the Party to be bound. 

 

8.3 No Joint Venture .  Nothing contained herein will be deemed to create a joint venture or partnership or agency relationship among the Parties.  Neither Party will have the right or authority to, and each Party will not, assume or create any obligation or responsibility, express or implied, on behalf of or in the name of the other Party or to bind the other Party in any manner.

 

8.4 Severability .  If any provision hereof is found invalid or unenforceable pursuant to a judicial decree or decision, the remainder of this Agreement will remain valid and enforceable according to its terms.  Where any provision herein has been adjudicated to exceed the maximum force allowable by law, the court will interpret such provision as providing the maximum allowable protection provided by law.

4
 

8.5 Attorneys’ Fees .  The prevailing Party in any action or proceeding among the Parties arising out of or related to this Agreement shall be entitled to recover from the other Party all of its costs and expenses including, without limitation, its actual attorneys’ fees and costs incurred in connection with such action, including any appeal of such action.

 

8.6 Nonwaiver . The Parties agree that no failure to exercise, and no delay in exercising any right, power, or privilege under this Agreement on the part of any Party shall operate as a waiver of any right, power, or privilege hereunder.  The Parties further agree that no single or partial of any right, power, or privilege under this Agreement shall preclude further exercise thereof. 

 

8.7 Authority .  Each person executing this Agreement on behalf of a Party has the authority of the entity to execute this Agreement.

 

8.8 Time Is Of The Essence .  The Parties agree that time is of the essence with respect to each and every term and provision set forth in this Agreement.

 

8.9 Recitals Incorporated .  The foregoing recitals are incorporated herein by reference and made a part of this Agreement.

 

8.10 Amendments, Modifications . This Agreement may not be modified or amended in any manner except by an instrument in writing specifically stating that it is a supplement, modification or amendment to the Agreement and signed by each of the Parties, provided , however , that only Morgan C. Frank shall be permitted to sign for Modular, and if Mr. Frank is no longer an officer or director of Modular, this Agreement may only be modified, amended or supplemented with the express written consent of Manchester Management Company, LLC.

5
 

IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first set forth above.

     
  PAUL M. DIPERNA  
     
 

QUASURAS, INC., a Delaware

Corporation  

 
       
  By:     
   

Paul M. DiPerna,

Chief Executive Officer

 
       
 

MODULAR MEDICAL, INC., a Nevada Corporation

 
       
  By:    
   

Morgan C. Frank,

Director

 
6
 

Exhibit 23.1

 

Lichter, Yu and Associates

Certified Public Accountants

 

21031 Ventura Blvd., suite 316

Woodland Hills, CALIFORNIA 91364

Tel (818)789-0265 Fax (818) 789-3949

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the use in this Current Report on Form 8-K of Modular Medical, Inc. (formerly, Bear Lake Recreation, Inc.) of our reports dated, July 13, 2017 relating to our audits of the financial statements of Quasuras, Inc. for the years ended March 31, 2017 and 2016.

/s/ Lichter, Yu and Associates, Inc.

 

Woodland Hills, California

July 28, 2017

 
 

Exhibit 99.1

 

Lichter, Yu and Associates, Inc.

Certified Public Accountants

 

21031 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

Quasuras, Inc.

 

We have audited the accompanying balance sheets of Quasuras, Inc. (the “Company”) as of March 31, 2017 and 2016, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two year period ended March 31, 2017. The Company’s management is responsible for these financial statements. 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 Quasuras, Inc. as of March 31, 2017 and 2016, and the results of its operations and its cash flows for the two year period ended March 31, 2017, 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

 
 
Quasuras, Inc.
Balance Sheets
As of March 31, 2017 and 2016
             
ASSETS   2017     2016  
CURRENT ASSETS                
Cash and cash equivalents   $ 392,007     $ 389,623  
Other current asset     306        
                 
TOTAL ASSETS   $ 392,313     $ 389,623  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
CURRENT LIABILITIES                
Accrued expenses   $ 8,425     $  
Payable to related party     21,256       9,784  
                 
TOTAL LIABILITIES     29,681       9,784  
                 
STOCKHOLDERS’ EQUITY                
Common Stock, $0.0625 par value, 20,000,000 shares authorized, 4,400,000 and 8,000,000 shares issued and outstanding as of March 31, 2017 and 2016     275,000       500,000  
Additional paid-in capital     162,782       (100,000 )
Accumulated deficit     (75,150 )     (20,161 )
TOTAL STOCKHOLDERS’ EQUITY     362,632       379,839  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 392,313     $ 389,623  

 

The accompanying notes are an integral part of the financial statements

 
 

Quasuras, Inc.
Statements of Operations
For The Years Ended March 31, 2017 and 2016
             
    2017     2016  
Net Revenues   $     $  
                 
Operating Expenses:                
Legal and professional expenses     17,830       17,401  
General and administration expenses     11,588       4,457  
Total Operating Expenses     29,418       21,858  
Loss From Operations     (29,418 )     (21,858 )
                 
Other Income:                
Interest income     962       1,697  
                 
Loss Before Income Taxes     (28,456 )     (20,161 )
                 
Provision for income taxes     800        
                 
Net Loss   $ (29,256 )   $ (20,161 )
                 
Net Loss Per Share                
Basic and Diluted:   $ (0.005 )   $ (0.003 )
                 
Weighted average number of shares used in computing basic and diluted net loss per share:                
                 
Basic     5,630,769       8,000,000  
Diluted     5,630,769       8,000,000  

 

The accompanying notes are an integral part of the financial statements

 
 

Quasuras, Inc.

 Statements of Cash Flows

For The Years Ended March 31, 2017 and 2016

 
    2017     2016  
Net loss   $ (29,256 )   $ (20,161 )
Adjustments to reconcile net loss to net cash used in operating activities:            
                 
(Increase) in current assets:                
Other current asset     (306 )      
Increase in current liabilities:                
Accrued expenses     8,425        
Net cash used in operating activities     (21,137 )     (20,161 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES            
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
      Proceeds from sale of common stock     100,000       400,000  
      Repurchase of common stock     (187,951 )      
      Proceeds from stock option exercised     100,000        
      Proceeds from related party, net     11,472       9,784  
Net cash provided by financing activities     23,521       409,784  
                 
Net increase in cash and cash equivalents     2,384       389,623  
                 
Cash and cash equivalents, at the beginning of the period     389,623        
                 
Cash and cash equivalents, at the end of the period   $ 392,007     $ 389,623  
                 
SUPPLEMENTAL DISCLOSURES:                
Cash paid during the year for:                
     Income tax payments   $ 800     $  
     Interest payments   $     $  
                 
The accompanying notes are an integral part of the financial statements

 
 

Quasuras, Inc.
Statement of Stockholders’ Equity
For The Years Ended March 31, 2017 And 2016
 
                            Total  
    Common Stock     Additional     Accumulated     Stockholders’  
    Shares     Amount     Paid in Capital     Deficit     Equity  
                               
 Initial stock issuance     8,000,000     $ 500,000     $ (100,000 )   $     $ 400,000  
                                         
 Net loss for the year ended March 31, 2016                       (20,161 )     (20,161 )
                                         
 Balance as of March 31, 2016     8,000,000       500,000       (100,000 )     (20,161 )     379,839  
                                         
 Repurchase and cancellation of shares     (4,000,000 )     (250,000 )     62,049             (187,951 )
                                         
 Issuance of shares for cash     200,000       12,500       87,500             100,000  
                                         
 Stock options granted                 25,733       (25,733 )      
                                         
 Stock options exercised     200,000       12,500       87,500             100,000  
                                         
 Net loss for the year ended March 31, 2017                       (29,256 )     (29,256 )
                                         
 Balance as of March 31, 2017     4,400,000     $ 275,000     $ 162,782     $ (75,150 )   $ 362,632  
                                         
                                         
The accompanying notes are an integral part of the financial statements  

 
 

QUASURAS, INC.

NOTES TO FINANCIAL STATEMENTS

 

Note 1 – BASIS OF PRESENTATION AND ORGANIZATION

 

Quasuras, Inc. 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.

 

Note 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying financial statements were prepared in conformity with generally accepted accounting principles in the United States of America (“US GAAP”).

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make certain 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 period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

 

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.

 

Operating Overhead Expense

 

Operating overhead expense consists primarily of payroll and benefit related costs, rent, depreciation and amortization, professional services, 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 follows FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (codified in 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, 2017 and 2016, the Company had not taken any significant uncertain tax positions on its tax returns for periods ended March 31, 2017 and prior years or in computing its tax provision for 2016. 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 concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.

 

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 Equivalents

 

Cash and 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, 2017 and 2016, the Company had $392,007 and $389,623 in cash. Deposits at the banks are insured up to $250,000 by the National Credit Union Administration. The Company’s uninsured portion of the balances held at the banks aggregated to approximately $142,007 and $139,623, respectively, as of March 31, 2017 and 2016. 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 it is not exposed to any risks on its cash in bank accounts.

 

Inventory

 

Inventories are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of inventories with the market value and allowance is made to write down inventories to market value, if lower. As of March 31, 2017 and 2016, the Company had no inventory.

 

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.

 

Fair Value of Financial Instruments

 

For certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 

Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.

 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

 

As of March 31, 2017 and 2016, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at 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 years ended March 31, 2017 and 2016:

    2017     2016  
Net Loss   $ (29,256 )   $ (20,161 )
                 
Net Loss Per Share                
Basic and Diluted:   $ (0.005 )   $ (0.003 )
                 
Weighted average number of shares used in computing basic and diluted net loss per share:                
                 
Basic     5,630,769       8,000,000  
Diluted     5,630,769       8,000,000  
                 

Recently Issued Accounting Pronouncements

 

In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes” (ASU 2015-17), which changes how deferred taxes are classified on the balance sheet and is effective for financial statements issued for annual periods beginning after December 15, 2016, with early adoption permitted. ASU 2015-17 requires all deferred tax assets and liabilities to be classified as non-current. The Company is currently evaluating the impact of the adoption of this standard on its financial statements.

 

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and updates certain presentation and disclosure requirements. ASU 2016-01 is effective beginning after December 15, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which requires lessees to recognize right-of-use assets and lease liabilities, for all leases, with the exception of short-term leases, at the commencement date of each lease. This ASU requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods. Early adoption is permitted. The amendments of this update should be applied using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures.

 
 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” The guidance simplifies accounting for share-based payments, most notably by requiring all excess tax benefits and tax deficiencies to be recorded as income tax benefits or expense in the income statement and by allowing entities to recognize forfeitures of awards when they occur. This new guidance is effective for annual reporting periods beginning after December 15, 2016 and may be adopted prospectively or retroactively. The Company is currently evaluating the impact the adoption of this standard would have on its financial condition, results of operations and cash flows.

 

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The new guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, which will be our interim period beginning January 1, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods with that reporting period. The Company is currently evaluating the impact of adopting this standard on its c financial statements.

 

In August 2016, the FASB issued ASU 2016-15, regarding ASC Topic 230  “Statement of Cash Flows.”  This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The new guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect the adoption of this standard to have a significant effect on its financial statements.

 

In January 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” These amendments eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Effective for public business entities that are a SEC filers for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard will be effective for the Company on January 1, 2018, however, early adoption is permitted with prospective application to any business development transaction.

 

In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-06, “Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master Trust Reporting.” Among other things, the amendments require a plan’s interest in that master trust and any change in that interest to be presented in separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. The amendments also remove the requirement to disclose the percentage interest in the master trust for plans with divided interests and require that all plans disclose the dollar amount of their interest in each of those general types of investments. The amendments require all plans to disclose: (a) their master trust’s other asset and liability balances; and (b) the dollar amount of the plan’s interest in each of those balances. Lastly, the amendments eliminate redundant investment disclosures (e.g., those required by Topics 815 and 820) relating to 401(h) account assets. Effective for fiscal years beginning after December 15, 2018. Early adoption is permitted. The amendments should be applied retrospectively to each period for which financial statements are presented. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements.

 
 

In February 2017, the FASB has issued Accounting Standards Update (ASU) No. 2017-05, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The amendments clarify that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. Effective at the same time as the amendments in Update 2014-09, Revenue from Contracts with Customers (Topic 606). Therefore, public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the amendments in this Update to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the amendments in this Update to annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. All other entities may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance earlier as of annual reporting periods beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance. An entity is required to apply the amendments in this Update at the same time that it applies the amendments in Update 2014-09. The Company is currently evaluating the potential impact this standard may have on its financial position and results of operations.

 

There were no other new accounting pronouncements during the year ended March 31, 2017 that we believe would have a material impact on our financial position or results of operations.

 

Note 2 –PROMISSORY NOTE

 

On June 1, 2016, the Company entered into a promissory note receivable agreement with the major shareholder for $364,231.49. The amount was unsecured, non-interest bearing and due by December 31, 2016. There was no pre-payment penalty. The shareholder repaid all the amounts borrowed from the Company, by the due date. As of March 31, 2017, no balance was owed to the Company.

 

Note 3 – ACCRUED EXPENSES

 

As of March 31, 2017 and 2016, accrued expenses amounted to $8,425 and $0, respectively. Accrued expenses comprised of accrued legal and professional charges as of March 31, 2017.

    2017     2016  
Accrued legal and professional   $ 8,425     $  
    $ 8,425     $  

 

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, 2017 and 2016, respectively, the payable to related party amounted to $21,256 and $9,784.

 
 

Note 5 – 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 2017 and 2016 will not be fully realizable. Accordingly, management has recorded a full valuation allowance against its net deferred tax assets at, March 31 2017 and 2016. At March 31 2017 and 2016, the Company had federal net operating loss carry-forwards of approximately $20,000 and $30,000, respectively, expiring beginning in 2036.

 

Deferred tax assets consist of the following components:

    2017     2016  
Net loss carryforward   $ 30,000     $ 20,000  
Valuation allowance   $ (30,000 )   $ (20,000 )
Total deferred tax assets   $     $  

 

Note 6 – CORPORATE SPLIT OFF AND REORGANIZATION

 

In August 2016, the Company entered into a corporate split off and reorganization agreement with the founders. Pursuant to the agreement, the Company paid $187,951, representing half of the assets of the Company, to a newly formed organization, in exchange for 60,000 shares of common stock of the New Company. These 60,000 shares constituted all the outstanding shares of the New Company. The Company exchanged the 60,000 shares of New Company for 4,000,000 shares of the common stock of Quasuras, held by the founders. This transaction has been recorded in the books as a share repurchase and subsequent cancellation of shares. 

 

Note 7 – STOCKHOLDERS’ EQUITY

 

Common Stock

 

During the year ended March 31, 2016, the Company issued 8,000,000 shares of the Company’s common stock, at $0.05, to the founder in exchange for cash of $400,000.

 

In August 2016, the Company entered into a corporate split off and reorganization agreement with the founders (Note 7). Pursuant to the agreement, the Company paid $187,951 and repurchased 4,000,000 shares. The 4,000,000 shares were cancelled.

 

On January 31, 2017, the Company entered into a common share purchase agreement with the founder and two other individuals. Pursuant to the agreement, the purchasers will provide funding to the Company in return for shares of the Company. The Company granted an option to the founder to purchase 600,000 shares of the Company at the rate of $0.50 per share for a term of 180 days.

 

The Company issued 200,000 shares of common stock of the Company to the two individuals at the rate of $0.50 for $100,000, pursuant to the common share purchase agreement.

 

The founder exercised part of the option and purchased 200,000 shares of the Company. The Company issued 200,000 shares of common stock of the Company pursuant to the exercise of the option in return for $100,000.

 
 

Stock Options

 

On January 31, 2017, the Company entered into a common share purchase agreement with the founder and two other individuals. Pursuant to the agreement, the purchasers will provide funding to the Company in return for shares of the Company. The Company granted an option to the founder to purchase 600,000 shares of the Company at the rate of $0.50 per share for a term of 180 days. The Company determined the fair value of the options using the Black – Scholes model and recorded a deemed dividend of $25,733 for the options. The founder exercised part of the option and purchased 200,000 shares of the Company in February 2017. As of March 31, 2017, 400,000 options are still outstanding. The variables used for the Black –Scholes model are as listed below:

 

· Volatility: 30%

· Risk free rate of return: 0.64%

Expected term: 180 days

Equity Incentive Plan  

In December 2016, the board approved the 2016 Equity Incentive Plan (the “2016 Plan”) which provides for the grant of equity-based awards, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock and restricted stock units, to eligible participants. The aggregate number of shares reserved and available for award under the 2016 Plan was 3,000,000. The 2016 Plan contemplates the issuance of common stock upon exercise of options or other awards granted to eligible persons under the 2016 Plan. Shares issued under the 2016 Plan may be both authorized and unissued shares or previously issued shares acquired by the Company. Upon termination or expiration of an unexercised option, stock appreciation right or other stock-based award under the 2016 Plan, in whole or in part, the number of shares of common stock subject to such award again becomes available for grant under the 2016 Plan. Any shares of restricted stock forfeited as described below will become available for grant. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.  

Options granted under the 2016 Plan are not generally transferable and must be exercised within 10 years, subject to earlier termination upon termination of the option holder’s employment, but in no event later than the expiration of the option’s term. The exercise price of each option may not be less than the fair market value of a share of the Company’s common stock on the date of grant (except in connection with the assumption or substitution for another option in a manner qualifying under Section 424(a) of the Internal Revenue Code of 1986, as amended. Incentive stock options granted to any participant who owns 10% or more of the Company’s outstanding common stock (a “Ten Percent Shareholder”) must have an exercise price equal to or exceeding 110% of the fair market value of a share of our common stock on the date of the grant and must not be exercisable for longer than five years. Options become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee.  

The plan is subject to approval by the stockholders of the Company within twelve (12) months after the date the plan is adopted by the board is subject to shareholder approval. Subject to Section 21 of the Plan, the Plan will become effective upon its adoption by the board. Unless sooner terminated under Section 18, it will continue in effect for a term of ten (10) years from the later of (a) the effective date of the plan, or (b) the earlier of the most recent board or stockholder approval of an increase in the number of shares reserved for issuance under the plan.

As of March 31, 2017, no options have been granted under the 2016 Plan. 

 

Note 8 – SUBSEQUENT EVENTS

 

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) 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.

 
 

Exhibit 99.2

 

MODULAR MEDICAL, INC.

  UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

JUNE 30, 2016

                                   
    Quasuras     Modular
Medical
    Combined
Historical
        Proforma
Adjustments
    Combined
Pro Forma
 
CURRENT ASSETS                                            
Cash and cash equivalents   $ 389,623     $     $ 389,623     #1   $ 375,000          
                            #3     (2,098 )        
                            #4     (128,000 )        
                            #5     5,106,872     $ 5,741,397  
TOTAL ASSETS   $ 389,623     $     $ 389,623         $ 5,351,774     $ 5,741,397  
                                             
CURRENT LIABILITIES                                            
Accounts payable to related party   $     $ 62,671     $ 62,671                 $ 62,671  
Payable to related party     9,784       131,092       140,876     #4     (128,000 )     12,876  
TOTAL LIABILITIES     9,784       193,763       203,547           (128,000 )     75,547  
                                             
STOCKHOLDERS’ EQUITY (DEFICIT)                                            
Common stock     500,000       1,250       501,250     #1     2,900          
                            #2     (55 )        
                            #3     (105 )        
                            #5     7,801          
                            #6     (2,900 )        
                            #7     7,582          
                            #8     (500,000 )     16,473  
Additional paid in capital     (100,000 )     82,828       (17,172 )   #1     372,100          
                            #2     55          
                            #3     (1,993 )        
                            #5     5,099,071          
                            #6     2,900          
                            #7     (7,582 )        
                            #8     222,159       5,669,537  
Accumulated deficit     (20,161 )     (277,841 )     (298,002 )         277,841       (20,161 )
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)     379,839       (193,763 )     186,076           5,479,774       5,665,850  
                                             
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 389,623     $     $ 389,623         $ 5,351,774     $ 5,741,397  

 
 

Proforma Adjustments:            
                     
#1   Cash     375,000          
    Common stock             2,900  
    APIC             372,100  
    (for to the 2,900,000 shares sold to Manchester LLP for $375,000)                
                     
#2   Common stock     55          
    APIC             55  
    (for the 544,900 shares of former directors cancelled)                
                     
#3   Common stock     105          
    APIC     1,993          
    Cash             2,098  
    (for the 104,916 shares owned by Thomas Howell cancelled in exchange for cash)                
                     
#4   Payable to related party     128,000          
    Cash             128,000  
    (for the cash paid t Thomas Howell for the monies owed by the Company)                
                     
#5   Cash     5,106,872          
    APIC     41,928          
    Common stock             7,801  
    APIC             5,140,999  
    (for the 7,801,212 shares issued for cash and $41,928 finance fee paid)                
                     
#6   Common stock     2,900          
    APIC             2,900  
    (for the 2,900,000 shares cancelled)                
                     
#7   APIC     7,582          
    Common stock             7,582  
    (for the 7,582,000 common shares issued for reverse merger)                
                     
#8   Common stock     500,000          
    APIC     (100,000 )        
    Accumulated deficit             277,841  
    APIC             122,159  
    (for the reorganization)                

 
 

MODULAR MEDICAL, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE YEAR ENDED JUNE 30, 2016

UNAUDITED

                               
    Quasuras     Modular
Medical
    Combined
Historial
    Proforma
Adjustments
    Pro Forma  
                               
Revenue, net   $     $     $           $  
                                         
Operating expenses:                                        
Legal and professional     17,401               17,401               17,401  
General and administration expenses     4,457       13,163       17,620               17,620  
Total operating expenses     21,858       13,163       35,021               35,021  
                                         
Loss from operations     (21,858 )     (13,163 )     (35,021 )             (35,021 )
                                         
Other income (expense)                                        
Interest income     1,697             1,697               1,697  
Interest expense           (17,921 )     (17,921 )             (17,921 )
Total other income (expense)     1,697       (17,921 )     (16,224 )             (16,224 )
                                         
Loss before income tax provision     (20,161 )     (31,084 )     (51,245 )             (51,245 )
                                         
Income tax provision                                
                                         
Net loss   $ (20,161 )   $ (31,084 )   $ (51,245 )           $ (51,245 )
                                         
Earnings per share:                                        
Basic   $ (0.003 )   $ (0.025 )   $ (0.01 )           $ (0.00 )
                                         
Diluted   $ (0.003 )   $ (0.025 )   $ (0.01 )           $ (0.00 )
                                         
Weighted average number of shares outstanding:                                        
Basic     8,000,000       1,249,816       9,249,816       6,733,396       15,983,212  
                                         
Diluted     8,000,000       1,249,816       9,249,816       6,733,396       15,983,212  

 
 

MODULAR MEDICAL, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE NINE MONTH PERIOD ENDED MARCH 31, 2017

UNAUDITED

                               
    Quasuras     Modular
Medical
    Combined
Historial
    Proforma
Adjustments
    Pro Forma  
                               
Revenue, net   $     $     $           $  
                                         
Operating expenses:                                        
Legal and professional     7,505             7,505               7,505  
General and administration expenses     62       10,912       10,974               10,974  
Total operating expenses     7,567       10,912       18,479               18,479  
                                         
Loss from operations     (7,567 )     (10,912 )     (18,479 )             (18,479 )
                                         
Other income (expense)                                        
Interest income     799             799               799  
Interest expense           (15,508 )     (15,508 )             (15,508 )
Total other income (expense)     799       (15,508 )     (14,709 )             (14,709 )
                                         
Loss before income tax provision     (6,768 )     (26,420 )     (33,188 )             (33,188 )
                                         
Income tax provision     800             800               800  
                                         
Net loss     (7,568 )     (26,420 )     (33,988 )             (33,988 )
                                         
Loss per share:                                        
Basic   $ (0.001 )   $ (0.021 )   $ (0.00 )           $ (0.00 )
                                         
Diluted   $ (0.001 )   $ (0.021 )   $ (0.00 )           $ (0.00 )
                                         
Weighted average number of shares outstanding:                                        
Basic     5,630,769       1,249,816       6,880,585       9,102,627       15,983,212  
                                         
Diluted     5,630,769       1,249,816       6,880,585       9,102,627       15,983,212  

 
 

Note 1 — Basis of presentation

The unaudited pro forma condensed combined financial statements are based on Modular Medical, Inc. and Quasuras, Inc.’s historical consolidated financial statements as adjusted to give effect to the Reorganization and Share Exchange Agreement. The unaudited pro forma combined statements of operations for the (i) nine months period ended March 31, 2017 for Modular Medical, Inc. with nine months ended December 31, 2016 for Quasuras, Inc.; and (ii) the 12 months ended June 30, 2016 for Modular Medical, Inc. with twelve months ended March 31, 2016 for Quasuras, Inc, give effect to the Reorganization and Share Exchange Agreement as if it had occurred on July 1, 2015. The unaudited pro forma combined balance sheet as of June 30, 2016 gives effect to the Reorganization and Share Exchange Agreement as if it had occurred on July 1, 2015.

Note 2 — Preliminary purchase price allocation

On July 24 2017, Modular Medical, Inc completed 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 ”), 2 other Quasuras Shareholders and Quasuras, Inc., the Company acquired all 4,400,000 shares of Quasuras’ common stock owned by the 3 Quasuras Shareholders (which represented 100% of the issued and outstanding shares of Quasuras) for 7,582,000 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). The unaudited pro forma condensed combined financial information includes various assumptions, including those related to the equity and accumulated deficit reorganization and preliminary liabilities reorganization based on management’s best estimates of fair value. Accordingly, the pro forma adjustments are preliminary and have been made solely for illustrative purposes.

Note 3 — Pro forma adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:

Adjustments to the pro forma condensed combined balance sheet

(1) Reflects the Common Stock Purchase Agreement dated as of April 5, 2017 by and among Manchester Explorer, LP, a Delaware limited partnership (“Manchester”), Modular Medical and certain person named therein (the “SPA”) Manchester purchased from Modular Medical (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.

(2) Reflects the cancellation of 544,900 shares owned by the former directors.

(3) Reflects the cancellation of 104,916 shares owned by Thomas J. Howells in consideration of the payment of $2,098.32.

(4) Reflects the payment of $128,000 to Thomas Howell in satisfaction of amounts due to him.

(5) Reflects the 7,801,212 shares issued for cash and $41,928 finance fee paid.

(6) Reflects the cancellation of the 2,900,000 shares issued to Manchester Explorer LP.

(7) Reflects the 7,582,000 common shares issued for the reverse merger under the Reorganization and Share Exchange Agreement.

(8) Reflects the reorganization of equity.