UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:September 30, 2019
or
December 31, 2017¨
For the transition period fromto
Commission File Number:333-194857
| Nemaura Medical Inc. |
| (Exact name of small business issuer as specified in its charter) |
| NEVADA | 46-5027260 | |||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Tax. I.D. No.) | |||
57 West 57th Street Manhattan, NY 10019 | ||||
| (Address of Principal Executive Offices) | ||||
| + 00 44 1509 222912 | ||||
| ( | ||||
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | NMRD | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑þ No ☐o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑þ No☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | |
Non-accelerated filer | Smaller reporting company | |
Emerging growth company | ||
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.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☑þ
The number of shares of common stock, par value $0.001 per share outstanding as of February 7, 2018November 1, 2019 was 67,676,000.208,079,304.
NEMAURA MEDICAL INC.
TABLE OF CONTENTS
| Page | |||
| PART I: FINANCIAL INFORMATION | |||
| ITEM 1 | INTERIM FINANCIAL STATEMENTS | ||
| Condensed Consolidated Balance Sheets as of | 3 | ||
| Condensed Consolidated Statements of Comprehensive Loss for the Three and | 4 | ||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2019 and 2018 (unaudited) and the six months ended September 30, 2019 and 2018 (unaudited) | 5-6 | ||
| Condensed Consolidated Statements of Cash Flows for the | |||
| Notes to Condensed Consolidated Financial Statements (unaudited) | |||
| ITEM 2 | |||
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||
| ITEM 4 | CONTROLS AND PROCEDURES | ||
| PART II: OTHER INFORMATION | |||
| ITEM 1 | LEGAL PROCEEDINGS | ||
| ITEM 1A | RISK FACTORS | ||
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | ||
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | ||
| ITEM 4 | MINE SAFETY DISCLOSURES | ||
| ITEM 5 | OTHER INFORMATION | ||
| ITEM 6 | EXHIBITS | ||
| SIGNATURES | 20 | ||
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
| NEMAURA MEDICAL INC. |
| Condensed Consolidated Balance Sheets |
As of December 31, 2017 ($) | As of March 31, 2017 ($) | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | 1,664,616 | 911,359 | ||||||
| Fixed rate cash account | 4,789,129 | 1,867,950 | ||||||
| Prepaid expenses and other receivables | 109,878 | 51,086 | ||||||
| Total Current Assets | 6,563,623 | 2,830,395 | ||||||
| Other Assets: | ||||||||
| Property and equipment, net | 6,651 | 9,161 | ||||||
| Intangible assets, net of accumulated amortization | 231,915 | 203,800 | ||||||
| 238,566 | 212,961 | |||||||
| Long Term Assets: | ||||||||
| Fixed rate cash account | - | 4,358,550 | ||||||
| Total assets | 6,802,189 | 7,401,906 | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | 65,370 | 77,530 | ||||||
| Liability due to related party | 826,310 | 687,609 | ||||||
| Other liabilities and accrued expenses | 162,811 | 87,232 | ||||||
| Total current liabilities | 1,054,491 | 852,371 | ||||||
| Deferred revenue | 1,249,675 | 1,183,035 | ||||||
| 1,249,675 | 1,183,035 | |||||||
| Total liabilities | 2,304,166 | 2,035,406 | ||||||
| Commitments and contingencies: | ||||||||
| Stockholders' Equity: | ||||||||
Convertible preferred stock, $0.001 par value, 200,000 shares authorized and 137,324 outstanding at December 31, 2017 | 137 | - | ||||||
| Common stock, $0.001 par value, | ||||||||
| 420,000,000 shares authorized and 67,676,000 and 205,000,000 | ||||||||
| shares issued and outstanding, at December 31, 2017 and March 31, 2017 respectively | 67,676 | 205,000 | ||||||
| Additional paid in capital | 13,056,861 | 12,919,672 | ||||||
| Accumulated deficit | (8,419,817 | ) | (7,152,633 | ) | ||||
| Accumulated other comprehensive loss | (206,834 | ) | (605,539 | ) | ||||
| Total stockholders' equity | 4,498,023 | 5,366,500 | ||||||
| Total liabilities and stockholders' equity | 6,802,189 | 7,401,906 | ||||||
As of September 30, 2019 ($) | As of March 31, 2019 ($) | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | 1,771,115 | 3,740,664 | ||||||
| Prepaid expenses and other receivables | 375,956 | 736,460 | ||||||
| Inventory | 195,974 | 38,036 | ||||||
| Total current assets | 2,343,045 | 4,515,160 | ||||||
| Other Assets: | ||||||||
| Property and equipment, net of accumulated depreciation | 162,677 | 56,871 | ||||||
| Intangible assets, net of accumulated amortization | 197,894 | 191,684 | ||||||
| Total other assets | 360,571 | 248,555 | ||||||
| Total assets | 2,703,616 | 4,763,715 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | 214,121 | 161,348 | ||||||
| Liability due to related parties | 1,006,534 | 964,679 | ||||||
| Other liabilities and accrued expenses | 54,648 | 107,759 | ||||||
| Deferred revenue | 61,600 | 65,175 | ||||||
| Total current liabilities | 1,336,903 | 1,298,961 | ||||||
| Non-current portion of deferred revenue | 1,170,400 | 1,237,850 | ||||||
| Total liabilities | 2,507,303 | 2,536,811 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $0.001 par value, | ||||||||
| 420,000,000 shares authorized; 208,029,304 and 207,655,916 | ||||||||
| shares issued and outstanding at September 30, 2019 and March 31, 2019, respectively | 208,029 | 207,656 | ||||||
| Additional paid-in capital | 16,145,508 | 15,785,015 | ||||||
| Accumulated deficit | (15,794,184 | ) | (13,425,879 | ) | ||||
| Accumulated other comprehensive loss | (363,040 | ) | (339,888 | ) | ||||
| Total stockholders’ equity | 196,313 | 2,226,904 | ||||||
| Total liabilities and stockholders’ equity | 2,703,616 | 4,763,715 | ||||||
See notes to the unaudited condensed consolidated financial statements
| 3 |
NEMAURA MEDICAL INC. |
| Condensed Consolidated Statements |
| (Unaudited) |
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2017 ($) | 2016 ($) | 2017 ($) | 2016 ($) | |||||||||||||
| Revenue: | - | - | - | - | ||||||||||||
| Total revenue | - | - | - | - | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 355,300 | 267,638 | 713,585 | 794,433 | ||||||||||||
| General and administrative | 121,053 | 107,728 | 627,605 | 397,598 | ||||||||||||
| Total operating expenses | 476,353 | 375,366 | 1,341,190 | 1,192,031 | ||||||||||||
| Loss from operations | (476,353 | ) | (375,366 | ) | (1,341,190 | ) | (1,192,031 | ) | ||||||||
| Interest income | 9,988 | - | 74,006 | - | ||||||||||||
| Net loss | (466,365 | ) | (375,366 | ) | (1,267,184 | ) | (1,192,031 | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | 36,641 | (396,445 | ) | 398,705 | (786,148 | ) | ||||||||||
| Comprehensive loss | (429,724 | ) | (771,811 | ) | (868,479 | ) | (1,978,179 | ) | ||||||||
| Loss per share | ||||||||||||||||
| Basic and diluted | * | * | * | * | ||||||||||||
| Weighted average number of shares outstanding | 121,411,478 | 205,000,000 | 177,035,840 | 205,000,000 | ||||||||||||
| Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
2019 ($) | 2018 ($) | 2019 ($) | 2018 ($) | |||||||||||||
| Revenue: | — | — | — | — | ||||||||||||
| Total revenue | — | — | — | — | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 462,517 | 622,282 | 1,018,699 | 1,051,821 | ||||||||||||
| General and administrative | 654,523 | 525,075 | 1,353,532 | 867,499 | ||||||||||||
| Total operating expenses | 1,117,040 | 1,147,357 | 2,372,231 | 1,919,320 | ||||||||||||
| Loss from operations | (1,117,040 | ) | (1,147,357 | ) | (2,372,231 | ) | (1,919,320 | ) | ||||||||
| Interest income | — | 8,082 | 3,926 | 16,891 | ||||||||||||
| Net loss | (1,117,040 | ) | (1,139,275 | ) | (2,368,305 | ) | (1,902,429 | ) | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation adjustment | (7,401 | ) | (38,483 | ) | (23,152 | ) | (273,092 | ) | ||||||||
| Comprehensive loss | (1,124,441 | ) | (1,177,758 | ) | (2,391,457 | ) | (2,175,521 | ) | ||||||||
| Net loss per share, basic and diluted | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
| Weighted average number of shares outstanding | 208,021,967 | 205,003,261 | 207,929,675 | 155,957,363 | ||||||||||||
See notes to the unaudited condensed consolidated financial statements
Nine Months Ended December 31, | ||||||||
2017 ($) | 2016 ($) | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | (1,267,184 | ) | (1,192,031 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 22,467 | 15,629 | ||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other receivables | (63,405 | ) | 69,121 | |||||
| Accounts payable | (15,355 | ) | (20,584 | ) | ||||
| Liability due to related party | 77,654 | 423,237 | ||||||
| Other liabilities and accrued expenses | 43,223 | - | ||||||
| Interest receivable | (58,504 | ) | - | |||||
| Net cash used in operating activities | (1,261,104 | ) | (704,628 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Purchase of intangible assets | (29,732 | ) | (57,630 | ) | ||||
| Purchase of property and equipment | - | (6,641 | ) | |||||
| Proceeds from fixed rate savings account | 1,955,489 | - | ||||||
| Net cash provided by (used in) investing activities | 1,925,757 | (64,271 | ) | |||||
| Net increase/(decrease) in cash | 664,653 | (768,899 | ) | |||||
| Effect of exchange rate changes on cash | 88,604 | (1,041,712 | ) | |||||
| Cash at beginning of period | 911,359 | 9,403,965 | ||||||
| Cash at end of period | 1,664,616 | 7,593,354 | ||||||
NEMAURA MEDICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2019 and2018
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholder’ | ||||||||||||||||||||
| Shares | Amount ($) | Capital ($) | Deficit ($) | Loss ($) | Deficit ($) | |||||||||||||||||||
| Balance at June 30, 2019 | 208,016,804 | 208,017 | 16,133,144 | (14,677,144 | ) | (355,639 | ) | 1,308,378 | ||||||||||||||||
| Restricted shares issued as stock-based compensation to consultants and investor relations | 12,500 | 12 | 12,364 | — | — | 12,376 | ||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (7,401 | ) | (7,401 | ) | ||||||||||||||||
| Net loss | — | — | — | (1,117,040 | ) | — | (1,117,040 | ) | ||||||||||||||||
| Balance at September 30, 2019 | 208,029,304 | 208,029 | 16,145,508 | (15,794,184 | ) | (363,040 | ) | 196,313 | ||||||||||||||||
| Balance at June 30, 2018 | 205,000,000 | 205,000 | 12,919,672 | (9,736,235 | ) | (275,234 | ) | 3,113,203 | ||||||||||||||||
| Issuance of stock- exercise of warrants | 50,000 | 50 | 450 | — | — | 500 | ||||||||||||||||||
| Stock-based compensation | — | — | 114,501 | — | — | 114,501 | ||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (38,483 | ) | (38,483 | ) | ||||||||||||||||
| Net loss | — | — | — | (1,139,275 | ) | — | (1,139,275 | ) | ||||||||||||||||
| Balance at September 30, 2018 | 205,050,000 | 205,050 | 13,034,623 | (10,875,510 | ) | (313,717 | ) | 2,050,446 | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements
| 5 |
NEMAURA MEDICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months Ended September 30, 2019 and 2018
(Unaudited)
| Common Stock | Convertible preferred stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount ($) | Shares | Amount ($) | Capital ($) | Deficit ($) | Loss ($) | Deficit ($) | |||||||||||||||||||||||||
| Balance at March 31, 2019 | 207,655,916 | 207,656 | — | — | 15,785,015 | (13,425,879 | ) | (339,888 | ) | 2,226,904 | ||||||||||||||||||||||
| Issuance of common shares under ATM financing, net | 143,388 | 143 | — | — | 142,774 | — | — | 142,917 | ||||||||||||||||||||||||
| Exercise of warrants | 25,000 | 25 | — | — | 25,975 | — | — | 26,000 | ||||||||||||||||||||||||
| Restricted shares issued as stock-based compensation | 205,000 | 205 | — | — | 191,744 | — | — | 191,949 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (23,152 | ) | (23,152 | ) | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | (2,368,305 | ) | — | (2,368,305 | ) | ||||||||||||||||||||||
| Balance at September 30, 2019 | 208,029,304 | 208,029 | — | — | 16,145,508 | (15,794,184 | ) | (363,040 | ) | 196,313 | ||||||||||||||||||||||
| Balance at March 31, 2018 | 67,676,000 | 67,676 | 137,324,000 | 137 | 13,056,859 | (8,973,082 | ) | (40,625 | ) | 4,110,965 | ||||||||||||||||||||||
| Conversion of preferred stock into common stock | 137,324,000 | 137,324 | (137,324,000 | ) | (137 | ) | (137,187 | ) | — | — | — | |||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | (273,092 | ) | (273,092 | ) | ||||||||||||||||||||||
| Exercise of warrants | 50,000 | 50 | — | — | 450 | — | — | 500 | ||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | 114,501 | — | — | 114,501 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,902,428 | ) | — | (1,902,428 | ) | ||||||||||||||||||||||
| Balance at September 30, 2018 | 205,050,000 | 205,050 | — | — | 13,034,623 | (10,875,510 | ) | (313,717 | ) | 2,050,446 | ||||||||||||||||||||||
See notes to the unaudited condensed consolidated financial statements
| 6 |
NEMAURA MEDICAL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| Six Months Ended September 30, | ||||||||
2019 ($) | 2018 ($) | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | (2,368,305 | ) | (1,902,429 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 28,338 | 9,656 | ||||||
| Stock-based compensation | 277,664 | 114,500 | ||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other receivables | 263,022 | 9,258 | ||||||
| Inventory | (170,371 | ) | — | |||||
| Accounts payable | 59,010 | 5,355 | ||||||
| Liability due to related party | 100,533 | 84,896 | ||||||
| Other liabilities and accrued expenses | (52,608 | ) | 136,117 | |||||
| Accrued interest receivable | — | 980 | ||||||
| Net cash used in operating activities | (1,862,717 | ) | (1,541,667 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Capitalized patent costs | (28,310 | ) | (7,066 | ) | ||||
| Purchase of property and equipment | (133,716 | ) | — | |||||
| Fixed rate savings account | — | 1,324,000 | ||||||
| Net cash (used in) provided by investing activities | (162,026 | ) | 1,316,934 | |||||
| Cash Flows from Financing Activities: | ||||||||
| Costs incurred in relation to ATM equity financing | (9,575 | ) | — | |||||
| Gross proceeds from issuance of common stock in relation to ATM financing | 152,492 | — | ||||||
| Gross proceeds from warrant exercise | 26,000 | — | ||||||
| Proceeds from exercise of common stock options | — | 500 | ||||||
| Net cash provided by financing activities | 168,917 | 500 | ||||||
| Net decrease in cash | (1,855,826 | ) | (224,233 | ) | ||||
| Effect of exchange rate changes on cash | (113,723 | ) | (71,954 | ) | ||||
| Cash at beginning of period | 3,740,664 | 822,335 | ||||||
| Cash at end of period | 1,771,115 | 526,148 | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Conversion of Series A preferred stock to common stock | — | 137,324 | ||||||
| Deferred offering costs included in accrued expenses | — | 108,450 | ||||||
| Prepayment of equity compensation | 85,715 | — | ||||||
See notes to the unaudited condensed consolidated financial statements
| 7 |
NEMAURA MEDICAL INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
INTERIM FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES
Nemaura Medical Inc. ("Nemaura"(“Nemaura” or the "Company"“Company”), through its operating subsidiaries, performs medical device research and manufacturing of a continuous glucose monitoring system ("CGM"(“CGM”), named sugarBEAT. The sugarBEAT device is a non-invasive, wireless device for use by persons with Type I and Type II diabetes and may also be used to screen pre-diabetic patients. The sugarBEAT device extracts analytes, such as glucose, to the surface of the skin in a non-invasive manner where it is measured using unique sensors and interpreted using a unique algorithm.
Nemaura is a Nevada holding company organized in 2013. Nemaura owns one hundred percent (100%) of Region Green Limited, a British Virgin Islands corporation (“RGL”) formed ("RGL") on December 12, 2013. Region Green LimitedRGL owns one hundred percent (100%) of the stock in Dermal Diagnostic (Holdings) Limited, an England and Wales corporation ("DDHL"(“DDHL”) formed on December 11, 2013, which in turn owns one hundred percent (100%) of Dermal Diagnostics Limited, an England and Wales corporation formed on January 20, 2009 ("DDL"(“DDL”), and one hundred percent (100%) of Trial Clinic Limited, an England and Wales corporation formed on January 12, 2011 ("TCL"(“TCL”).
DDL is a diagnostic medical device company headquartered in Loughborough, Leicestershire, England, and is engaged in the discovery, development and commercialization of diagnostic medical devices. The Company'sCompany’s initial focus has been on the development of the sugarBEAT device, which consists of a disposable patch containing a sensor, and a non-disposable miniature electronic watchtransmitter device with a re-chargeable power source, which is designed to enable trending or tracking of blood glucose levels. Except for a US cash account (approximately $48,000 at December 31, 2017), allAll of the Company'sCompany’s operations and assets are located in England.
The following diagram illustrates ourNemaura’s corporate and shareholder structure as of December 31, 2017:September 30, 2019:
| 8 |
The Company was incorporated in 2013, and has a limited operating history,reported recurring losses from operations to date and an accumulated deficit of $8,419,817$15,794,184 as of December 31, 2017.September 30, 2019. These operations have resulted in the successful completion of clinical programs to support a CE mark (European Union approval of the product) approval, as well as a De Novo 510(k) medical device application to the US Food and Drug Administration (“FDA”) submission. The Company expects to continue to incur losses from operations at least until revenues are generated through licensing fees or product sales. However, given the completion of the requisite clinical trialsprograms, these losses are completed and the product becomes availableexpected to be marketed.reduced over time. Management has evaluated its abilityentered into licensing, supply, or collaboration agreements with unrelated third parties relating to continue as a going concern for the next twelve months fromUnited Kingdom, Europe, Qatar and all countries in the issuance of these December 31, 2017 consolidated financial statements, and consideredGulf Cooperation Council.
Management has evaluated the expected expenses to be incurred along with its available cash and credit facility and has determined that there is not substantial doubt as to itsthe Company has the ability to continue as a going concern for at least one year subsequent to the date of issuance of these condensed consolidated financial statements. The Company had an $8 million unsecured senior credit facility made available from certain major stockholders on August 1, 2019. Further details of the terms of this loan are included in Note 4.
The Company has $1,664,616$1,771,115 of readily available cash on hand at December 31, 2017September 30, 2019. We believe the cash position as of September 30, 2019, plus the credit facility made available from certain major stockholders, is adequate for our current level of operations through at least November 2020, and approximately $4.79 millionfor the achievement of certain of our product development milestones. Our plan is to utilize the cash in a fixed rate deposit account which matures in December 2018 (see note 3(b)).
Management's strategic plans include the following:
| · | support the UK and EU launch of sugarBEAT; |
| · | pursuing additional capital raising opportunities; |
| · | obtaining further regulatory approval for the sugarBEAT device in other countries such as the USA; |
| · | exploring licensing and partnership opportunities in other territories; and |
| · | developing the sugarBEAT device for commercialization for other applications. |
NOTE 2 – BASIS OF PRESENTATION
(a) Basis of presentation
The accompanying condensed consolidated financial statements have been prepared pursuant to advance commercializationthe rules and regulations of the Company's principal product,U.S. Securities and Exchange Commission (the “SEC”), and do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. However, such information reflects all adjustments consisting of normal recurring accruals which are, in the UK, Europeanopinion of management, necessary for a fair statement of the financial condition and other international markets;
The accompanying condensed consolidated financial statements include the accounts of the Company and the Company's subsidiaries, DDL, TCL, DDHLCompany’s subsidiaries. References to “we”, “us”, “our”, or the “Company” refer to Nemaura Medical Inc. and RGL.its consolidated subsidiaries. The condensed consolidated financial statements are prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management,U.S. GAAP, and all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operationssignificant intercompany balances and changes in financial position at December 31, 2017 and for all periods presentedtransactions have been made. Certain information and footnote data necessary for fair presentation of financial position and results of operationseliminated in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company's Annual Report on Form 10-K for the Year Ended March 31, 2017. The results of operations for the period ended December 31, 2017 are not necessarily an indication of operating results for the full year.
| 9 |
The functional currency for the majority of the CompanyCompany’s operations is the Great Britain Pound Sterling ("GBP"(“GBP”). The, and the reporting currency is the United States dollar (US$US Dollar (“USD”). Stockholders' equity is translated into United States dollars from GBP at historical exchange rates. Assets and liabilities are translated at
(b) Changes to significant accounting policies
There have been no material changes to our significant accounting policies as detailed in our Form 10-K for the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rates prevailing during the reporting period.
Nine months ended December 31, 2017 (unaudited) | Nine months ended December 31, 2016 (unaudited) | Three months ended December 31, 2017 (unaudited) | Three months ended December 31, 2016 (unaudited) | Twelve months ended March 31, 2017 | ||||||||||||||||
| Period end GBP: US$ exchange rate | 1.351 | 1.240 | 1.351 | 1.240 | 1.245 | |||||||||||||||
| Average period/yearly GBP : US$ exchange rate | 1.300 | 1.340 | 1.343 | 1.255 | 1.315 | |||||||||||||||
(c) Recently adopted accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's condensed consolidated financial statements properly reflect the change.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09 (“ASC 606”),Revenue from Contracts with Customers. ASU 2014-09 ASC 606 has been modified multiple times since its initial release. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replacehas replaced most existing revenue recognition guidance in U.S. GAAP when it becomesbecame effective. ASU 2014-09,ASC 606, as amended, becomesbecame effective for annual reporting periods beginning after December 15, 2017. Early adoption iswas permitted. As an Emerging Growth Company, the Company is allowed to adopt new, or updated, accounting standards using the same time frame that applies to private companies. The Company will adoptadopted this standard on April 1, 2019.
While the Company is not currently recognizing revenue, we have implemented the guidelines within ASC 606. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company may enter into product development and other agreements with collaborative partners. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations.
The Company has entered into license agreements and for these, recognizes up front license payments as revenue upon delivery of the license only if the license has stand-alone value to the customer. However, where further performance criteria must be met, revenue is deferred and recognized over the period the Company is expected to complete its performance obligations. Royalty revenue will be recognized upon the sale of the related products provided the Company has no remaining performance obligations under the agreement.
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In June 2018, the FASB issued ASU 2018-07,Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted ASU 2018-07 as of April 1, 2019. The adoption of ASU 2018-07 has not had a material impact on the Company’s financial position, results of operations or related disclosures and no transition adjustment at date of adoption was required.
Recent accounting pronouncements
In March 2016, the FASB issued ASU No. 2016-02, Leases. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016- 022016-02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors have two options: they are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.approach or recognize a cumulative effect adjustment to the opening balance of retained earnings at their adoption date. This ASU is effective for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.2018 and for private companies ASU 2016-02 is effective beginning after December 15, 2020. Early adoption is permitted as of the beginning of any interim or annual reporting period. As an Emerging Growth Company, the Company is allowed to adopt new, or updated, accounting standards using the same time frame that applies to private companies. The Company will adopt this standard on April 1, 2020.
NOTE 43 – LICENSING AGREEMENT
United Kingdom and the Republic of Ireland, the Channel Islands and the Isle of Man
In March 2014, the Company entered into an Exclusive Marketing Rights Agreement with an unrelated third party, thatwhich granted to the third party the exclusive right to market and promote the sugarBEAT device and related patches under its own brand in the United Kingdom and the Republic of Ireland, the Channel Islands and the Isle of Man. The Company received a non-refundable, up frontup-front cash payment of GBP 1,000,000 (approximately $1.351$1.232 million and $1.245$1.303 million as of December 31, 2017September 30, 2019 and March 31, 20172019, respectively), which is wholly non-refundable, upon signing the agreement.
As the Company has continuing performance obligations under the agreement, the up frontup-front fees received from this agreement have been deferred and will be recorded as income over the term of the commercial licensing agreement beginning from the date of clinical evaluation approval.agreement. As the Company now expects commercialization of the sugarBEAT device to occur in the yearfirst quarter ending March 31, 2019,June 30, 2020, approximately $101,000$62,000 and $65,000 of the deferred revenue has been classified as a current liability.
Further details of licensing agreements are disclosed in the United Kingdom,Form 10-K as of and purchasefor the product at specified prices.
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NOTE 54 – RELATED PARTY TRANSACTIONS
Nemaura Pharma Limited (Pharma) and(“Pharma”), NDM Technologies Limited (NDM)(“NDM”) and Black and White Health Care Limited (“B&W”) are entities controlled by the Company'sCompany’s Chief Executive Officer and majority shareholder,
In accordance with the United States Securities and Exchange Commission (SEC)SEC Staff Accounting Bulletin 55, these condensed consolidated financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma has invoiceda service agreement with DDL, to undertake development, manufacture and TCLregulatory approvals under Pharma’s ISO13485 Accreditation. In lieu of these services, DDL invoices Pharma on a periodic basis for research and developmentsaid services. In addition, certain operating expenses of DDL and TCL were incurred and paid by Pharma and NDM which have been invoicedServices are provided at cost plus a service surcharge amounting to the Company. Certain costs incurred by Pharma and NDM are directly attributable to DDL and TCL and such costs were billed to the Company. DDL and TCL advanced Pharma certain amounts to cover a portionless than 10% of the costs.
The following is a summary of activity between the Company and Pharma and NDM for the ninesix months ended DecemberSeptember 30, 2019 and 2018, and the year ended March 31, 2017 and 2016.2019. These amounts are unsecured, interest free, and payable on demand.
Nine Months Ended December 31, 2017 (unaudited) ($) | Nine Months Ended December 31, 2016 (unaudited) ($) | |||||||
| Balance due from (to) Pharma and NDM at beginning of period | (687,609 | ) | (494,145 | ) | ||||
| Amounts invoiced by Pharma to DDL and TCL (1) | (554,464 | ) | (483,406 | ) | ||||
| Amounts invoiced by DDL to Pharma | - | 15,399 | ||||||
| Amounts advanced to Pharma | - | 45,391 | ||||||
| Amounts repaid by DDL to Pharma | 440,266 | - | ||||||
| Amounts paid by DDL on behalf of Pharma | 19,889 | - | ||||||
| Foreign exchange differences | (44,392 | ) | 96,129 | |||||
| Balance due to Pharma and NDM at end of the period | (826,310 | ) | (820,632 | ) | ||||
Six Months Ended September 30, 2019 (unaudited) ($) | Six Months Ended September 30, 2018 (unaudited) ($) | Year Ended March 31, 2019
($) | ||||||||||
| Liability due to related party, beginning of period | 964,679 | 613,818 | 613,818 | |||||||||
| Amounts invoiced by DDL to Pharma | (814 | ) | — | (977 | ) | |||||||
| Amounts invoiced by Pharma to DDL, NM and TCL (1) | 966,425 | 1,149,785 | 2,312,412 | |||||||||
| Amounts repaid by DDL to Pharma | (867,013 | ) | (1,038,730 | ) | (1,569,496 | ) | ||||||
| Amounts invoiced by B&W to DDL | — | — | 2,206 | |||||||||
| Amounts repaid by DDL to B&W | — | — | (5,622 | ) | ||||||||
| Foreign exchange differences | (56,743 | ) | (82,360 | ) | (84,843 | ) | ||||||
| Forgiveness of payable accounted for as an equity contribution | — | — | (302,819 | ) | ||||||||
| Liability due to related party, end of the period | 1,006,534 | 642,513 | 964,679 | |||||||||
| (1) | These amounts are included primarily in research and development expenses charged to the Company by Pharma. |
The Company has an $8 million unsecured senior credit facility made available from certain majority stockholders as of August 1, 2019. The first $3.5 million became available immediately for draw down, which will help fund the Company’s European commercial launch. The credit facility is non-dilutive carrying 8% interest with quarterly interest only payments. The principal is due on maturity in 5 years. There has been no draw down to date. No decision to date has been made on when the remaining capital will be needed and will be available for draw down.
The Company routinely reviews its statement of cash flows presentation of related party transactions for financing or operating classification based on the underlying nature of the item and intended repayment.
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NOTE 5 – STOCKHOLDERS’ EQUITY
On October 5, 2017, the Company entered into common stock exchange agreements with each of its three largest stockholders, to exchange, in the aggregate, 137,324,000 shares of the Company’s common stock for 137,324 shares of Series A Convertible Preferred Stock (the “Series A Preferred”). Each share of Series A Preferred is convertible into 1,000 shares of the Company’s common stock, automatically upon the occurrence of all of certain triggering events, as set forth in the Certificate of Designation for the Series A Preferred, namely (a) the sugarBEAT device to be commercialized has CE mark regulatory approval; (b) retail sales having commenced; and (c) retail sales exceeding $5 million, inclusive of advanced sales or voluntarily by the holder after February 7, 2018, if these triggering events have not occurred. Each holder of issued and outstanding Series A Preferred is entitled to a number of votes equal to the number of shares of common stock into which the Series A Preferred is convertible. Holders of Series A Preferred are entitled to vote on any and all matters presented to stockholders of the Company, except as provided by law. The Series A Preferred has no preference to the common stock as to dividends or distributions of assets upon liquidation or winding up of the Company (which has been agreed to by the holders of the Series A Preferred). The Company determined that the fair value of the shares of Series A Preferred issued for the shares of common stock was equivalent to the fair value of the shares of common stock exchanged.
On November 6, 2017, the transactions contemplated by the exchange agreements were consummated and 137,324,000 shares of common stock were cancelled. As a result, the Company had 67,676,000 shares of common stock issued and outstanding as of March 31, 2018.
On June 5, 2018, the three holders of the Company’s Series A Preferred each delivered notices of conversion to voluntarily convert their Series A Preferred, in the aggregate amount of 137,324 of Series A Preferred shares, into 137,324,000 shares of common stock. The holders had the right to voluntarily convert each share of Series A Preferred into 1,000 shares of common stock of the Company.
On October 19, 2018, the Company entered into an Equity Distribution Agreement (“Distribution Agreement”) with Maxim Group LLC, as sales agent (“Maxim”), pursuant to which the Company may offer and sell, from time to time, through Maxim (the “Offering”), up to $20,000,000 in shares of its common stock (the “Shares”). Between October 19, 2018, and March 31, 2019, the Company issued 234,998 shares of its common stock through the Distribution Agreement and received gross proceeds of $455,105. $161,102 of costs were incurred in relation to this transaction. In the three months ended June 30, 2019, an additional 143,388 shares were issued under the Distribution Agreement generating gross proceeds of $152,493 and costs of $9,575. There was no further activity through this agreement during the quarter ended September 30, 2019. As of September 30, 2019, the Company may sell, from time to time, the remaining $19,392,402 in shares of common stock under the Distribution Agreement.
On December 18, 2018, the Company entered into a placement agency agreement with Dawson James Securities, Inc. with respect to the issuance and sale of an aggregate of up to 2,400,000 units, each unit consisting of one share of common stock, par value $0.001 per share, together with one warrant to purchase one share of common stock at an exercise price equal to $1.04 per share, in a public offering. The warrants offered in the public offering will terminate on the fifth anniversary of the date of issuance. The public offering price for each unit was $1.04.
The closing of the offering occurred on December 20, 2018 and at such closing the Company sold 1,942,061 shares of common stock and 1,942,061 warrants for gross proceeds of $2,019,743. The net proceeds to the Company from the sale of the shares of common stock and the warrants was $1,691,541, after deducting $328,302 of placement agent commissions and other offering expenses payable by Pharma and NDM.
Effective December 31, 2017,18, 2018, the Company issued a unit purchase option to the placement agent to purchase 97,103 shares and 97,103 warrants. The Company has classified this option as equity. The unit purchase option has a term of three years and an exercise price of $1.30.
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Earnings (loss) per share
The following table sets forth the computation of basic and diluted earnings (loss) per share (“EPS”) for the periods indicated.
| Three months ended September 30, | Six months ended September 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| ($) | ($) | ($) | ($) | |||||||||||||
| Net loss attributable to common stockholders | (1,117,040 | ) | (1,139,275 | ) | (2,368,305 | ) | (1,902,428 | ) | ||||||||
| Weighted average basic and diluted shares outstanding | 208,021,967 | 205,003,261 | 207,929,675 | 155,957,363 | ||||||||||||
| Basic and diluted earnings (loss) per share: | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
The Company excludes warrants outstanding, which are anti-dilutive given the Company is in a loss position, from the basic and diluted earnings per share calculation.
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. For the three and six month periods ended September 30, 2019 and 2018, warrants to purchase 10 million shares of common stock were anti-dilutive and were excluded from the calculation of diluted loss per share.For the three and six month periods ended September 30, 2019, warrants to purchase 1,855,704 shares of common stock and a unit purchase option to purchase 97,103 shares of common stock as well as 97,103 warrants were considered anti-dilutive and were also excluded from the calculation of diluted loss per share.
NOTE 6 – OTHER ITEMS
(a) Investor relations agreements
The Company enters into contracts with various investor relations specialists to help support the ongoing financing activities of the business. Further details of historic fees paid and arrangements are detailed in our Form 10-K for the year ended March 31, 2019.
Investor Relations Company 1 -On June 27, 2018, the Company entered into a Master Services Agreement with investor relations company 1, pursuant to which for an initial three month term, the third party shall provide services related to advising and assisting the Company in developing and implementing appropriate plans and materials for presenting the Company and its business plans, strategy and personnel to the financial community, introducing the Company to the financial community through the use of social media, digital media and other online awareness campaigns. There has been no additional trading with investor relations company 1 during the six months ended September 30, 2019.
Investor Relations Company 2 -On May 1, 2019, we reinstated the existing agreement with investor relations company 2, which remained a rolling monthly contract with a three month assumed length, although cancellable after each completed month. A payment of $7,500 was agreed at the beginning of each month, plus an additional $2,500 per month for additional services, if taken; and if the contract runs for the whole three month term, 12,500 shares will be issued at the end of the term. $20,000 was expensed in the three months ended June 30, 2019 relating to cash payments.
During the quarter ended September 30, 2019, $12,500 of cash fees were expensed and paid and 12,500 shares were issued with $12,376 expensed to investor relations.
Investor Relations Company 3 -On March 18, 2019 the Company cancelled its existing agreement with investor relations company 3 and entered into a new agreement. The term of this contract has been agreed to be on a month to month basis. Compensation is partly in cash and partly in restricted common stock. At the beginning of each monthly term a cash payment of $5,000 will be made paymentsand 7,500 shares of restricted stock will be issued. This contract ended in May 2019. 7,500 shares with a fair value of $1.04 were issued in April and 7,500 shares with a fair value of $0.90 were issued in May totaling $14,550. $13,320 was expensed in relation to Pharmacash paid for this agreement during the three months ended June 30, 2019, including $2,097 released from prepaid expenses at April 1, 2019. Total stock compensation expense for the three months ended June 30, 2019 was $17,888. There has been no further activity with investor relations company 3 during the three months ended September 30, 2019.
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(b) Management Consultancy Agreements
Management Consulting Company 1- On June 1, 2019, the terms for management consulting company 1 were amended for a four month period from June 1, 2019 to September 30, 2019, with $40,000 cash paid up front and 27,500 shares issued up front.
During the quarter ended September 30, 2019, $18,434 of opening share prepayment and $30,000 opening cash prepayment were expensed.
Additional agreements were also entered into with management consulting company 1. An addendum commencing July 17, 2019 for a 90 day period was entered into for a total of $20,000 fee paid only in cash. $16,304 was expensed during the quarter with $3,696 prepaid at September 30, 2019. An additional agreement was entered into for the three month period from September to November 2019 for $35,000 fee paid only in cash. $11,538 of this was expensed in the quarter and $23,462 was treated as a prepaid expense at September 30, 2019.
Management Consulting Company 2 -On January 7, 2019 the Company entered into a six-month contract with management consulting company 2 for the provision of specialist consulting services. 150,000 restricted shares were issued in May 2019, on the outstanding balancesfourth month after commencement of the original contract. A fair value of $0.94 per share, which was the share price on May 7, 2019 (the first day of the first amendment of the consulting agreement) was applied as the shares were issued fully and irrecoverably on the first day of the contract. The cost is being expensed evenly over the five month contract term.
This contract ended on September 30, 2019 and the opening prepayment of $84,600 was expensed during the quarter ended September 30, 2019.
Total stock based compensation recognized during the three and six months ended September 30, 2019 was $115,410 and $277,664, respectively and $114,500 for the three and six months ended September 30, 2018.
(c) NASDAQ correspondence
The Company was notified by NASDAQ on July 15, 2019 that the Company no longer meets the requirements of NASDAQ Rule 5550(a)(2) requiring listed securities to maintain a minimum closing bid price of $1.00 per share. If the closing bid price of the Company’s common stock is $1.00 per share or more for a minimum of 10 consecutive business days at December 31, 2017 of £280,000.any time prior to January 11, 2020, the Company will regain compliance.
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ITEM 2: MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview:
The Company has experienced recurring losses and negative cash flows from operations. At December 31, 2017,September 30, 2019, the Company had approximate cash and fixed rate cash account balances of $6,454,000,$1,771,115, working capital of $5,509,000,$1,006,142, total stockholders' equity of $4,498,000$196,313 and an accumulated deficit of $8,420,000.$15,794,184. To date, the Company has in large part relied on equity financing to fund its operations. Additional funding has come from related party contributions. The Company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development, regulatory activities, clinical trials and other commercial and product development related expenses are incurred.
Management's strategic assessment includes the following potential options:
| · | support the UK and EU launch of sugarBEAT; |
| · | pursuing additional capital raising opportunities; |
| · | obtaining further regulatory approval for the sugarBEAT device in other countries such as the USA; |
| · | exploring licensing and partnership opportunities in other territories; and |
| · | developing the sugarBEAT device for commercialization for other applications. |
Results of Operations
Comparative Results for the NineSix Months Ended December 31, 2017September 30, 2019 and 2016
Revenue
There was no revenue recognized in the ninesix months ended December 31, 2017September 30, 2019 and 2016.2018, respectively. In 2014, we received an upfront non-refundable cash payment of £1,000,000approximately GBP 1 million (approximately $1.232 million, $1.304 million and $1.303 million as of September 30, 2019, September 30, 2018 and March 31, 2019, respectively) in connection with an Exclusive Marketing Rights Agreement with an unrelated third party that provides the third party the exclusive right to market and promote the sugarBEAT device and related patch under its own brand in the United Kingdom and the Republic of Ireland. We have deferred this licensing revenue until we complete our continuing performance obligations, which include securing successful CE marking of the sugarBEAT patch,sales are due to commence, and we expect to record the revenue inas income over an approximately 10 year10-year term from the date CE marking approval is obtained.sales commence. Although the revenue is deferred at December 31, 2017,September 30, 2019, the cash payment became immediately available and was beinghas been used to fund our operations, including research and development costs associated with successfully obtaining the CE markingmark approval.
Research and Development Expenses
Research and development expenses were $713,585$1,018,699 and $794,433$1,051,821 for the ninesix months ended December 31, 2017September 30, 2019 and 2016,2018, respectively. This amount consisted primarily of expenditureexpenditures on clinical trials, sub-contractor activities, consultancy fees and wages and demonstrated continuing expenditureexpenditures for improvements made to the sugarBEAT device. The decrease of $80,848 is due to decreases in these costs as the sugarBEAT product is nearing completion.
General and Administrative Expenses
General and administrative expenses were $627,605$1,353,532 and $397,598$867,499 for the ninesix months ended December 31, 2017September 30, 2019 and 2016,2018, respectively. These consisted of fees for legal, professional, audit services, charitable donationsinvestor relations, insurance and wages. The increase of $230,007$486,033 was due to increases in professional fees as the CGM device continues clinical trialsinvestor relations activities and legal fees incurred as the company prepares for future product launch, plus £123,000 in charitable donations.insurance expenses, and an increased level of insurance purchased. We expect general and administrative expenses to remain at similar levels going forward in the long term, as theremost of these costs will continueneed to be professional, consultancy and legal fees associated with planned fundraising.incurred for the day to day running of the Company.
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Other Comprehensive Loss
For the ninesix months ended December 31, 2017September 30, 2019 and 2016,2018, other comprehensive income (loss)loss was $398,705$23,152 and ($786,148)$273,092, respectively, arising from foreign currency translation adjustments.
Comparative Results for the Three Months Ended December 31, 2017September 30, 2019 and 2016
Revenue
There was no revenue recognized in the three months ended December 31, 2017September 30, 2019 and 2016.2018, respectively. In 2014, we received an upfront non-refundable cash payment of £1,000,000approximately GBP 1 million (approximately $1.232 million, $1.304 million and $1.303 million as of September 30, 2019, September 30, 2018 and March 31, 2019, respectively) in connection with an Exclusive Marketing Rights Agreement with an unrelated third party that provides the third party the exclusive right to market and promote the sugarBEAT device and related patch under its own brand in the United Kingdom and the Republic of Ireland. We have deferred this licensing revenue until we complete our continuing performance obligations, which include securing successful CE marking of the sugarBEAT patch,sales are due to commence, and we expect to record the revenue inas income over an approximately 10 year10-year term from the date CE marking approval is obtained.sales commence. Although the revenue is deferred at December 31, 2017,September 30, 2019, the cash payment became immediately available and was beinghas been used to fund our operations, including research and development costs associated with successfully obtaining the CE markingmark approval.
Research and Development Expenses
Research and development expenses were $355,300$462,517 and $267,638$622,282 for the three months ended December 31, 2017September 30, 2019 and 2016,2018, respectively. This amount consisted primarily of expenditureexpenditures on clinical trials, sub-contractor activities, consultancy fees and wages and demonstrated continuing expenditureexpenditures for improvements made to the sugarBEAT device. The increasereduction of $87,662$159,765 is due to increases in these costs as the sugarBEAT product entered clinical trials.
General and Administrative Expenses
General and administrative expenses were $121,053$654,523 and $107,728$525,075 for the three months ended December 31, 2017September 30, 2019 and 2016,2018, respectively. These consisted of fees for legal, professional, audit services, investor relations, insurance and wages. The increase of $13,325$129,448 was due to increases in professional fees as the CGM device enters clinical trialsinvestor relations activities and legal fees incurred as the company prepares for future product launch.insurance expenses, due to an increased level of insurance purchased. We expect general and administrative expenses to remain at similar levels going forward in the long term, as theremost of these costs will continueneed to be professional, consultancy and legal fees associated with planned fundraising.
Other Comprehensive Loss
For the three months ended December 31, 2017September 30, 2019 and 2016,2018, other comprehensive income/(loss)loss was $36,641$7,401 and ($396,445)$38,483, respectively, arising from foreign currency translation adjustments.
Liquidity and Capital Resources
We have experienced net losses and negative cash flows from operations since our inception. We have sustained cumulative losses of $8,419,817$15,794,184 through December 31, 2017.September 30, 2019. We have historically financed our operations through the issuances of equity and contributions of services from related entities.
At December 31, 2017,September 30, 2019, the Company had net working capital of $5,509,132$1,006,142 which included cash and short-term fixed rate cash account balances of $6,453,745.$1,771,115. The Company reported a net loss of $1,267,184$1,117,040 for the ninethree months ended December 31, 2017.September 30, 2019.
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We have completed clinical studies required for FDA submission and submitted an application to the completionFDA for approval of the clinical studiesdevice in July 2019, and the initial scale up of our manufacturing, our long term business plan is contingent upon our ability to raise additional funds. This may include a combination of debt, equitytherefore we expect that research and licensing fees. If we are not successful in raising the funds neededdevelopment costs for glucose monitoring will be reduced in the specified timelines,future. The Company has an $8 million unsecured senior credit facility made available from certain major stockholders as of August 1, 2019. The first $3.5 million became available immediately for draw down, which will help fund the target dates for the achievement of the milestones will be extended.
We believe the cash position as of December 31, 2017September 30, 2019, plus the credit facility made available from certain major stockholders, is adequate for our current level of operations through February 2019,at least November 2020, and for the achievement of certain of our product development milestones. Our plan is to utilize the cash on hand plus loan draw down to complete the following:
Cash Flows
Net cash consumed by ourused in operating activities for the ninesix months ended December 31, 2017September 30, 2019 was $1,261,104$1,862,717 which reflected our net loss of $1,267,184, increased by$2,368,305, a rise in accrued interest receivable of $58,504 and a risedecrease in prepayments and other receivables of $63,405 and offset by changes$263,022, a decrease in theaccruals of $52,608, non-cash stock based compensation of $277,664, an increase in liability due to related parties of $77,654$100,533 and an increase in accounts payable and accrued expenses of $27,868.
Net cash used by ourin operating activities for the ninesix months ended December 31, 2016September 30, 2018 was $704,628$1,541,667 which reflected our net loss of $1,192,031 together with$1,902,429, and offset by non-cash stock based compensation of $114,500, an increase in liability due to related parties of $84,896, a decrease in accrued interest receivable of $980 and a decrease in prepayments and other receivables of $69,121 and a decrease$9,258 as well as by changes in accounts payable and other liabilitiesaccrued expenses of $20,584, and an increase in liability due to related party of $423,237.
Net cash realisedused in investing activities was $162,026 for the six months ended September 30, 2019, which reflected patent filing costs of $28,310 and the purchase of property and equipment of $133,716.
Net cash provided by investing activities was $1,925,757$1,316,934 for the ninesix months ended December 31, 2017,September 30, 2018, which reflected $1,955,489 returned from the maturity of a fixed rate savings account, but reduced by thedirect expenditures made in developing intellectual property, primarily related to patent filings of $29,732.
Net cash usedprovided by our investingfinancing activities was $64,271 for the ninesix months ended December 31, 2016, which reflected expenditures on intellectual property and other assets.
Net cash provided by financing activities for the six months ended September 30, 2018, $500 was raised from the exercise of stock options.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
When we prepare our condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles generally accepted in the United States of America (GAAP) requires management to(“U.S. GAAP”), we must make estimates and assumptions about future events that affect the amounts reported in the financial statementswe report. Certain of these estimates result from judgements that can be subjective and accompanying notes. Future eventscomplex. As a result of that subjectivity and their effects cannot be determined with absolute certainty. Therefore, the determinationcomplexity, and because we continuously evaluate these estimates and assumptions based on a variety of estimates requires the exercise of judgment. Actualfactors, actual results inevitably willcould materially differ from thoseour estimates and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with research and development, income taxes and intangible assets.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our foreign currency exposure gives rise to market risk associated with exchange rate movements against the US dollar, our reporting currency. Currently, the majority of our expenses and cash and fixed rate deposits are denominated in Great Britain Pounds Sterling (“GBP”), with the remaining portion denominated in US dollars. Fluctuations in exchange rates, primarily the US dollar against the Pound Sterling, will affect our financial position. At December 31, 2017,September 30, 2019, the Company held approximately $6$1.15 million in GBP-denominated bank and fixed rate cash accounts. Based on this balance, a 1% depreciation of the PoundGBP against the US dollar would cause an approximate $60 thousand$11,000 reduction in cash and fixed rate deposit account balances.
We have not utilized any hedging instruments in order to mitigate the foreign currency risk.
Inflation
With UK inflation rates having been low in recent years, inflation has not had a significant effect on our business in the UK, the location of the substantial partwhere substantially all of our activities.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Dr. Dewan F.H. Chowdhury, who is our Chief Executive Officer and Mr. Iain S. Anderson, who is our PrincipalInterim Chief Financial and Accounting Officer, havehas evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to thea company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded that our disclosure controls and procedures were not effective as of December 31, 2017,September 30, 2019, at the reasonable assurance level due to a material weakness in our internal control over financial reporting, which is described below.
Changes in Internal Control over Financial Reporting
During the Chief Financial Officer.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The exhibits listed on the Exhibit Index below are provided as part of this report.
| Exhibit No. | Document Description |
| 101 | Interactive Data Files (1) |
(1) Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed by the Company for purposes of Section 18 or any other provision of the Exchange Act of 1934, as amended.
| 20 |
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.
| NEMAURA MEDICAL INC. | |
| Dated: | /s/ Dewan |
| Dewan | |
Chief Executive Officer (Principal Executive Officer) | |
| Dated: | /s/ |
Interim Chief Financial Officer (Principal Financial and Accounting Officer) |
| 21 |
EXHIBIT INDEX
| Exhibit No. | Document Description |
| 31.1 | Certification |
| 31.2 | Certification |
| 32.1 | Certification |
| 32.2 | Certification |
| 22 |