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: June 30, 2020
or
December 31, 2017¨
For the transition period from to
Commission File Number: 333-194857001-38355
| Nemaura Medical Inc. |
| (Exact name of |
| NEVADA | 46-5027260 | |||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. | |||
57 West 57th Street Manhattan, NY 10019 | ||||
| (Address of Principal Executive Offices) (Zip Code) | ||||
| ( | ||||
| N/A | ||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||
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, 2018August 14, 2020 was 67,676,000.22,893,705.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding development of our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management are forward-looking statements. Forward-looking statements may include, but are not limited to, statements about:
- any statements of the plans, strategies and objectives of management for future operations;
- any statements concerning proposed new products, services or developments;
- any statements regarding future economic conditions or performance;
- our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
- our estimates regarding the sufficiency of our cash resources and our need for additional funding;
- any statement that our business, financial condition and results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19; and
- any statement regarding the effectiveness of our continuous temperature monitoring system to assist with the diagnosis and monitoring of symptoms of COVID-19 or the effectiveness of our continuous lactate monitoring system (CLM) to monitor disease progression in COVID -19 patients.
The words "believe," "anticipate," "design," "estimate," "plan," "predict," "seek," "expect," "intend," "may," "could," "should," "potential," "likely," "projects," "continue," "will," and "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed in our forward-looking statements and you should not place undue reliance on these statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear herein. Except as required by law, we do not assume any obligation to update any forward-looking statement. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
| 2 |
NEMAURA MEDICAL INC.
TABLE OF CONTENTS
| Page | |||
| PART I: FINANCIAL INFORMATION | |||
| ITEM 1 | |||
| Condensed Consolidated Balance Sheets as of | |||
| Condensed Consolidated Statements of Comprehensive Loss for the Three | |||
| Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended June 30, 2020 and 2019 (unaudited) | 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 | |||
| 3 |
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, $0.001 par value, | ||||||||
| 420,000,000 shares authorized and 67,676,000 and 205,000,000 | ||||||||
| shares issued and outstanding, at December 31, 2017 and March 31, 2017 respectively | 67,676 | 205,000 | ||||||
| Additional paid in capital | 13,056,861 | 12,919,672 | ||||||
| Accumulated deficit | (8,419,817 | ) | (7,152,633 | ) | ||||
| Accumulated other comprehensive loss | (206,834 | ) | (605,539 | ) | ||||
| Total stockholders' equity | 4,498,023 | 5,366,500 | ||||||
| Total liabilities and stockholders' equity | 6,802,189 | 7,401,906 | ||||||
As of June 30, 2020 ($) | As of March 31, 2020 ($) | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | 5,952,934 | 106,107 | ||||||
| Stock subscriptions receivable | 1,988,132 | — | ||||||
| Prepaid expenses and other receivables | 272,271 | 452,463 | ||||||
| Inventory (raw materials) | 339,124 | 286,309 | ||||||
| Total current assets | 8,552,461 | 844,879 | ||||||
| Other assets: | ||||||||
| Property and equipment, net of accumulated depreciation | 149,098 | 162,064 | ||||||
| Intangible assets, net of accumulated amortization | 216,867 | 213,080 | ||||||
| Total other assets | 365,965 | 375,144 | ||||||
| Total assets | 8,918,426 | 1,220,023 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | 190,379 | 293,608 | ||||||
| Liability due to related parties | 544,081 | 830,093 | ||||||
| Other liabilities and accrued expenses | 201,978 | 168,966 | ||||||
| Notes payable, net of unamortized discount | 2,549,668 | — | ||||||
| Deferred revenue | 94,252 | 93,022 | ||||||
| Total current liabilities | 3,580,358 | 1,385,689 | ||||||
| Non-current portion of notes payable, net of unamortized discount | 2,234,392 | — | ||||||
| Non-current portion of deferred revenue | 1,143,208 | 1,147,278 | ||||||
| Total non-current liabilities | 3,377,600 | 1,147,278 | ||||||
| Total liabilities | 6,957,958 | 2,532,967 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Series A convertible preferred stock, $0.001 par value, 200,000 shares authorized; 0 shares issued and outstanding at June 30, 2020 and March 31, 2020 | — | — | ||||||
| Common stock, $0.001 par value, | ||||||||
| 42,000,000 shares authorized and 21,282,133 and 20,850,848 | ||||||||
| shares issued and outstanding at June 30, 2020 and March 31, 2020, respectively | 21,282 | 20,851 | ||||||
| Additional paid-in capital | 20,957,486 | 16,589,272 | ||||||
| Accumulated deficit | (18,686,131 | ) | (17,586,075 | ) | ||||
| Accumulated other comprehensive loss | (332,169 | ) | (336,992 | ) | ||||
| Total stockholders’ equity/ (deficit) | 1,960,468 | (1,312,944 | ) | |||||
| Total liabilities and stockholders’ equity | 8,918,426 | 1,220,023 | ||||||
See notes to the unaudited condensed consolidated financial statements
| 4 |
NEMAURA MEDICAL INC. |
| Condensed Consolidated Statements |
| (Unaudited) |
| Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2017 ($) | 2016 ($) | 2017 ($) | 2016 ($) | |||||||||||||
| Revenue: | - | - | - | - | ||||||||||||
| Total revenue | - | - | - | - | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Research and development | 355,300 | 267,638 | 713,585 | 794,433 | ||||||||||||
| General and administrative | 121,053 | 107,728 | 627,605 | 397,598 | ||||||||||||
| Total operating expenses | 476,353 | 375,366 | 1,341,190 | 1,192,031 | ||||||||||||
| Loss from operations | (476,353 | ) | (375,366 | ) | (1,341,190 | ) | (1,192,031 | ) | ||||||||
| Interest income | 9,988 | - | 74,006 | - | ||||||||||||
| Net loss | (466,365 | ) | (375,366 | ) | (1,267,184 | ) | (1,192,031 | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Foreign currency translation adjustment | 36,641 | (396,445 | ) | 398,705 | (786,148 | ) | ||||||||||
| Comprehensive loss | (429,724 | ) | (771,811 | ) | (868,479 | ) | (1,978,179 | ) | ||||||||
| Loss per share | ||||||||||||||||
| Basic and diluted | * | * | * | * | ||||||||||||
| Weighted average number of shares outstanding | 121,411,478 | 205,000,000 | 177,035,840 | 205,000,000 | ||||||||||||
| Three Months Ended June 30, | ||||||||
2020 ($) | 2019 ($) | |||||||
| Revenue: | — | — | ||||||
| Total revenue | — | — | ||||||
| Operating expenses: | ||||||||
| Research and development | 315,312 | 556,183 | ||||||
| General and administrative | 595,720 | 699,008 | ||||||
| Total operating expenses | 911,032 | 1,255,191 | ||||||
| Loss from operations | (911,032 | ) | (1,255,191 | ) | ||||
| Interest (expense) income | (189,024 | ) | 3,926 | |||||
| Net loss | (1,100,056 | ) | (1,251,265 | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Foreign currency translation adjustment | 4,823 | (15,751 | ) | |||||
| Comprehensive loss | (1,095,233 | ) | (1,267,016 | ) | ||||
| Loss per share | ||||||||
| Basic and diluted | $ | (0.05 | ) | $ | (0.06 | ) | ||
| Weighted average number of shares outstanding | 20,879,446 | 20,783,636 | ||||||
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 June 30, 2020 and 2019 (Unaudited)
| Common Stock | ||||||||||||||||||||||||
| Shares | Amount ($) | Additional Paid-in Capital ($) | Accumulated Deficit ($) | Accumulated Other Comprehensive Loss ($) | Total Stockholders’ Equity (Deficit) ($) | |||||||||||||||||||
| Balance at March 31, 2020 | 20,850,848 | 20,851 | 16,589,272 | (17,586,075 | ) | (336,992 | ) | (1,312,944 | ) | |||||||||||||||
| Issuance of common shares under ATM financing, net of offering costs of $122,913 | 393,352 | 393 | 3,973,777 | — | — | 3,974,170 | ||||||||||||||||||
| Exercise of warrants | 37,933 | 38 | 394,437 | — | — | 394,475 | ||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | 4,823 | 4,823 | ||||||||||||||||||
| Net loss | — | — | — | (1,100,056 | ) | — | (1,100,056 | ) | ||||||||||||||||
| Balance at June 30, 2020 | 21,282,133 | 21,282 | 20,957,486 | (18,686,131 | ) | (332,169 | ) | 1,960,468 | ||||||||||||||||
| Balance at March 31, 2019 | 20,765,592 | 20,766 | 15,971,905 | (13,425,879 | ) | (339,888 | ) | 2,226,904 | ||||||||||||||||
| Exercise of warrants | 2,500 | 3 | 25,998 | — | — | 26,001 | ||||||||||||||||||
| Issuance of common shares under ATM financing, net of offering costs of $9,575 | 14,338 | 14 | 142,903 | — | — | 142,917 | ||||||||||||||||||
| Restricted shares issued as stock- based compensation to consultants and investor relations | 19,250 | 19 | 179,553 | — | — | 179,572 | ||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (15,751 | ) | (15,751 | ) | ||||||||||||||||
| Net loss | — | — | — | (1,251,265 | ) | — | (1,251,265 | ) | ||||||||||||||||
| Balance at June 30, 2019 | 20,801,680 | 20,802 | 16,320,359 | (14,677,144 | ) | (355,639 | ) | 1,308,378 | ||||||||||||||||
See notes to the unaudited condensed consolidated financial statements
| 6 |
NEMAURA MEDICAL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| Three Months Ended June 30, | ||||||||
2020 ($) | 2019 ($) | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | (1,100,056 | ) | (1,251,265 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 20,168 | 11,048 | ||||||
| Accretion of debt discount | 188,579 | — | ||||||
| Stock-based compensation | 59,000 | 162,254 | ||||||
| Changes in assets and liabilities: | ||||||||
| Prepaid expenses and other receivables | 152,438 | 197,131 | ||||||
| Inventory | (54,085 | ) | (1,471 | ) | ||||
| Accounts payable | (103,135 | ) | 16,886 | |||||
| Liability due to related parties | (284,453 | ) | 135,950 | |||||
| Other liabilities and accrued expenses | 43,950 | 37,309 | ||||||
| Net cash used in operating activities | (1,077,594 | ) | (692,158 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Capitalized patent costs | (10,283 | ) | (10,893 | ) | ||||
| Purchase of property and equipment | (1,999 | ) | (76,691 | ) | ||||
| Net cash used in investing activities | (12,282 | ) | (87,584 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Costs incurred in relation to ATM equity financing | (61,424 | ) | (9,575 | ) | ||||
| Commission paid on note payable | (325,000 | ) | — | |||||
| Proceeds from issuance of notes | 4,943,074 | — | ||||||
| Proceeds from issuance of common stock in relation to ATM financing | 2,047,462 | 152,493 | ||||||
| Proceeds from warrant exercise | 394,475 | 26,000 | ||||||
| Repayments of note payable | (40,936 | ) | — | |||||
| Net cash provided by financing activities | 6,957,651 | 168,918 | ||||||
| Net increase (decrease) in cash | 5,867,775 | (610,824 | ) | |||||
| Effect of exchange rate changes on cash | (20,948 | ) | (61,299 | ) | ||||
| Cash at beginning of period | 106,107 | 3,740,664 | ||||||
| Cash at end of period | 5,952,934 | 3,068,541 | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Prepayment of equity compensation | — | 103,034 | ||||||
| Increase in stock subscriptions receivable | 1,988,132 | — | ||||||
See notes to the unaudited condensed consolidated financial statements
| 7 |
NEMAURA MEDICAL INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
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.sugarBEATTM. The sugarBEATTM 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 sugarBEATTM 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%)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%)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%)100% of Dermal Diagnostics Limited, an England and Wales corporation formed on January 20, 2009 ("DDL"(“DDL”), and one hundred percent (100%)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 sugarBEATTM device, which consists of a disposable patch containing a sensor, and a non-disposable miniature electronic watch 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:June 30, 2020:
| 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$18,686,131 as of December 31, 2017.June 30, 2020. 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 U.S. 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 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 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 unaudited condensed consolidated financial statements. The Company had an $8 million unsecured senior credit facility made available from certain major stockholders on August 1, 2019. The first $3.5 million became available immediately for draw down, to help fund the Company’s European commercial launch. The credit facility carries an 8% interest with quarterly interest only payments. The principal is due on maturity in 5 years. No draw down has $1,664,616been made to date. On April 15, 2020, the Company entered into a note purchase agreement resulting in cash proceeds of $4,618,074; as set out in Note6. The Company has $5,952,934 of readily available cash on hand at December 31, 2017June 30, 2020. The Company believes the cash position as of June 30, 2020, plus the credit facility made available from certain major stockholders, plus funds totaling approximately $11.5 million raised in July 2020 through the sale of shares is adequate for our current level of operations through at least August 2021, 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:
• obtaining further regulatory approval for the sugarBEATTM device in other countries such as the U.S., Premarket approval (“PMA”) submitted to advanceFDA in early July 2020;
• exploring licensing opportunities, discussions remain ongoing with several multinational companies;
• developing the sugarBEATTM 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 the 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.
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 |
The Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases, as disclosed below, however there have been no other 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.year ended March 31, 2020.
| 9 |
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 consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's consolidated financial statements properly reflect the change.
In May 2014,March 2016, the Financial Accounting Standards Board ("FASB"(the “FASB”) issued Accounting Standards Updates ("ASU") No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 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 replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09, as amended, becomes effective for annual reporting periods beginning after December 15, 2017. Early adoption is 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 adopt this standard on April 1, 2019.
This Quarterly Report on Form 10-Q does not expect itdiscuss recent pronouncements that are not anticipated to have a material effectcurrent and/or future impact on the Company's consolidated financial statements and related disclosures.
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, that granted to the third party the exclusive right to market and promote the sugarBEATTM 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$1.237 million and $1.245$1.240 million as of December 31, 2017June 30, 2020 and March 31, 20172020, 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 sugarBEATTM device to occur in the yearthird quarter ending MarchDecember 31, 2019,2020, approximately $101,000$94,000 and $93,000 of the deferred revenue has been classified as a current liability.
NOTE 54 – RELATED PARTY TRANSACTIONS
Nemaura Pharma Limited (Pharma) and(“Pharma”), NDM Technologies Limited (NDM)(“NDM”) and Black and White Health Care Limited (“B&W”) are entities controlled by the Company'sCompany’s Chief Executive Officer, interim Chief Financial Officer, President, director and majority shareholder,
In accordance with the United States Securities and Exchange Commission (SEC)SEC Staff Accounting Bulletin 55, these condensed consolidated financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma has invoiceda service agreement with DDL, to undertake development, manufacture and TCLregulatory approvals under Pharma’s ISO13485 accreditation. In lieu of these services, DDL invoices Pharma on a periodic basis for research and developmentsaid services. In addition, certain operating expenses of DDL and TCL were incurred and paid by Pharma and NDM which have been invoicedServices are provided at cost plus a service surcharge amounting to the Company. Certain costs incurred by Pharma and NDM are directly attributable to DDL and TCL and such costs were billed to the Company. DDL and TCL advanced Pharma certain amounts to cover a portionless than 10% of the costs.total costs incurred.
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The following is a summary of activity between the Company and Pharma and NDM for the ninethree months ended DecemberJune 30, 2020 and 2019, and the year ended March 31, 2017 and 2016.2020. These amounts are unsecured, interest free, and payable on demand.
Nine Months Ended December 31, 2017 (unaudited) ($) | Nine Months Ended December 31, 2016 (unaudited) ($) | |||||||
| Balance due from (to) Pharma and NDM at beginning of period | (687,609 | ) | (494,145 | ) | ||||
| Amounts invoiced by Pharma to DDL and TCL (1) | (554,464 | ) | (483,406 | ) | ||||
| Amounts invoiced by DDL to Pharma | - | 15,399 | ||||||
| Amounts advanced to Pharma | - | 45,391 | ||||||
| Amounts repaid by DDL to Pharma | 440,266 | - | ||||||
| Amounts paid by DDL on behalf of Pharma | 19,889 | - | ||||||
| Foreign exchange differences | (44,392 | ) | 96,129 | |||||
| Balance due to Pharma and NDM at end of the period | (826,310 | ) | (820,632 | ) | ||||
Three Months Ended June 30, 2020 (unaudited) ($) | Three Months Ended June 30, 2019 (unaudited) ($) | Year Ended March 31, 2020
($) | ||||||||||
| Liability due to related parties at beginning of period | 830,093 | 964,679 | 964,679 | |||||||||
| Amounts invoiced by Pharma to DDL, NM and TCL (1) | 298,999 | 431,416 | 1,800,517 | |||||||||
| Amounts invoiced by DDL to Pharma | — | — | (10,963 | ) | ||||||||
| Amounts repaid by DDL to Pharma | (582,089 | ) | (305,060 | ) | (1,897,222 | ) | ||||||
| Foreign exchange differences | (2,922 | ) | (22,359 | ) | (26,918 | ) | ||||||
| Liability due to related parties at end of year | 544,081 | 1,072,676 | 830,093 | |||||||||
| (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 condensed consolidated statements of cash flows presentation of related party transactions for financing or operating classification based on the underlying nature of the item and intended repayment.
NOTE 5 – STOCKHOLDERS’ EQUITY
Reverse stock split
The Company was notified by The NASDAQ Stock Market (“NASDAQ”) on July 15, 2019 that the Company no longer met the requirements of NASDAQ Rule 5550(a)(2) requiring listed securities to maintain a minimum closing bid price of $1.00 per share. Thereafter, the Company effected:
| (i) | A reverse split of the Company’s issued and outstanding common stock, par value $0.001 per share on a one (1) for ten (10) basis; and |
| (ii) | A decrease in the Company’s authorized number of shares of common stock on the same basis from 420,000,000 shares of common stock to 42,000,000 shares of common stock which were effective with NASDAQ at the opening of business on December 5, 2019. |
On December 19, 2019, the Company received confirmation from NASDAQ that the Company had regained compliance with the Minimum Bid Price Rule and the matter is now resolved. Amounts are retroactively restated for the period ended June 30, 2019.
Other equity transactions
On October 19, 2018, the Company entered into an Equity Distribution Agreement (the “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”). During the three monthperiod ended June 30, 2020, a total of 393,352 shares were issued under the Distribution Agreement, generating gross proceeds of $4,097,083 with associated costs of $122,913. $1,986,038 was received net of ATM financing costs through June 30, 2020 and $1,988,132 is presented as stock subscriptions receivable as of June 30, 2020 and was collected on July 1, 2020.
During the three month period ended June 30, 2020, 37,933 warrants were exercised, generating $394,475 in additional funds. At June 30, 2020 there were 147,637 warrants outstanding.
During the three month period ended June 30, 2019, 2,500 warrants were exercised, generating $26,001 in additional funds.
Effective December 18, 2018, the Company issued a unit purchase option to the placement agent to purchase 9,710 shares and 9,710 warrants. The Company has classified this option as equity. The unit purchase option has a term of three years and an exercise price of $13.00.
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On July 28, 2020, the Company entered into a placement agency agreement with Kingswood Capital Markets, a division of Benchmark Investments, Inc. (“Kingswood” or the “Placement Agent”), with respect to the issuance and sale of an aggregate of 1,586,206 shares of the Company’s common stock, and warrants to purchase up to 793,103 shares of common stock (the “Placement Agency Agreement”). Each share of common stock and accompanying one-half of a warrant were sold for a combined purchase price of $7.25, for a total deal size of approximately $11.5 million, not including any future proceeds from the exercise of the warrants and before deducting the Placement Agentfees and offering expenses. Each whole warrant is immediately exercisable at a price of $8.00 per share, subject to adjustment in certain circumstances, and will expire five years from the date of issuance. The shares of common stock were offered together with the warrants, but the securities were issued separately and are separately transferable.
The closing of the offering took place on July 30, 2020 and the net proceeds from the sale of the common stock and warrants were approximately $10.7 million after deducting the PlacementAgent commission and estimated offering expenses paid by the Company. The Company intends to use the net proceeds from the offering for general corporate purposes, which include, but are not limited to, the commercial launch of a subscription based service for the U.S. under the Wellness category, lactatemonitor development for launch, glucose monitoring product launch in Europe and the development of a second generation of sugarBEATTM.
Loss per share
The following table sets forth the computation of basic and diluted loss per share for the periods indicated.
| Three months ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| ($) | ($) | |||||||
| Net loss attributable to common stockholders | (1,100,056 | ) | (1,251,265 | ) | ||||
| Weighted average basic and diluted shares outstanding | 20,879,446 | 20,783,636 | ||||||
| Basic and diluted loss per share: | (0.05 | ) | (0.06 | ) | ||||
The Company excludes warrants outstanding, which are anti-dilutive given the Company is in a loss position, from the basic and diluted loss per share calculation.
Basic loss per share is computed by dividing loss available to common stockholders by the weighted-average number of common shares outstanding during the period. For the three month periods ended June 30, 2020 and 2019, warrants to purchase one million shares of common stock were anti-dilutive and were excluded from the calculation of diluted loss per share. For the three month periods ended June 30, 2020 and June 30, 2019, warrants to purchase 147,637 and 185,570 shares of common stock respectively and a unit purchase option to purchase 9,710 shares of common stock as well as 9,710 warrants were considered anti-dilutive and were also excluded from the calculation of diluted loss per share.
NOTE 6 – NOTES PAYABLE
On April 15, 2020, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) by and among the Company, DDL, TCL and Chicago Venture Partners, L.P. (the “Investor”).
Pursuant to the terms of the Note Purchase Agreement, the Company agreed to issue and sell to the Investor and the Investor agreed to purchase from the Company, a secured promissory note (the “Secured Note”) in the original principal amount of $6,015,000. In consideration thereof, on April 15, 2020 (the closing date), (i) the Investor (a) paid $1,000,000 in cash, (b) issued to the Company by Pharma(1) Investor Note #1 in the principal amount of $2,000,000 (“Investor Note #1”), and NDM.
The Secured Note is secured by the Collateral. The Secured Note carries an original issue discount (“OID”) of $1,000,000. In addition, the Company agreed to pay $15,000 to the Investor to cover the Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of the Secured Note. The Purchase Price for the Secured Note is $5,000,000, computed as follows: $6,015,000 original principal balance, less the OID, less the commission expense of $325,000, less the other Transaction Expense Amounts, resulting in cash proceeds of $4,618,074. The debt less the discount will be accreted over the 24 month term of the Note using the effective interest method. The effective interest rate was 38.8%. Accretion for the 3 months ended June 30, 2020 was $188,579.
The borrowing period is 24 months, a monitoring fee equal to 0.833% of the outstanding balance will automatically be added to the outstanding balance on the outstanding balancesfirst day of each month.
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NOTE 7 – OTHER ITEMS
(a) Investor relations agreements
The Company has entered into contracts with several investor relations specialists to help support the ongoing financing activities of the business.
During the three month periods ended June 30, 2020, and 2019, fees paid to an investor relations company were $21,000 and $20,000, respectively.
(b) Management consultancy agreements
For the three month period ended June 30, 2020, cash expense was $13,261 and share expense was $59,000 relating to a management consulting company. For the three month period ended June 30, 2019, cash expense was $36,667 and share expense was $144,366.
During the three month period ended June 30, 2020, the Company did not issue any restricted common stock to the investor relations and management consultants. Stock based compensation expense during the threemonth period ended of $59,000 related to the release of prepayments and accrued expenses at December 31, 2017June 30, 2020. Total cash expense for the three month period to June 30, 2020 was $34,261. Total stock based compensation expense for the three month period endedJune 30, 2019 was $162,254.
(c) Subsequent events
July 2020 Offering
As set out in Note 5, on July 28, 2020, the Company entered into a sale of £280,000.common stock and warrants and received approximately $10.7 million after deducting the placement agent commission and offering expenses paid by the Company.
Termination of Maxim Distribution Agreement
On August 8, 2020, pursuant to the terms of the Distribution Agreement, as amended, between the Company and Maxim, the Company provided notice of termination of the Distribution Agreement, as amended, to Maxim. Accordingly, the Agreement, as amended, will terminate on August 18, 2020.
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ITEM 2: MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a medical technology company developing sugarBEATTM, a non-invasive, affordable and flexible continuous glucose monitoring system for adjunctive use by persons with diabetes. sugarBEATTM consists of a disposable adhesive skin-patch connected to a rechargeable wireless transmitter that displays glucose readings at regular five minute intervals via a mobile app. sugarBEATTM works by extracting glucose from the skin into a chamber in the patch that is in direct contact with an electrode-based sensor. The transmitter sends the raw data to a mobile app where it is processed by an algorithm and displayed as a glucose reading, with the ability to track and trend the data over days, weeks and months. While sugarBEATTM requires once per day calibration by the patient using a blood sample obtained by a finger stick, we believe sugarBEATTM will be adopted by non-insulin dependent persons with diabetes alongside insulin-injecting persons with diabetes who all perform multiple daily finger sticks to manage their disease.
CE approval was granted by the European Notified Body BSI in May 2019, allowing the product to be made available for commercial sale. The Company commenced a phase 1 launch whereby devices were made available to limited cohorts of users to gauge their feedback so that any fine-tuning could be completed prior to a mass market launch. A mass-market launch is due to commence in the UK in the coming months via its UK licensee DB Ethitronix, whereby the sugarBEATTM will be available via a number of subscription models that are yet to be determined. In July 2020, Nemaura filed a PMA application with the FDA to use sugarBEATTM as an adjunct to finger prick testing for blood glucose trending. In addition it has been pursuing the possibility of launching the sugarBEATTM under the FDA Wellness guidance which would preclude it from an FDA assessment and allow the product to be launched in the U.S. for Wellness use, to provide prompts and educate users on factors affecting their blood sugar profiles. Further to discussions with the FDA Nemaura established that sugarBEATTM can be classified under the Wellness guidance when it is used according to the FDA Wellness guidance notes. Nemaura is now expediting a commercial launch in the U.S. under the Wellness guidance.
We believe there are additional applications for sugarBEATTM and the underlying BEAT technology platform, which may include:
| · | a web-server accessible by physicians and diabetes professionals to track the condition remotely, thereby reducing healthcare costs and managing the condition more effectively; |
| · | a complete virtual doctor that monitors a person's vital signs and transmits results via the web; |
| · | other patches using the BEAT technology platform to measure alternative analytes, including lactate, uric acid, lithium and drugs. This would be a step-change in the monitoring of conditions, particularly in the hospital setting. Lactate monitoring is currently used to determine the relative fitness of professional athletes and we completed preliminary studies demonstrating the application of the BEAT technology for continuous lactate monitoring; |
| · | a continuous temperature monitoring system which could have various applications, including use for individuals to monitor their temperature in connection with diagnosis and monitoring of symptoms of novel coronavirus (COVID-19); and |
| · | monitoring disease progression in COVID-19 patients using continuous lactate monitoring (CLM). |
The Company has experienced recurring losses and negative cash flows from operations. At December 31, 2017,June 30, 2020, the Company had approximate cash and fixed rate cash account balances of $6,454,000,$5,952,934, working capital of $5,509,000,$4,972,103, total stockholders' equity of $4,498,000$1,960,468 and an accumulated deficit of $8,420,000.$18,686,131. 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:
·obtaining further regulatory approval for the sugarBEATTM device
| · | pursuing capital raising opportunities; |
·exploring licensing opportunities; and
·developing the sugarBEATTM device for commercialization.commercialization for other applications.
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COVID-19 Pandemic
The outbreak of COVID-19 originating in Wuhan, China, in December 2019 has since rapidly increased its exposure globally. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. We continue to monitor the global outbreak of COVID-19 and are working with our customers, employees, suppliers and other stakeholders to mitigate the risks posed by its spread, as a consequence the impact of COVID-19 is not expected to have any long-term detrimental effect on the Company’s success. While key suppliers have not been accessible throughout the whole period of the outbreak, we have been able to be flexible in our priorities and respond favorably to the challenges faced during the outbreak. We have also seen a surge in the uptake of technologies for remote and patient self- monitoring, which therefore potentially enhances the prospects for the likes of the Company and its CGM product and planned digital healthcare offering.
Results of Operations
Comparative Results for the NineThree Months Ended December 31, 2017June 30, 2020 and 2016
Revenue
There was no revenue recognized in the ninethree months ended December 31, 2017June 30, 2020 and 2016.2019. In 2014, we received an upfront non-refundable cash payment of £1,000,000approximately GBP 1 million (approximately $1.237 million and $1.240 million as of June 30, 2020 and March 31, 2020, 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 sugarBEATTM 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,June 30, 2020, 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$315,312 and $794,433$556,183 for the ninethree months ended December 31, 2017June 30, 2020 and 2016,2019, 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 sugarBEATTM device. The decrease of $80,848$240,871 is due to decreasesdecrease in these costs as the sugarBEATTM product is nearing completion.
General and Administrative Expenses
General and administrative expenses were $627,605$595,720 and $397,598$699,008 for the ninethree months ended December 31, 2017June 30, 2020 and 2016,2019, respectively. These consisted of fees for legal, professional, audit services, charitable donationsinvestor relations, insurance and wages. The increasedecrease of $230,007$103,288 was due to increasesdecreases 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, due to a decreased 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 ninethree months ended December 31, 2017June 30, 2020 and 2016,2019, other comprehensive income (loss) was $398,705$4,823 and ($786,148)$(15,751), 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$18,686,131 through December 31, 2017.June 30, 2020. We have historically financed our operations through the issuances of equity and contributions of services from related entities.
At December 31, 2017,June 30, 2020, the Company had net working capital of $5,509,132$4,972,103 which included cash and short-term fixed rate cash account balances of $6,453,745.$5,952,934. The Company reported a net loss of $1,267,184$1,100,056 for the ninethree months ended December 31, 2017.June 30, 2020.
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We have completed clinical studies required for FDA submission and submitted an application to the FDA for approval of the device in July 2019, and therefore we expect that research and development costs for glucose monitoring will be reduced. The Company had an $8 million unsecured senior credit facility made available from certain major stockholders on August 1, 2019. The first $3.5 million became available immediately for draw down, to 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. No draw down has made to date.
On April 15, 2020, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) by and among the Company, DDL, TCL and Chicago Venture Partners, L.P. (the “Investor”).
Pursuant to the terms of the Note Purchase Agreement, the Company agreed to issue and sell to the Investor and the Investor agreed to purchase from the Company a secured promissory note (the “Secured Note”) in the original principal amount of $6,015,000. In consideration thereof, on April 15, 2020 (the closing date), (i) the Investor (a) paid $1,000,000 in cash, level (including fixed rate(b) issued to the Company (1) Investor Note #1 in the principal amount of $2,000,000 (“Investor Note #1”), and (2) Investor Note #2 in the principal amount of $2,000,000 (“Investor Note #2” and together with Investor Note #1, the “Investor Notes”), and (ii) the Company delivered the Secured Note on behalf of the Company, to the Investor, against delivery of the Purchase Price. For these purposes, the “Purchase Price” means the Investor’s initial cash accounts)purchase price, together with the sum of the initial principal amounts of the Investor Notes.
The Secured Note is sufficientsecured by the Collateral (as defined therein). The Secured Note carries an original issue discount (“OID”) of $1,000,000. In addition, the Company agreed to pay $15,000 to the Investor to cover the Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all of which amount is included in the initial principal balance of the Secured Note. The Purchase Price for the completionSecured Note is $5,000,000, computed as follows: $6,015,000 original principal balance, less the OID, less the Transaction Expense Amount.
The borrowing period is 24 months and the Company shall pay the outstanding balance and all fees on maturity. A monitoring fee equal to 0.833% of the clinical studies andoutstanding balance will automatically be added to the initial scale upoutstanding balance on the first day of our manufacturing, our longeach month. The debt less the discount will be accreted over the term business plan is contingent upon our ability to raise additional funds. This may include a combination of debt, equity and licensing fees. If we are not successful in raising the funds needed in the specified timelines, the target dates for the achievement of the milestones will be extended.
We believe the cash position as of December 31, 2017June 30, 2020 plus the credit facility made available from certain major stockholders, plus funds raised in July 2020 through the sale of common stock is adequate for our current level of operations through February 2019,at least August 2021, and for the achievement of certain of our product development milestones. Our plan is to utilize theWe believe that our cash on hand will be sufficient to complete the following:
Cash Flows
Net cash consumed by ourused in operating activities for the ninethree months ended December 31, 2017June 30, 2020 was $1,261,104$1,077,594 which reflected our net loss of $1,267,184, increased by$1,100,056, accretion of debt discount $188,579, a risedecrease in accrued interest receivableprepaid expenses of $58,504 and$152,438, an increase in accruals of $43,950, non-cash stock-based compensation of $59,000, a risedecrease in prepayments and other receivables of $63,405 and offset by changes in the liability due to related parties of $77,654$284,453 and a decrease in accounts payable and accrued expenses of $27,868.
Net cash used by ourin operating activities for the ninethree months ended December 31, 2016June 30, 2019 was $704,628$692,158 which reflected our net loss of $1,192,031 together with$1,251,265, a decrease in prepayments and other receivables of $69,121 and a decrease$197,131, an increase in accounts payable and other liabilitiesaccruals of $20,584, and$37,309, non-cash stock-based compensation of $162,254, an increase in liability due to related partyparties of $423,237.
Net cash realised byused in investing activities was $1,925,757$12,282 for the ninethree months ended December 31, 2017,June 30, 2020, which reflected $1,955,489 returned frompatent filing costs of $10,283 and the maturitypurchase of a fixed rate savings account, but reduced by the expenditures made in developing intellectual property primarily related to patent filingsand equipment of $29,732.
Net cash used by ourin investing activities was $64,271$87,584 for the ninethree months ended December 31, 2016,June 30, 2019, which reflected expenditures on intellectualpatent filing costs of $10,893 and the purchase of property and other assets.equipment of $76,691.
Net cash provided by financing activities for the three months ended June 30, 2020 was $6,957,651. The ATM facility delivered proceeds of $2,047,462 and proceeds from issuance of notes totalled $4,943,074 less commission expense of $325,000. In addition, $394,475 was raised in relation to the exercise of 37,933 warrants.
Net cash provided by financing activities for the three months ended June 30, 2019 was $168,918. The ATM facility delivered proceeds of $152,493. In addition, $26,000 was raised in relation to the exercise of 25,000 warrants. The Company also incurred direct costs of $9,575 related to the ATM financing.
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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 materialassumptions if changes in one or more factors require us to the financial statements. The mostmake accounting adjustments. We believe our critical accounting policies affect our more significant accountingjudgments and estimates inherentused in the preparation of ourthe unaudited condensed consolidated financial statements include estimates associatedstatements.During the three months ended June 30, 2020, we have made no material changes or additions with researchregard to such policies and development, income taxes and intangible assets.
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 USU.S. 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 USU.S. dollars. Fluctuations in exchange rates, primarily the USU.S. dollar against the Pound Sterling,GBP, will affect our financial position. At December 31, 2017,June 30, 2020, the Company held approximately $6$1.65 million in GBP-denominated bank and fixed rate cash accounts. Based on this balance, a 1% depreciation of the PoundGBP against the USU.S. dollar would cause an approximate $60 thousand$16,000 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
Historically, 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 part 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, managementour Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017,June 30, 2020, 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
There were no changes in our internal control over financial reporting occurred during the quarterperiod ended December 31, 2017June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 providedfiled as part of this report.
| Exhibit No. | Document Description |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation |
| 101.DEF | XBRL Taxonomy Extension Definition |
| 101.LAB | XBRL Taxonomy Extension Labels |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
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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.
| NEMAURA MEDICAL INC. | |
| Dated: | /s/ Dewan |
Dewan | |
Chief Executive Officer, | |
Interim Chief Financial Officer, and President (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
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