UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 2023
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-194857
| Nemaura Medical Inc. |
| (Exact name of |
| 46-5027260 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. | |||
57 West 57th Street Manhattan, NY10019 | ||||
| (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 | OTC Markets |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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☑☒ No ☐
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☑☒ No☐
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 o | Accelerated filer o | |
Non-accelerated | Smaller reporting company | |
☒ Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐o No ☑
The number of shares of common stock, par value $0.001 per share, outstanding as of February 7, 201812, 2024, was 67,676,000..
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 pandemic; 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.
NEMAURA MEDICAL INC.
TABLE OF CONTENTS
| 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 | ||||||
December 31, (Unaudited) | March 31, | |||||||
| 2023 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 137,416 | $ | 10,105,135 | ||||
| Inventory | 3,671,533 | 1,754,852 | ||||||
| Prepaid expenses and other receivables | 169,174 | 357,934 | ||||||
| VAT receivable | 247,788 | 409,648 | ||||||
| Deposit on foreign exchange contract | 146,434 | 909,666 | ||||||
| Total current assets | 4,372,345 | 13,537,235 | ||||||
| Property and equipment, net of accumulated depreciation | 558,697 | 641,906 | ||||||
| Intangible assets, net of accumulated amortization | 238,033 | 384,092 | ||||||
| Total assets | $ | 5,169,075 | $ | 14,563,233 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 352,483 | $ | 326,641 | ||||
| Other liabilities and accrued expenses | 281,055 | 130,678 | ||||||
| Notes payable, current portion | 19,643,038 | 16,942,500 | ||||||
| Payable to related parties | 800,403 | 920,780 | ||||||
| Deferred revenue, current portion | 1,184,412 | 123,640 | ||||||
| Foreign exchange contract derivative liability | 242,295 | 731,730 | ||||||
| Warrant liability | 492,000 | 3,092,000 | ||||||
| Total current liabilities | 22,995,686 | 22,267,969 | ||||||
| Notes payable, non-current portion | — | 3,087,651 | ||||||
| Deferred revenue, non-current portion | — | 1,021,811 | ||||||
| Total liabilities | 22,995,686 | 26,377,431 | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value, shares authorized and shares issued and outstanding at December 31, 2023 and March 31, 2023 | 28,899 | 28,899 | ||||||
| Additional paid-in capital | 40,991,377 | 40,991,377 | ||||||
| Accumulated deficit | (57,843,297 | ) | (51,875,211 | ) | ||||
| Accumulated other comprehensive loss | (1,003,590 | ) | (959,263 | ) | ||||
| Total stockholders’ deficit | (17,826,611 | ) | (11,814,198 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 5,169,075 | $ | 14,563,233 | ||||
See notes to the unaudited condensed consolidated financial statements
|
| 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 December 31, | Nine Months Ended December 2023, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Sales | $ | — | $ | 3,017 | $ | — | $ | 77,044 | ||||||||
| Cost of Sales | — | (2,971 | ) | — | (75,327 | ) | ||||||||||
| Gross Profit | — | 46 | — | 1,717 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 291,104 | 393,747 | 1,332,664 | 980,862 | ||||||||||||
| General and administrative | 1,250,149 | 1,230,160 | 4,317,358 | 1,509,095 | ||||||||||||
| Total operating expenses | 1,541,253 | 1,623,907 | 5,650,022 | 2,489,957 | ||||||||||||
| Loss from operations | (1,541,253 | ) | (1,623,907 | ) | (5,650,022 | ) | (2,488,240 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (1,925,678 | ) | (1,082,949 | ) | (3,407,499 | ) | (4,152,437 | ) | ||||||||
| Change in fair value of warrant liability | 1,003,000 | — | 2,600,000 | — | ||||||||||||
| Change in fair value of foreign exchange contract derivative liability | 302,453 | 990,532 | 489,435 | (2,820,211 | ) | |||||||||||
| Net loss | (2,161,478 | ) | (1,716,278 | ) | (5,968,086 | ) | (9,460,888 | ) | ||||||||
| Other comprehensive loss: | ||||||||||||||||
| Foreign currency translation adjustment | 204,828 | (556,080 | ) | (44,327 | ) | (864,328 | ) | |||||||||
| Comprehensive loss | $ | (1,956,650 | ) | $ | (4,831,171 | ) | $ | (6,012,413 | ) | $ | (10,325,216 | ) | ||||
| Net loss per share, basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average number of shares outstanding, basic and diluted | ||||||||||||||||
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’ Deficit
Three and Nine Months Ended December 31, 2023 and 2022 (Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) Income | (Deficit) | |||||||||||||||||||
| Balance at September 30, 2023 | 28,899,402 | $ | 28,899 | $ | 40,991,377 | $ | (55,681,819 | ) | $ | (1,208,418 | ) | $ | (15,869,961 | ) | ||||||||||
| Foreign currency translation adjustment | — | — | — | — | 204,828 | 204,828 | ||||||||||||||||||
| Net loss | — | — | — | (2,161,478 | ) | — | (2,161,478 | ) | ||||||||||||||||
| Balance at December 31, 2023 | 28,899,402 | $ | 28,899 | $ | 40,991,377 | $ | (57,843,297 | ) | $ | (1,003,590 | ) | $ | (17,826,611 | ) | ||||||||||
| Balance at March 31, 2023 | 28,899,402 | $ | 28,899 | $ | 40,991,377 | $ | (51,875,211 | ) | $ | (959,263 | ) | $ | (11,814,198 | ) | ||||||||||
| Foreign currency translation adjustment | — | — | — | — | (44,327 | ) | (44,327 | ) | ||||||||||||||||
| Net loss | — | — | — | (5,968,086 | ) | — | (5,968,086 | ) | ||||||||||||||||
| Balance at December 31, 2023 | 28,899,402 | $ | 28,899 | $ | 40,991,377 | $ | (57,843,297 | ) | $ | (1,003,590 | ) | $ | (17,826,611 | ) | ||||||||||
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Deficit | (Loss) Income | (Deficit) | |||||||||||||||||||
| Balance at September 30, 2022 | 24,102,866 | $ | 24,103 | $ | 38,295,775 | $ | (45,476,086 | ) | $ | (1,542,726 | ) | $ | (8,698,934 | ) | ||||||||||
| Shares issued under ATM facility | 330 | 423 | 423 | |||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | 556,080 | 556,080 | ||||||||||||||||||
| Net loss | — | — | — | (1,716,278 | ) | — | (1,716,278 | ) | ||||||||||||||||
| Balance at December 31, 2022 | 24,103,196 | $ | 24,103 | $ | 38,296,198 | $ | (47,192,364 | ) | $ | (986,646 | ) | $ | (9,858,709 | ) | ||||||||||
| Balance at March 31, 2022 | 24,102,866 | $ | 24,103 | $ | 38,295,775 | $ | (37,731,476 | ) | $ | (122,318 | ) | $ | 466,084 | |||||||||||
| Shares issued under ATM facility | 330 | 423 | 423 | |||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | (864,328 | ) | (864,328 | ) | ||||||||||||||||
| Net loss | — | — | — | (9,460,888 | ) | — | (9,460,888 | ) | ||||||||||||||||
| Balance at December 31, 2022 | 24,103,196 | $ | 24,103 | $ | 38,296,198 | $ | (47,192,364 | ) | $ | (986,646 | ) | $ | (9,858,709 | ) | ||||||||||
See notes to the unaudited condensed consolidated financial statements
| NEMAURA MEDICAL INC. |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| Nine Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities: | ||||||||
| Net loss | $ | (5,968,086 | ) | $ | (9,460,888 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 309,684 | 268,595 | ||||||
| Inventory write down | 104,449 | — | ||||||
| Amortization of debt discount | 1,803,126 | 4,152,437 | ||||||
| Addition of PIK monitoring fee to note payable | 488,022 | — | ||||||
| Change in fair value of foreign exchange contract derivative liability. | (489,435 | ) | 635,494 | |||||
| Change in fair value of warrant liability | (2,600,000 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other receivables, VAT receivable and deposit on foreign exchange deposit | 1,113,853 | (467,070 | ) | |||||
| Inventory | (2,021,130 | ) | (864,636 | ) | ||||
| Accounts payable | 25,842 | 34,897 | ||||||
| Receivable/payable to related parties | (120,378 | ) | 75,977 | |||||
| Accrued expense and other liabilities | 150,377 | (167,568 | ) | |||||
| Deferred revenue | — | (297,419 | ) | |||||
| Net cash used in operating activities | (7,203,676 | ) | (6,090,181 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
| Capitalized patent costs | — | (135,168 | ) | |||||
| Capitalized software development costs | — | (27,879 | ) | |||||
| Purchase of property and equipment | (76,807 | ) | (275,758 | ) | ||||
| Net cash used in investing activities | (76,807 | ) | (438,805 | ) | ||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance of common stock | — | 696 | ||||||
| Equity issuance cost paid | — | (273 | ) | |||||
| Proceeds from issuance of note payable | 6,500,000 | 4,700,000 | ||||||
| Principal payments on notes payable | (9,178,261 | ) | (7,974,282 | ) | ||||
| Net cash used in financing activities | (2,678,261 | ) | (3,273,859 | ) | ||||
| Net decrease in cash and restricted cash | (9,958,745 | ) | (9,802,845 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (8,975 | ) | (605,548 | ) | ||||
| Cash and cash equivalent at beginning of period | 10,105,135 | 17,749,233 | ||||||
| Cash, cash equivalent at end of period | $ | 137,416 | $ | 7,340,840 | ||||
| Cash paid for: | ||||||||
| Interest | $ | 921,000 | $ | 1,522,372 | ||||
| Supplemental schedule of non-cash transactions: | ||||||||
| Debt discount recognized upon issuance of notes payable | $ | 1,310,000 | $ | — | ||||
See notes to the unaudited condensed consolidated financial statements.
NEMAURA MEDICAL INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended December 31, 20172023 and 2016
(Unaudited)
NOTE 31 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nemaura Medical Inc. (“Nemaura” or the “Company”), through its operating subsidiaries, performs medical device research and manufacturing of a continuous glucose monitoring system (“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 and support obesity and weight-loss programs. 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.
Going Concern
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying unaudited financial statements, for the nine months ended December 31, 2023, the Company recorded a net loss of $5,968,086and used cash in operations of $7,203,676. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm in its report on the Company’s March 31, 2023 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
In evaluating the going concern position of the company, management has considered potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. There can be no assurance that funding would be available, or that the terms of such funding would be on favorable terms if available. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of 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 opinion of management, necessary for a fair presentation of the financial condition and results of operations for the interim periods. The results for the three and nine months ended December 31, 2023 are not indicative of annual results. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and the Company’s subsidiaries. References to “we”, “us”, “our”, or the “Company” refer to Nemaura Medical Inc. and its consolidated subsidiaries. The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP, and all significant intercompany balances and transactions have been eliminated in consolidation.
The functional currency for the majority of the Company’s operations is the Great Britain Pound Sterling (“GBP”), and the reporting currency is the U.S. Dollar (“USD”). Financial statements for foreign subsidiaries are translated into USD using period end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant estimates include the assumptions used in the accrual for potential liabilities, the net realizable value of inventory, the valuation of debt and equity instruments, the fair value of derivative liabilities, valuation of stock options issued for services, and deferred tax valuation allowances. Actual results may differ from those estimates.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.
Deferred Revenues
In March 2014, the Company executed an Exclusive Marketing Rights agreement with Dallas Burston Pharma (“DB Pharma”)(now known as MySugarWatch Limited “MSW”), a Jersey (Channel Island) based company for the exclusive right to sell the Company’s SugarBEAT® device in the UK and Republic of Ireland, both direct to consumer and through prescriptions by general practitioners. The agreement has a term of five years and automatically renewed for another five years unless terminated by either party. As part of the agreement, the Company received a non-refundable upfront fee of £1 million ($1.6 million). Pursuant to current accounting guidelines, the Company recorded the upfront fee of £1 million as a deferred revenue (i.e. liability) and is being amortized to revenues based upon the corresponding sale of the Company’s SugarBEAT devices. As of December 31, 2023 and March 31, 2023, the outstanding deferred revenues amounted to $1,184,412 and $1,145,451, respectively or approximately £875,000GBP.
The agreement is scheduled to expire in March 2024, however, the Company expects that it will be renewed for another five years based upon the ongoing relationship with MSW.
Cash includesand cash equivalents which the Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Cash and cash equivalents consistconsists primarily of cash deposits maintained in the United Kingdom. From time to time,Kingdom (“UK”). We maintain cash balances in U.S. Dollar (“USD”), Great Britain Pound Sterling (“GBP”), and the Company'sEuro. The following table, reported in USD, disaggregates our cash account balances exceed amounts covered by currency denomination:
| Schedule of cash and cash equivalents | ||||||||
| December 31, 2023 | March 31, 2023 (audited) | |||||||
| Cash denominated in: | ||||||||
| USD | $ | 13,169 | $ | 5,606,972 | ||||
| GBP | 65,925 | 4,446,720 | ||||||
| Euro | 58,322 | 51,443 | ||||||
| Total | $ | 137,416 | $ | 10,105,135 | ||||
Inventory
As of December 31, 2023 and March 31, 2023, inventory consisted of the Financial Services Compensation Scheme. The Company has never suffered a loss due to such excess balances.
| Schedule of inventory | ||||||||
December 31, 2023 | March 31, 2023, (audited) | |||||||
| Raw materials | $ | 3,553,811 | $ | 1,586,777 | ||||
| Finished goods | 117,722 | 168,075 | ||||||
| Total Inventories | $ | 3,671,533 | $ | 1,754,852 | ||||
Inventories are stated at the timelower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. For the initial investment, provide a higher interest rate than other bank accounts, and also require the Company to maintain the funds in the accounts for a period of time, $4,789,000 through December 2018. Early withdrawal may generally be made for liquidity needs.
Research and development expenses
The Company charges research and development expenses to operations as incurred. Research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services. Other research and development expenses include the costs of materials and supplies used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of facilities costs.
Basic earningsloss per share is computed by dividing incomethe loss available to common stockholdersshareholders by the weighted-average number of common shares outstanding during the period. ThereDiluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were no potentially dilutive securities asdilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised or converted or otherwise resulted in the issuance of December 31, 2017common stock that then shared in the earnings of the entity.
Since the effects of outstanding options and 2016. Forwarrants are anti-dilutive for the three and nine month periodsmonths ended December 31, 20172023 and 2016, warrants to purchase 10 million2022, shares of common stock and for the three and nine month period ended December 31, 2017, preferred shares potentially convertible into 137,324,000 of common stock were anti-dilutive and wereunderlying these instruments have been excluded from the calculationcomputation of diluted loss per common share.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.
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 | |||||||||||||||
| Schedule of common stock underlying outstanding options | ||||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Stock Warrants | 5,233,551 | 1,573,098 | ||||||
| Stock options | 40,000 | 40,000 | ||||||
| 5,273,551 | 1,613,098 | |||||||
Stock-Based Compensation
The Company periodically issues share-based awards to employees and non-employees and consultants for services rendered. Stock options vest and expire according to terms established at the issuance date of each grant. Stock grants are measured at the grant date fair value. Stock-based compensation cost is measured at fair value on the grant date and is generally recognized as a charge to operations ratably over the requisite service, or vesting, period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
The Company values its equity awards using the Black-Scholes option-pricing model, and accounts for forfeitures when they occur. Use of the Black-Scholes option pricing model requires the input of subjective assumptions, including expected volatility, expected term, and a risk-free interest rate. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The risk-free interest rate is estimated using comparable published federal funds rates.
Fair Value of Financial Instruments
The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required. Fair value of a financial instrument is defined as the amount at which the Series A Convertible Preferred Stock is convertible. Holdersinstrument could be exchanged in a current transaction between willing parties.
The three levels of Series A Convertible Preferred Stock are entitled to vote on any and all matters presented to stockholders of the Company, except as provided by law. The Series A Convertible Preferred Stock 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 Convertible Preferred Stock). The Company determined that the fair value hierarchy are as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the preferred shares issued for the common shares was equivalentassets or liabilities.
Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the common shares exchanged.
The Foreign exchange contract derivative liability is valued using Level 2 fair values while the transaction was consummatedwarrant liability is valued using Level 3 fair values.
The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets and 137,324,000 sharesliabilities at fair value as of common stock were cancelled. AsDecember 31, 2023 and March 31, 2023:
| Schedule of assets and liabilities at fair value | ||||||||||||||||
| December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Total assets | $ | — | $ | — | $ | — | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Foreign exchange contract derivative liability | $ | — | $ | 242,295 | $ | — | $ | 242,295 | ||||||||
| Warrant derivative liability | — | — | 492,000 | 492,000 | ||||||||||||
| Total liabilities | $ | — | $ | 242,295 | $ | 492,000 | $ | 734,295 | ||||||||
| March 31, 2023 (audited) | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets | ||||||||||||||||
| Total assets | $ | — | $ | — | $ | — | $ | — | ||||||||
| Liabilities | ||||||||||||||||
| Foreign exchange contract derivative liability | $ | — | $ | 731,730 | $ | — | $ | 731,730 | ||||||||
| Warrant derivative liability | — | — | 3,092,000 | 3,092,000 | ||||||||||||
| Total liabilities | $ | — | $ | 731,730 | $ | 3,092,000 | $ | 3,823,730 | ||||||||
The following table provides a result,roll-forward of the Company has 67,676,000 shares of common stock issued and outstanding.
| Schedule of warrant derivative liability measured at fair value on a recurring basis | ||||
| Warrant derivative liability | ||||
| Balance as of beginning of period – March 31, 2023 | $ | 3,092,000 | ||
| Change in fair value of warrant derivative liability | (2,600,000 | ) | ||
| Balance as of end of period – December 31, 2023 | $ | 492,000 | ||
As of December 31, 20172023 and March 31, 2017 respectively)2023, the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings (see Note 3).
The Company believes the carrying amounts of certain financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate fair value due to the short-term nature of such instruments and are excluded from the fair value tables above.
Inflation
The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary and interest rate pressures in the future, which is wholly non-refundable, upon signingwould have the agreement.
Recent accounting pronouncements
Management believes that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would not have a material effect on the up 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. As the Company expects commercialization of the sugarBEAT device to occur in the year ending March 31, 2019, approximately $101,000 of the deferred revenue has been classified as a current liability.
NOTE 52 – RELATED PARTY TRANSACTIONS
DDL has a service agreement with Nemaura Pharma Limited (Pharma) and NDM Technologies Limited (NDM) are entities(“Pharma”), an entity controlled by the Company's majority shareholder,
The table below provides a summary of activity between the Company and Pharma and NDM for the nine months ended December 31, 20172023 and 2016. These amounts are unsecured, interest free, and payable2022.
| Schedule of related party transactions | ||||||||
Nine Months Ended December 31, 2023 (unaudited) | Nine Months Ended December 31, 2022 (unaudited) | |||||||
| Due to (from) related parties at beginning of period | $ | 920,782 | $ | (101,297 | ) | |||
| Amounts invoiced by Pharma to DDL, NM and TCL, primarily relating to research and development expenses | 4,211,705 | 2,833,546 | ||||||
| Amounts invoiced by DDL to Pharma | — | (3,159 | ) | |||||
| Amounts received from Pharma | — | 4,452 | ||||||
| Amounts paid by DDL to Pharma | (4,311,770 | ) | (2,789,939 | ) | ||||
| Foreign exchange differences | (20,314 | ) | 31,077 | |||||
| Due to (from) related parties at end of period | $ | 800,403 | $ | (25,320 | ) | |||
NOTE 3 – DERIVATIVE LIABILITIES
Warrant liability
In January 2023, the Company completed an equity offering, which included the issuance of 4,796,206 warrants. Upon the occurrence of certain transactions (“Fundamental Transactions,” as defined), the warrants provide for a value determined using a Black Scholes model with inputs calculated as described in the warrant agreement which includes a 100% floor 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 | ) | ||||
The warrant liability was valued at the following dates using a Black-Scholes model with the following assumptions:
| Schedule of warrant liability | ||||||||
December 31, 2023 | March 31, 2023 | |||||||
| Warrant liability: | ||||||||
| Stock price | $ | 0.22 | $ | 0.90 | ||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected life (in years) | ||||||||
| Expected dividend yield | ||||||||
| Fair value of Warrant liability | $ | 492,000 | $ | 3,092,000 | ||||
The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of measurement commensurate with expected life of the warrants. Expected volatility was determined based on the historical volatility data of the Company, and NDM.
Foreign exchange contract liability
The Company is exposed to the impact of foreign currency exchange fluctuations as a significant proportion of its expenses are denominated in GBP, and the Company’s cash is in USD and GBP. In February 2021, the Company entered into a forward contract to sell USD and buy GBP. The contract meets the definition of a derivative subject to the guidance of ASC 815, does not qualify for hedge accounting, and accordingly is recognized at fair value, with changes in fair value recognized in earnings.
The term of the contract is 25 months, beginning July, 2022, and ending August, 2024. The contract initially had a maximum notional amount of $6,250,000 (and a maximum leveraged amount equal to two times the notional amount, or $12,500,000). $250,000 of the contractual notional amount is settled (expires) each month through August 2024. On each monthly settlement date, if the USD/GBP spot rate is above $1.359, the Company has the right to convert $250,000 USD into GBP at a fixed rate of $1.359. If the spot rate is between $1.359 and $1.319 on the settlement date, the Company has no obligations, but can convert $250,000 USD into GBP at the spot rate. Finally, if the spot rate is below $1.319 on the monthly settlement date, the Company is obligated to convert $500,000 USD (the settlement date leveraged amount) into GBP at the fixed rate of $1.359. Alternatively, instead of selling $500,000 USD, the Company can pay the difference in the spot rate and the $1.359 exchange rate for $500,000 USD (net settle) to the counterparty.
At December 31, 2017,2023 and March 31, 2023, the fair value of the foreign currency contract liability was valued as follows:
| Schedule of fair value of the foreign currency contract liability | ||||||||
December 31, 2023 | March 31, 2023 | |||||||
| Notional Amount | $ | 2,000,000 | $ | 4,250,000 | ||||
| Leveraged amount (used to determine fair value of contract liability) | $ | 4,000,000 | $ | 8,500,000 | ||||
| Expected remaining term (in months) | 8 | 17 | ||||||
| Fair Value: | ||||||||
| Foreign currency contract liability | $ | 242,295 | $ | 731,730 | ||||
The Company’s foreign currency forward contracts are measured at fair value on a recurring basis and are classified as Level 2 fair value measurement. As of December 31, 2023, and March 31, 2023, the Company has deposited $146,434, and $909,666, respectively, as collateral with the counterparty related to the foreign currency forward contract and recorded as part of prepaid expenses and other receivables in the accompanying balance sheet.
NOTE 4 – NOTES PAYABLE
| Schedule of notes payable | ||||||||
December 31, 2023 (unaudited) | March 31, 2023 | |||||||
| Note Payable Agreement 2 | $ | 13,551,346 | $ | 14,772,293 | ||||
| Note Payable Agreement 3 | 6,365,649 | 6,024,941 | ||||||
| Note Payable Agreements 4 and 5 | — | — | ||||||
| Total notes payable | 19,916,995 | 20,797,234 | ||||||
| Unamortized debt discount | (273,957 | ) | (767,083 | ) | ||||
| Notes payable, net of note discounts | 19,643,038 | 20,030,151 | ||||||
| Current portion | (19,643,038 | ) | (16,942,500 | ) | ||||
| Non-current portion | $ | — | $ | 3,087,651 | ||||
At October 5, 2023, the Company had four note payable agreements (Notes #2, #3, #4, and #5) outstanding. Effective October 5, 2023, the Company entered into standstill agreements for Notes #2 and #3, pursuant to which the investors would not seek repayment of any portion of the notes during the period from October 5, 2023 to October 31, 2023. In consideration, the Company agreed to pay a standstill fee of $1,300,000, that was added to the note principal of Notes #2 and #3.
On October 5, 2023, the Company entered into termination agreements to terminate and cancel Notes #4 and #5, which had an aggregate balance of principal and accrued interest of $7,940,657. In consideration, a principal payment of $3,000,000 was made, and $4,940,657 was added to the principal of Notes #2 and #3.
NOTE PAYABLE AGREEMENT 2
On February 8, 2021, the Company issued a note payable (“Note 2”) to a third-party investor. The note was for $24,015,000, originally matured on February 9, 2023 (see below), and is secured by all the assets of the Company. Beginning in March 2023, the monthly principal payments are $1,000,000 per month. In addition, the Company is required to Pharma onaccrue a monthly PIK fee equal to 0.833% of the outstanding balancesbalance, which is in substance interest at an annual rate of approximately 10%, that is added to the note principal each month. In October 2022 Note 2 was amended to extend the maturity from February 9, 2023 to July 1, 2024. In consideration, the Company agreed to pay aggregate fees of $2,304,539 to the investor which were added to the principal balance of Note 2.
As of March 31, 2023, outstanding balance of note payable amounted to $14,772,293. On October 5, 2023, $3,143,134 was added to the principal of Note 2 related to the termination of Notes 4 and 5 and addition of the standstill fee (see above). During the nine months ended December 31, 20172023, principal payments of £280,000.
NOTE PAYABLE AGREEMENT 3
On May 20, 2022, the Company issued a note payable (“Note 3) to a third-party investor. The note was for $6,015,000, matures on May 20, 2024, and is secured by all the assets of the Company. The Company received cash proceeds of $4,700,000, resulting in a discount of $1,315,000 made up of an original issue discount (“OID”) of $1,000,000, commission of $300,000 that was paid from proceeds, and $15,000 to cover transaction expenses. In addition, the Company is required to accrue a monthly PIK fee equal to 0.833% of the outstanding balance, which is in substance interest at an annual rate of approximately 10%, that is added to the note principal each month. The debt less discount and transaction expenses will be accreted over the term of the note using the effective interest rate method.
At March 31, 2023, the outstanding balance of Note 3 was $6,015,000. On October 5, 2023, $2,164,829 was added to the principal of Note 3 related to the termination of Notes 4 and 5 and addition of the standstill fee (see above). During the nine months ended December 31, 2023, principal payments of $1,814,180 were made. As of December 31, 2023, the outstanding balance of Note 3 was $6,365,649.
During the nine month period ended December 31, 2023, debt discount amortization of $493,125 was recorded. At December 31, 2023, the unamortized debt discount was $273,958.
NOTE PAYABLE AGREEMENTS 4 and 5
In August 2023, the Company issued two notes payable to two third party investors (“Notes 4 and 5”) , with a face value of $7,810,000 in exchange for cash of $6,500,000 or an original issue discount of $1,310,000. The notes were secured by all tangible and intangible assets of the Company and will mature in 24 months or in August 2025. The notes did not bear any interest; however, the implied annual interest rate is 9.5% based upon the OID rate of 19% and annual monitoring fee of 9.9%. As a result, the Company recorded a debt discount of $1,310,000 to account the note's original issue discount, commission and direct costs computed which is being amortized over interest expense over the term of the note payable.
On October 2023, the Company and the noteholders amended the two notes payable. As part of the amendment, the Company paid the noteholder $3 million in principal and the remaining balance of $4,810,000 and accrued interest of $130,657, was transferred and added to the outstanding principal balance of Note 2 for $2,775,828 and Note 3 for $2,164,829, issued in May 2022 and October 2022, respectively. In addition, the Company also incurred additional fees of $367,306 as part of the amendment of notes payable 4 and 5, which was added to Note 2. In addition, the Company also expensed the entire debt discount of $1,310,000. As of result of these amendments, notes payable 4 and 5 were extinguished and cancelled by the noteholder.
LINE OF CREDIT
In November 2023, the Company executed a line of credit (LOC) with a third party financing company, Streeterville Capital LLC. Pursuant to the LOC agreement, the Company can loan up to $10 million at a rate of 10% per annum and a 20% original issue discount for a period of one year. The LOC is secured by all tangible and intangible assets of the Company. The Company has not yet made advances or drawdowns against the LOC.
ITEM 2: MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Unaudited Condensed Consolidated Financial Statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. See "Cautionary Statement Concerning Forward-Looking Statements" below, and "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, as filed with the Securities and Exchange Commission, as the same may be updated from time to time, for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
Business Review and Outlook
It is management’s view that the Company made good progress during the nine month period ended December 31, 2023, and some of the key developments are listed as follows:
| 1. | The Company continued to support its UK licensee with its endeavours to obtain reimbursement for the sensors in the UK. |
| 2. | Advanced development of the Company’s BEATdiabetes offering in readiness for a commercial launch in due course. |
| 3. | Continued development of its consumer metabolic health platform and potential deployment as a bolt-on service into existing metabolic and wellness programs. |
| 4. | Received approval from the Saudi Arabia Food and Drug Agency for marketing of sugarBEAT in the Kingdom of Saudi Arabia (KSA), with support from the Company’s licensee in the region, TP MENA. |
| 5. | Used feedback from the Company’s pre-diabetes and consumer metabolic health program with the UK National Health Service, to commence plans for a commercial launch of the program in various territories with partners, in due course. |
Management is working towards fulfilling the remainder of the UK licensees’ initial orders and supporting MSW’s UK launch plans, and for potential supplies to fulfill the provisional purchase order for the KSA from TPMENA. The company continues to also develop capabilities to develop and service new channels of business across other geographic markets via the use of our BEAT platform. To this end the company is now actively planning product launch in other territories that accept the CE mark registration. In addition, the company is seeking to exploit its product platform in the consumer space.
In line with this view, the Company has taken the following actions during and after the nine month period ended December 31, 2023:
| • | Increased headcount of production operatives; this will be phased in line with the volume forecasts currently available, however the Company has also factored in an ability to scale further and faster should this be required. |
| • | Moved forward with placing phased orders for raw materials to ensure future product availability to support both our UK Licensee while also providing for capacity to flex up further as other routes to market materialize in line with management’s commercialization program. |
| • | Engaged with external third-party manufacturers with the ability to provide significant scale up services for product manufacture moving forward. Specifically, this quarter the company has engaged with a company in Germany that specialize in Automation of manufacturing processes to further scale-up sensor production capabilities, with anticipated concurrent reduction in unit cost of goods. |
Recent Developments
On October 3rd 2023 the Company allowed its FDA PMA application to lapse in favor of submitting a revised application based on a 24-hour sensor life in place of the current 14-hour sensor life, in particular in light of improvements that had been made to sensor performance and manufacture which out-date the original application. The Company has experienced recurring lossesselected the Modular route for this submission.
In a traditional PMA, the applicant submits all PMA data, as outlined in 21 CFR 814.20, at the same time, regardless of when testing is completed. FDA begins its review only upon receipt of all the required information. In 1998, however, as part of CDRH’s reengineering effort, FDA issued the above mentioned guidance. In these documents, FDA described a new policy whereby applicants could submit “Modular PMAs.” The goal of FDA’s 1998 guidance was to increase the efficiency of the PMA review process by allowing applicants to submit discrete sections (modules) of the PMA to FDA for review soon after completing the testing and negative cash flowsanalysis.
Guidance notes were revised on November 3, 2023 (https://www.fda.gov/files/medical%20devices/published/Premarket-Approval-Application-Modular-Review---Guidance-for-Industry-and-FDA-Staff.pdf).
In accordance with the guidelines Nemaura submitted its Proposal on October 30, 2023 and has now commenced the process of compiling the dossier for staged submission over the coming months.
Furthermore, the Company reported that it completed a 100 patient study, collecting over 30,000 glucose measurements from operations. At December 31, 2017,the sugarBEAT device paired with venous blood samples over an extended duration of 24 hours and reported interim data suggesting that 24 hour in-use sensor life was viable.
Affiliated Company Relationships
Nemaura Pharma was incorporated in November 2005. Through October 2013, all technology development and related transactions were incurred by Pharma. As new technology platforms were invented and developed, additional companies were set up to contain these new technology platforms, and to aid in the process of raising further investments to progress the development of these subsequent technologies. However, due to the small size of the operations, low number of employees and laboratory and office space required, initially, certain costs were borne by Pharma and charged to DDL as required. On April 4, 2018, a service agreement was put into place between Pharma and DDL which covered the development of sugarBEAT® under Pharma’s ISO13485 Accreditation. In lieu of these services, Pharma invoices DDL on a periodic basis for said services. Services are provided at cost plus a service surcharge amounting to less than 10% of the total costs incurred. This agreement includes all aspects of the development, registration and manufacture of sugarBEAT®.
Full legal title and beneficial ownership of the CE mark and all related intellectual property remains with Nemaura Medical under the terms of the service contract.
Dr. D.F.H. Chowdhury, the Company’s Chief Executive Officer, President and Chairman of the Board, and Mr. Bashir Timol, a member of the Company’s Board of Directors, are officers of Pharma. The current management at DDL, including Dr. D. F. H. Chowdhury allocate 15% - 20% of their time to oversee the current operations at Pharma and will in due course implement a new management team in Pharma, and provide ongoing support in an advisory role. Pharma is a drug delivery company, which means that its activities are entirely related to the administration of drugs to the body of a human or animal subject. DDL is a diagnostic company, which means it is entirely focused on extracting molecules from the human or animal subject and analyzing it to make a diagnosis or to monitor the level of a particular molecule such as glucose. These are two independent businesses engaged in different activities, therefore there is no conflict of interest between the two and management does not see any conflicts arising from the allocations of some of DDL management time to overseeing the operations of Pharma.
Payments made solely for work that Dr. D. F. H. Chowdhury performs for Pharma in his capacity as manager are not charged to Nemaura Medical Inc. and are not included in our consolidated financial statements.
Inflation
The Company does not believe that inflation has had a material effect on its operations to date, other than its impact on the general economy. However, there is a risk that the Company’s operating costs could become subject to inflationary and interest rate pressures in the future, which would have the effect of increasing the Company’s operating costs (including, specifically, clinical trial costs in countries where the Company is applying to sell its products), and which would put additional stress on the Company’s working capital resources.
Nasdaq Compliance Deficiencies
As previously disclosed, on April 3, 2023, the Company received a written notice from the Nasdaq Listing Qualification Department (the “Nasdaq Staff”) indicating that the Company was not in compliance with the $35 million minimum market value of listed securities (“MVLS”) requirement set forth in Nasdaq Listing Rule 5550(b)(2) for continued listing on The Nasdaq Capital Market. Accordingly, the Company was granted a grace period that expired on October 2, 2023. In addition, on April 6, 2023, the Company received a written notice that the Company was not in compliance with the $1 bid price (“Bid Price”) requirement for continued listing set forth in Listing Rule 5550(a)(2) and was granted a grace period that expired on October 3, 2023.
On October 3 and 4, 2023, respectively, the Company received written notices from the Nasdaq Staff indicating that the Company had approximate cashnot regained compliance with the MVLS and fixed rate cash account balances of $6,454,000, working capital of $5,509,000, total stockholders' equity of $4,498,000Bid Price requirements, and an accumulated deficit of $8,420,000. To date,that the Company’s common stock would be subject to delisting from The Nasdaq Capital Market unless the Company timely requests a hearing before a Nasdaq Hearings Panel (the “Panel”).
Accordingly, the Company timely requested a hearing before the Panel. The hearing request automatically stayed any suspension or delisting action pending the hearing and the expiration of any additional extension period granted by the Panel following the hearing. In that regard, pursuant to the Nasdaq Listing Rules, the Panel granted an extension not to exceed April 1, 2024. However following further attrition to its share price, and the need for substantial dilution to existing shareholders as part of the companies plan to regain compliance with Nasdaq rules, management did not see it in the best interest of shareholders to effect such dilution and chose to de-list the company from the Nasdaq to the Over The Counter market, with a view to strengthening the commercialization roadmap and partnering as a means of growing the company and generating revenues.
COVID-19 Pandemic
The outbreak of COVID-19 in December 2019 has in large part relied on equity financing to fundsince rapidly increased its operations. Additional funding has come from related party contributions. The Company expects toexposure globally. On March 11, 2020, the World Health Organization declared the outbreak a pandemic. We continue to incur losses frommonitor the impact of COVID-19 on our own operations and are working with our employees, suppliers, and other stakeholders to mitigate the risks posed by its spread, but COVID-19 is not expected to have any long-term detrimental effect on the Company’s success. While key suppliers have not always 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 this period. We also recognize that one of the consequences of this pandemic has been a surge in the uptake of technologies for remote monitoring of patients and patient self-monitoring, which potentially enhances the prospects for the near-termCompany, its CGM product and these losses could be significant as product development, regulatory activities, clinical trials and other commercial and product development related expenses are incurred.
Results of Operations
Comparative Results for the Three Months Ended December 31, 2023 and 2022
Revenue
There was no revenue generated in the three month period ended December 31,2023.
The Company generated revenue of $3,017 in the three month period ended December 31, 2022, relating to deliveries of sugarBEAT® to MSW pursuant to the initial order placed in April 2021. A portion also related to the recognition of the GBP 1 million (approximately $1.12 million), that was previously received and held within deferred revenue relating to the exclusive Marketing Rights Agreement that was signed with MSW.
Research and Development Expenses
Research and development (“R&D”) expenses were $291,104 and $393,747 for the three months ended December 31, 2023 and 2022, respectively. This amount consisted primarily of expenditures on wages and sub-contractor activities incurred for improvements made to the sugarBEAT®device.
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General and Administrative Expenses
General and administrative expenses were $1,250,149 and $1,230,160 for the three months ended December 31, 2023 and 2022, respectively. These expenses consisted of fees for legal, professional, consultancy, audit services, investor relations, insurance, advertising and general and operational wages.
As the Company continues to scale up to service its existing order book, it is expected that general and administrative expenses will continue to increase in a similar way moving forward, as the business transitions to a more operational focused base that will encompass an increase in functional expenses relating to production, sales, marketing, customer service, as well as enhancements to other existing functions.
Other Income (Expense)
Other income (expense) was $302,161 and $92,417 for the three months ended December 31, 2023 and 2022, respectively. These expenses consist of interest expense, change in fair value of foreign exchange and change in fair value of warrant liability. There was a significant decrease in the fair value of the Company’s warrant liability which resulted in a gain of approximately $1 million as a result of the decrease in the stock price of the Company, which is an input in the fair value computation every reporting period.
Other Comprehensive Loss
For the three month periods ended December 31, 2023 and 2022 other comprehensive income saw gains of $204,829 and $556,080, respectively, arising from foreign currency translation adjustments.
Comparative Results for the Nine Months Ended December 31, 20172023 and 2016
Revenue
There was no revenue recognizedgenerated in the nine monthsmonth period ended December 31, 20172023.
The Company generated revenue of $77,044 in the nine month period ended December 31, 2022, relating to deliveries of sugarBEAT® to MSW pursuant to the initial order placed in April 2021. A portion also related to the recognition of the GBP 1 million (approximately $1.12 million), that was previously received and 2016. In 2014, we received an upfront non-refundable cash payment of £1,000,000 in connection with an Exclusiveheld within deferred revenue relating to the exclusive Marketing Rights Agreement that was signed 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, and we expect to record the revenue in income over an approximately 10 year term from the date CE marking approval is obtained. Although the revenue is deferred at December 31, 2017, the cash payment became immediately available and was being used to fund our operations, including research and development costs associated with obtaining the CE marking approval.
Research and Development Expenses
R&D expenses were $713,585$1,332,664 and $794,433$980,862 for the nine months ended December 31, 20172023 and 2016,2022, respectively. This amount consisted primarily of expenditureexpenditures on clinical trials,wages and sub-contractor activities consultancy fees and wages and demonstrated continuing expenditureincurred for improvements made to the sugarBEAT device. The decrease of $80,848 is due to decreases® device, and costs associated with the 24-hour sensor study performed on 100 subjects in these costs as the sugarBEAT product is nearing completion.
General and Administrative Expenses
General and administrative expenses were $627,605$4,317,358 and $397,598$1,509,095 for the nine months ended December 31, 20172023 and 2016,2022, respectively. These expenses consisted of fees for legal, professional, consultancy, audit services, charitable donationsinvestor relations, insurance, advertising and general and operational wages. The increase of $230,007 was due
As the Company continues to increases in professional fees as the CGM device continues clinical trials and legal fees incurred as the company prepares for future product launch, plus £123,000 in charitable donations. We expectscale up to service its existing order book, it is expected that general and administrative expenses to remain at similar levels going forward in the long term, as there will continue to be professional, consultancyincrease in a similar way moving forward, as the business transitions to a more operational focused base that will encompass an increase in functional expenses relating to production, sales, marketing, customer service, as well as enhancements to other existing functions.
Other Income (Expense)
Other Expense was ($318,064) and legal fees associated with planned fundraising.
Other Comprehensive Loss
For the nine month periods ended December 31, 2023 and 2022 other comprehensive income (loss) was $398,705losses of $44,326 and ($786,148)losses of $864,328, respectively, arising from foreign currency translation adjustments.
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Liquidity and Capital Resources
As reflected in the accompanying unaudited financial statements, for the Three Months Ended December 31, 2017 and 2016
As of services from related entities.
Going Concern
The Company reportedaccompanying unaudited financial statements have been prepared on a net lossgoing concern basis, which contemplates the realization of $1,267,184assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the nine months ended December 31, 2017.
In evaluating the going concern position of the company, management has considered potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. There can be no assurance that funding would be available, or that the terms of such funding would be on favorable terms if available. Even if the Company is able to obtain additional funds. Thisfinancing, it may include a combinationcontain undue restrictions on our operations, in the case of debt equity and licensing fees. If we are not successful in raising the funds neededfinancing, or cause substantial dilution for our stockholders, in the specified timelines, the target dates for the achievementcase of the milestones will be extended.
Cash Flows
Net cash consumed by ourused in operating activities for the nine months ended December 31, 20172023 was $1,261,104 which reflected our$7,203,676, reflecting a net loss of $1,267,184, increased by a rise in$5,968,086, and includes accretion of debt discount expense and accrued interest receivabletotaling $2,291,148, change in fair value of $58,504warrant liability of $2,600,000, the mark-to-market charge booked in relation to the revaluation of the foreign currency forward contracts of $489,435 and the depreciation and amortization charge of $309,684.
Cash was also impacted by increases in inventory of $2,021,130, which was directly driven as a riseresult of commercial scale up.
Prepayments dropped by $1,113,851, which was a result of the decrease in prepayments anddeposit to Hamilton Court, our forward contract provider, plus by reduction on other receivables of $63,405 and offset by changesprepayments.
There was a $25,842 increase in the liability due to related parties of $77,654 and accounts payable during the nine months ended December 31, 2023 as well as an increase in other liabilities and accrued expenses of $27,868.
Net cash used in investing activities for the nine months ended December 31, 2023, was $76,807, which was from the purchase of property and equipment driven by ourthe procurement to support the transition to operational production.
Net cash used in operating activities for the nine months ended December 31, 20162022 was $704,628 which reflected our$6,090,181, reflecting a net loss of $1,192,031 together with$9,460,888, which includes accretion of debt discount expense and accrued interest totaling $4,152,437, the mark-to-market charge booked in relation to the revaluation of the foreign currency forward contracts of $635,494 and the depreciation and amortization charge of $268,595.
Cash was also impacted by increases in inventory of $864,636 as of December 31, 2022, which was directly driven as a decrease in prepayments andresult of commercial scale up.
Prepayments decreased by $467,070, which was a result of the amounts paid to Hamilton Court, our forward contract provider plus movements on other receivables of $69,121 andprepayments.
There was a decrease$34,897 increase in accounts payable andduring the nine months ended December 31, 2022 but decreases in other liabilities and accrued expenses of $20,584,$167,568 and an increase in liability due todeferred revenue of $297,419. The related party of $423,237.
Net cash realised byused in investing activities was $1,925,757 for the nine months ended December 31, 2017,2022, was $438,805, which reflected $1,955,489 returned fromincluded the maturitypurchase of a fixed rate savings account, but reducedproperty and equipment ($208,945) driven by the expenditures made in developing intellectual property, primarily relatedprocurement to support the transition to operational production, and patent filingsfiling costs of $29,732.
Net cash used by our investingin financing activities was $64,271 for the nine months ended December 31, 2016, which reflected expenditures on intellectual property and other assets.
Net cash used in financing activities for the nine months ended December 31, 2022 was $3,273,859, comprising $4,700,000 from proceeds of long term debt offset by $7,974,282 for the scheduled repayments of notes payable, also including proceeds of $696 from issuance of common stock offset by $273 for equity issuance cost paid.
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 unaudited 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 associated with research and development, income taxes and intangible assets.
During the nine month period ended December 31, 2023, we have made no material changes or additions with regard to such policies and Development Expenses:
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have evaluated the effectiveness of ourestablished disclosure controls and procedures as ofto ensure that the end ofinformation required to be disclosed by the period covered by this Quarterly Report on Form 10-Q. The term "disclosure controls and procedures," as definedCompany in Rules 13a-15(e) and 15d-15(e)the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“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 controlsforms of the Securities and procedures include, without limitation, controlsExchange Commission and procedures designed to ensure that such 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 the company'sofficers who certify the Company's financial reports and to other members of senior management including its principal executive and principal financial officers,the Board of Directors as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any
The Company’s Chief Executive Officer / Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures no matter how well designed(as defined in Rules 13a-15(e) and operated, can provide only reasonable assurance15d-15(e) under the Exchange Act) as of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures.December 31, 2023. Based on thishis evaluation, managementthe Chief Executive Officer / Chief Financial Officer have concluded that as of December 31, 2023 our disclosure controls and procedures were not effective as of December 31, 2017, at2023. As of December 31, 2023, management’s assessment identified the reasonable assurance level duefollowing material weaknesses in the Company’s internal control over financial reporting:
We continue to have a material weakness in our internal control over financial reporting whichas disclosed in the March 31, 2023 Form 10-K, in that the Company did not design and maintain effective controls over (i) accounting for the foreign currency balance for a mark-to-market contract; and (ii) accounting for certain debt issuance costs in the computation of the effective interest rate for a loan note mainly due to lack of adequate technical expertise. Management is described below.
Changes in Internal Control overOver Financial Reporting
There have been no changes in our internal control over financial reporting occurred during the quarterour most recent nine months ended December 31, 20172023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Form 10-K forEffectiveness of Controls and Procedures
In designing and evaluating the year ended March 31, 2017,disclosure controls and procedures, management assessedrecognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the effectiveness of our internal control over financial reporting as of March 31, 2017. In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizationsobjectives of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Ascontrols system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a resultcompany have been detected. In addition, the design of its assessment, management identified material weaknesses in our internal control over financial reporting. Based ondisclosure controls and procedures must reflect the material weaknesses as described below, management concluded that our internal control over financial reporting was not effective as of March 31, 2017. Accordingly, our internal control over financial reporting is not effective as of December 31, 2017 because of the material weaknesses identified and described below.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, as amended.
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
| (a) | None |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the Company last provided disclosure in response to the requirements of Item 407(c)(3) of Regulation S-K. |
| (c) | During the quarter ended December 31, 2023, no director or officer of the Company adopted or terminated a contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or a non-Rule 10b5-1 trading arrangement. |
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ITEM 6. EXHIBITS
The exhibits listed on the Exhibit Index below are providedfiled as part of this report.
| Exhibit No. | Document Description |
| 31.1* | |
| 31.2* | |
| 32.1** | |
| 101.INS* | Inline XBRL document. |
| Inline XBRL Taxonomy Extension Schema | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Document |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104* | Cover Page Interactive Data |
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Reportreport to be signed on its behalf by the undersigned thereunto duly authorized.
| NEMAURA MEDICAL INC. | ||
| Date: February 12, 2024 | By: | /s/ Dewan F.H. Chowdhury |
Dewan F.H. Chowdhury Chief Executive Officer, Interim Chief Financial Officer, and President (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
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