Notes to Condensed Consolidated Financial
Statements
(Unaudited)
INTERIM FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND PRINCIPAL
ACTIVITIES
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. The sugarBEAT device extracts
analytes, such as glucose, to the surface of the skin in a non-invasive manner where it is measured using unique sensors and interpreted
using a unique algorithm.
Nemaura is a Nevada holding company
organized in 2013. Nemaura owns one hundred percent (100%) of Region Green Limited, a British Virgin Islands corporation (“RGL”)
formed on December 12, 2013. RGL owns one hundred percent (100%) of Dermal Diagnostic (Holdings) Limited, an England and Wales
corporation (“DDHL”) formed on December 11, 2013, which in turn owns one hundred percent (100%) of Dermal Diagnostics
Limited, an England and Wales corporation formed on January 20, 2009 (“DDL”), and one hundred percent (100%) of Trial
Clinic Limited, an England and Wales corporation formed on January 12, 2011 (“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’s initial focus has been on the development of the sugarBEAT device, which consists
of a disposable patch containing a sensor, and a non-disposable miniature transmitter device with a re-chargeable power source,
which is designed to enable trending or tracking of blood glucose levels. All of the Company’s operations and assets are
located in England.
The following diagram illustrates
Nemaura’s corporate structure as of September 30, 2019:
The Company was incorporated in 2013,
and has reported recurring losses from operations to date and an accumulated deficit of $15,794,184 as of September 30, 2019. These
operations have resulted in the successful completion of clinical programs to support a CE mark (European Union approval of the
product) approval, as well as a De Novo 510(k) medical device application to the US Food and Drug Administration (“FDA”)
submission. The Company expects to continue to incur losses from operations until revenues are generated through licensing fees
or product sales. However, given the completion of the requisite clinical programs, these losses are expected to be reduced over
time. Management has entered into licensing, supply, or collaboration agreements with unrelated third parties relating to the United
Kingdom, Europe, Qatar and all countries in the Gulf Cooperation Council.
Management has evaluated the expected
expenses to be incurred along with its available cash and credit facility and has determined that the Company has the ability
to continue as a going concern for at least one year subsequent to the date of issuance of these condensed consolidated financial
statements. The Company had an $8 million unsecured senior credit facility made available from certain major stockholders
on August 1, 2019. Further details of the terms of this loan are included in Note 4.
The
Company has $1,771,115 of readily available cash on hand at September 30, 2019. We believe the cash position as of September 30,
2019, plus the credit facility made available from certain major stockholders, is adequate for our current level of operations
through at least November 2020, and for the achievement of certain of our product development milestones. Our plan is
to utilize the cash on hand plus loan draw down to continue establishing commercial manufacturing operations for the commercial
supply of the sugarBEAT device and patches now that CE mark approval has been received.
Management's strategic plans include the
following:
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·
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support the UK and EU launch of sugarBEAT;
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·
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pursuing additional capital raising opportunities;
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·
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obtaining further regulatory approval
for the sugarBEAT device in other countries such as the USA;
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·
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exploring licensing and partnership opportunities
in other territories; and
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·
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developing the sugarBEAT device for commercialization
for other applications.
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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 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 opinion of management, necessary for a fair statement of the financial condition and results
of operations for the interim periods. The results for the three and six months ended September 30, 2019 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.
The accompanying 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 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 US Dollar (“USD”).
(b) Changes to significant
accounting policies
There have been no material changes
to our significant accounting policies as detailed in our Form 10-K for the year ended March 31, 2019.
(c)
Recently adopted accounting pronouncements
The Company continually assesses any new
accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the
Company's financial reporting, the Company undertakes a study to determine the consequences of the change to its condensed consolidated
financial statements and assures that there are proper controls in place to ascertain that the Company's condensed consolidated
financial statements properly reflect the change.
In May 2014, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09 (“ASC 606”), Revenue
from Contracts with Customers. ASC 606 has been modified multiple times since its initial release. This ASU outlines a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and has replaced most existing
revenue recognition guidance in U.S. GAAP when it became effective. ASC 606, as amended, became effective for annual reporting
periods beginning after December 15, 2017. Early adoption was 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 adopted
this standard on April 1, 2019.
While
the Company is not currently recognizing revenue, we have implemented the guidelines within ASC 606. This standard applies to all
contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration
arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised
goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods
or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity
performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract;
and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model
to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or
services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606,
the Company assesses the goods or services promised within each contract and determines those that are performance obligations,
and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction
price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The
Company may enter into product development and other agreements with collaborative partners. The terms of the agreements may include
non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations.
The
Company has entered into license agreements and for these, recognizes up front license payments as revenue upon delivery of the
license only if the license has stand-alone value to the customer. However, where further performance criteria must be met, revenue
is deferred and recognized over the period the Company is expected to complete its performance obligations. Royalty revenue will
be recognized upon the sale of the related products provided the Company has no remaining performance obligations under the agreement.
In
June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07. ASU
2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments
to employees, with certain exceptions. The Company adopted ASU 2018-07 as of April 1, 2019. The adoption of ASU 2018-07 has not
had a material impact on the Company’s financial position, results of operations or related disclosures and no transition
adjustment at date of adoption was required.
Recent accounting pronouncements
In March 2016, the FASB issued
ASU No. 2016-02, Leases. The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition
of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.
ASU No. 2016-02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation
of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases
with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not
to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied
under previous U.S. GAAP. In transition, lessees and lessors have two options: they are required to recognize and measure leases
at the beginning of the earliest period presented using a modified retrospective approach or recognize a cumulative effect adjustment
to the opening balance of retained earnings at their adoption date. This ASU is effective for public business entities in fiscal
years, and interim periods within those fiscal years, beginning after December 15, 2018 and for private companies ASU 2016-02 is
effective beginning after December 15, 2020. Early adoption is permitted as of the beginning of any interim or annual reporting
period. As an Emerging Growth Company, the Company is allowed to adopt new, or updated, accounting standards using the same time
frame that applies to private companies. The Company will adopt this standard on April 1, 2021. Management is currently evaluating
the impact of adoption of this ASU on the Company’s condensed consolidated financial statements but as there are no significant
leases, no significant changes to opening retained earnings are expected.
NOTE 3 – LICENSING AGREEMENTS
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, which granted the third party the exclusive right to market
and promote the sugarBEAT device and related patches under its own brand in the United Kingdom and the Republic of Ireland, the
Channel Islands and the Isle of Man. The Company received a non-refundable, up-front cash payment of GBP 1,000,000 (approximately
$1.232 million and $1.303 million as of September 30, 2019 and March 31, 2019, respectively), which is wholly non-refundable, upon
signing the agreement.
As the Company has continuing performance
obligations under the agreement, 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. As the Company now expects commercialization of the sugarBEAT device to occur
in the first quarter ending June 30, 2020, approximately $62,000 and $65,000 of the deferred revenue has been classified as a current
liability as of September 30, 2019 and March 31, 2019, respectively.
Further details of licensing agreements
are disclosed in the Form 10-K as of and for the year ended March 31, 2019.
NOTE 4 – RELATED PARTY TRANSACTIONS
Nemaura Pharma Limited (“Pharma”),
NDM Technologies Limited (“NDM”) and Black and White Health Care Limited (“B&W”) are entities controlled
by the Company’s Chief Executive Officer and majority stockholder, Dewan F.H. Chowdhury.
In accordance with the SEC Staff Accounting
Bulletin 55, these condensed consolidated financial statements are intended to reflect all costs associated with the operations
of DDL and TCL. Pharma has a service agreement with DDL, to undertake development, manufacture and regulatory approvals under Pharma’s
ISO13485 Accreditation. In lieu of these services, DDL invoices Pharma on a periodic basis for said services. Services are provided
at cost plus a service surcharge amounting to less than 10% of the total costs incurred.
The following is a summary of activity between
the Company and Pharma and NDM for the six months ended September 30, 2019 and 2018, and the year ended March 31, 2019. These amounts
are unsecured, interest free, and payable on demand.
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Six Months Ended
September 30, 2019
(unaudited)
($)
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Six Months Ended
September 30, 2018
(unaudited)
($)
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Year Ended
March 31, 2019
($)
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Liability due to related party, beginning of period
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964,679
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613,818
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613,818
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Amounts invoiced by DDL to Pharma
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(814
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)
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—
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(977
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)
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Amounts invoiced by Pharma to DDL, NM and TCL (1)
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966,425
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1,149,785
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2,312,412
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Amounts repaid by DDL to Pharma
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(867,013
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(1,038,730
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(1,569,496
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Amounts invoiced by B&W to DDL
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—
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—
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2,206
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Amounts repaid by DDL to B&W
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—
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—
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(5,622
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Foreign exchange differences
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(56,743
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(82,360
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(84,843
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Forgiveness of payable accounted for as an equity contribution
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—
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—
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(302,819
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Liability due to related party, end of the period
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1,006,534
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642,513
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964,679
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(1)
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These amounts are included primarily in research and development expenses charged to the Company by Pharma.
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The Company has an $8 million unsecured senior
credit facility made available from certain majority stockholders as of August 1, 2019. The first $3.5 million became available
immediately for draw down, which will help fund the Company’s European commercial launch. The credit facility is non-dilutive
carrying 8% interest with quarterly interest only payments. The principal is due on maturity in 5 years. There has been no draw
down to date. No decision to date has been made on when the remaining capital will be needed and will be available for draw down.
The Company routinely reviews its
statement of cash flows presentation of related party transactions for financing or operating classification based on the underlying
nature of the item and intended repayment.
NOTE 5 – STOCKHOLDERS’
EQUITY
On October 5, 2017, the Company
entered into common stock exchange agreements with each of its three largest stockholders, to exchange, in the aggregate, 137,324,000
shares of the Company’s common stock for 137,324 shares of Series A Convertible Preferred Stock (the “Series A Preferred”).
Each share of Series A Preferred is convertible into 1,000 shares of the Company’s common stock, automatically upon the
occurrence of all of certain triggering events, as set forth in the Certificate of Designation for the Series A Preferred, namely
(a) the sugarBEAT device to be commercialized has CE mark regulatory approval; (b) retail sales having commenced; and (c) retail
sales exceeding $5 million, inclusive of advanced sales or voluntarily by the holder after February 7, 2018, if these triggering
events have not occurred. Each holder of issued and outstanding Series A Preferred is entitled to a number of votes equal
to the number of shares of common stock into which the Series A Preferred is convertible. Holders of Series A Preferred are entitled
to vote on any and all matters presented to stockholders of the Company, except as provided by law. The Series A Preferred
has no preference to the common stock as to dividends or distributions of assets upon liquidation or winding up of the Company
(which has been agreed to by the holders of the Series A Preferred). The Company determined that the fair value of the shares
of Series A Preferred issued for the shares of common stock was equivalent to the fair value of the shares of common stock exchanged.
On November 6, 2017, the transactions
contemplated by the exchange agreements were consummated and 137,324,000 shares of common stock were cancelled. As a result, the
Company had 67,676,000 shares of common stock issued and outstanding as of March 31, 2018.
On June 5, 2018, the three holders
of the Company’s Series A Preferred each delivered notices of conversion to voluntarily convert their Series A Preferred,
in the aggregate amount of 137,324 of Series A Preferred shares, into 137,324,000 shares of common stock. The holders had
the right to voluntarily convert each share of Series A Preferred into 1,000 shares of common stock of the Company.
On October 19, 2018, the Company
entered into an Equity Distribution Agreement (“Distribution Agreement”) with Maxim Group LLC, as sales agent (“Maxim”),
pursuant to which the Company may offer and sell, from time to time, through Maxim (the “Offering”), up to $20,000,000
in shares of its common stock (the “Shares”). Between October 19, 2018, and March 31, 2019, the Company issued 234,998
shares of its common stock through the Distribution Agreement and received gross proceeds of $455,105. $161,102 of costs were incurred
in relation to this transaction. In the three months ended June 30, 2019, an additional 143,388 shares were issued under the Distribution
Agreement generating gross proceeds of $152,493 and costs of $9,575. There was no further activity through this agreement during
the quarter ended September 30, 2019. As of September 30, 2019, the Company may sell, from time to time, the remaining $19,392,402
in shares of common stock under the Distribution Agreement.
On December 18, 2018, the Company
entered into a placement agency agreement with Dawson James Securities, Inc. with respect to the issuance and sale of an aggregate
of up to 2,400,000 units, each unit consisting of one share of common stock, par value $0.001 per share, together with one warrant
to purchase one share of common stock at an exercise price equal to $1.04 per share, in a public offering. The warrants offered
in the public offering will terminate on the fifth anniversary of the date of issuance. The public offering price for each unit
was $1.04.
The closing of the offering occurred
on December 20, 2018 and at such closing the Company sold 1,942,061 shares of common stock and 1,942,061 warrants for gross proceeds
of $2,019,743. The net proceeds to the Company from the sale of the shares of common stock and the warrants was $1,691,541, after
deducting $328,302 of placement agent commissions and other offering expenses payable by the Company. As of September 30, 2019,
86,357 of the warrants had been exercised, generating $89,811 of additional proceeds. There was no activity during the quarter
ended September 30, 2019.
Effective December 18, 2018, the
Company issued a unit purchase option to the placement agent to purchase 97,103 shares and 97,103 warrants. The Company has classified
this option as equity. The unit purchase option has a term of three years and an exercise price of $1.30.
Earnings (loss) per share
The following table sets forth
the computation of basic and diluted earnings (loss) per share (“EPS”) for the periods indicated.
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Three months ended September 30,
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Six months ended September 30,
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2019
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2018
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2019
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2018
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($)
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($)
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($)
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($)
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Net loss attributable to common stockholders
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(1,117,040
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(1,139,275
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(2,368,305
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)
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(1,902,428
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)
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Weighted average basic and diluted shares outstanding
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208,021,967
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205,003,261
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207,929,675
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155,957,363
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Basic and diluted earnings (loss) per share:
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(0.01
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)
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(0.01
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)
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(0.01
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)
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(0.01
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)
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The Company excludes warrants outstanding,
which are anti-dilutive given the Company is in a loss position, from the basic and diluted earnings per share calculation.
Basic earnings (loss) per share
is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding
during the period. For the three and six month periods ended September 30, 2019 and 2018, warrants to purchase 10 million shares
of common stock were anti-dilutive and were excluded from the calculation of diluted loss per share. For
the three and six month periods ended September 30, 2019, warrants to purchase 1,855,704 shares of common stock and a unit purchase
option to purchase 97,103 shares of common stock as well as 97,103 warrants were considered anti-dilutive and were also excluded
from the calculation of diluted loss per share.
NOTE 6 – OTHER ITEMS
(a)
Investor relations agreements
The Company enters into contracts
with various investor relations specialists to help support the ongoing financing activities of the business. Further details of
historic fees paid and arrangements are detailed in our Form 10-K for the year ended March 31, 2019.
Investor Relations Company 1
- On June 27, 2018, the Company entered into a Master Services Agreement with investor relations company 1, pursuant to which
for an initial three month term, the third party shall provide services related to advising and assisting the Company in developing
and implementing appropriate plans and materials for presenting the Company and its business plans, strategy and personnel to the
financial community, introducing the Company to the financial community through the use of social media, digital media and other
online awareness campaigns. There has been no additional trading with investor relations company 1 during the six months ended
September 30, 2019.
Investor Relations Company 2
- On May 1, 2019, we reinstated the existing agreement with investor relations company 2, which remained a rolling monthly
contract with a three month assumed length, although cancellable after each completed month. A payment of $7,500 was agreed at
the beginning of each month, plus an additional $2,500 per month for additional services, if taken; and if the contract runs for
the whole three month term, 12,500 shares will be issued at the end of the term. $20,000 was expensed in the three months ended
June 30, 2019 relating to cash payments.
During the quarter ended September
30, 2019, $12,500 of cash fees were expensed and paid and 12,500 shares were issued with $12,376 expensed to investor relations.
Investor Relations Company 3
- On March 18, 2019 the Company cancelled its existing agreement with investor relations company 3 and entered into a new agreement.
The term of this contract has been agreed to be on a month to month basis. Compensation is partly in cash and partly in restricted
common stock. At the beginning of each monthly term a cash payment of $5,000 will be made and 7,500 shares of restricted stock
will be issued. This contract ended in May 2019. 7,500 shares with a fair value of $1.04 were issued in April and 7,500 shares
with a fair value of $0.90 were issued in May totaling $14,550. $13,320 was expensed in relation to cash paid for this agreement
during the three months ended June 30, 2019, including $2,097 released from prepaid expenses at April 1, 2019. Total stock compensation
expense for the three months ended June 30, 2019 was $17,888. There has been no further activity with investor relations company
3 during the three months ended September 30, 2019.
(b) Management Consultancy Agreements
Management Consulting Company
1 - On June 1, 2019, the terms for management consulting company 1 were amended for a four month period from June 1, 2019 to
September 30, 2019, with $40,000 cash paid up front and 27,500 shares issued up front.
During the quarter ended September
30, 2019, $18,434 of opening share prepayment and $30,000 opening cash prepayment were expensed.
Additional agreements were also
entered into with management consulting company 1. An addendum commencing July 17, 2019 for a 90 day period was entered into for
a total of $20,000 fee paid only in cash. $16,304 was expensed during the quarter with $3,696 prepaid at September 30, 2019. An
additional agreement was entered into for the three month period from September to November 2019 for $35,000 fee paid only in cash.
$11,538 of this was expensed in the quarter and $23,462 was treated as a prepaid expense at September 30, 2019.
Management Consulting Company
2 - On January 7, 2019 the Company entered into a six-month contract with management consulting company 2 for the provision
of specialist consulting services. 150,000 restricted shares were issued in May 2019, on the fourth month after commencement of
the original contract. A fair value of $0.94 per share, which was the share price on May 7, 2019 (the first day of the first amendment
of the consulting agreement) was applied as the shares were issued fully and irrecoverably on the first day of the contract. The
cost is being expensed evenly over the five month contract term.
This contract ended on September
30, 2019 and the opening prepayment of $84,600 was expensed during the quarter ended September 30, 2019.
Total stock based
compensation recognized during the three and six months ended September 30, 2019 was $115,410 and $277,664, respectively and
$114,500 for the three and six months ended September 30, 2018.
(c) NASDAQ correspondence
The Company was notified by NASDAQ on July
15, 2019 that the Company no longer meets the requirements of NASDAQ Rule 5550(a)(2) requiring listed securities to maintain a
minimum closing bid price of $1.00 per share. If the closing bid price of the Company’s common stock is $1.00 per share or more
for a minimum of 10 consecutive business days at any time prior to January 11, 2020, the Company will regain compliance.