Notes to Condensed
Consolidated Financial Statements
(Unaudited)
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 100% of Region Green Limited, a British Virgin Islands corporation
(“RGL”) formed on December 12, 2013. RGL owns 100% of the stock in Dermal Diagnostic (Holdings) Limited, an England
and Wales corporation (“DDHL”) formed on December 11, 2013, which in turn owns 100% of Dermal Diagnostics Limited,
an England and Wales corporation formed on January 20, 2009 (“DDL”), and 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
wireless transmitter 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, 2020:
The Company
was incorporated in 2013 and has reported recurring losses from operations to date and an accumulated deficit of $20,267,348 as
of September 30, 2020. These operations have resulted in the successful completion of clinical programs to support a CE mark (European
Union approval of the product) approval, as well as a De Novo 510(k) medical device application to the U.S. Food and Drug Administration
(“FDA”). 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 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 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 unaudited condensed consolidated
financial statements. The Company has an $8 million unsecured senior credit facility made available from certain major stockholders
on August 1, 2019. The credit facility is non-dilutive carrying 8% interest with quarterly interest payments only and the principal
being due on maturity in 5 years. No draw down has been made to date.
On April
15, 2020, the Company entered into a note purchase agreement resulting in cash proceeds of $4,675,000; as set out in Note 6.
The Company has $16,948,939 cash at September 30, 2020. The Company believes the cash position as of September 30, 2020, plus
the credit facility made available from certain major stockholders, is adequate for our current level of operations through at
least November 2021, and for the achievement of certain of our product development milestones. Our plan is to utilize
the cash, plus loan draw down if required, to continue establishing commercial manufacturing operations for the commercial supply
of the sugarBEAT™.device and patches now that CE mark approval has been received.
NOTE 2 – BASIS OF PRESENTATION
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(a)
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Basis of presentation
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The
accompanying unaudited 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 months and six
months ended September 30, 2020 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. It is suggested that these unaudited condensed consolidated financial statements 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, 2020, as filed with the SEC.
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 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”).
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(b)
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Changes
to significant accounting policies
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The
Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases, as of April 1, 2020 and the impact of adoption
of this ASU on the Company’s consolidated financial statements is not significant. There have been no other material changes
to our significant accounting policies from those detailed in the Company’s Annual Report on Form 10-K for the year ended
March 31, 2020, as filed with the SEC.
(c)
Recently adopted accounting pronouncements
The Company
continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting
pronouncement affects the Company's financial reporting, the Company undertakes a study to determine the consequences of the change
to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company's consolidated
financial statements properly reflect the change.
This Quarterly
Report on Form 10-Q does not discuss recent pronouncements that are not anticipated to have a current and/or future impact on
the Company, or are unrelated to the Company’s financial condition, results of operations, cash flows or disclosures.
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 (the “Licensee”),
that granted to the Licensee 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 $1.292 million and $1.240 million as of September 30,
2020 and March 31, 2020, respectively), which is wholly non-refundable, upon signing the agreement.
The Company
is in ongoing dialogue with the Licensee about the timing of its plans with respect to its product launch. The current expectation
is for this to occur in the third quarter ending December 31, 2020. The upfront fees received from this agreement have been deferred
and will be recorded as income over the term of the commercial licensing agreement. Consequently, approximately $97,000 and $93,000
of the deferred revenue has been classified as a current liability as of September 30, 2020 and March 31, 2020, respectively.
NOTE 4 –
RELATED PARTY TRANSACTIONS
Nemaura
Pharma Limited (“Pharma”), NDM Technologies Limited (“NDM”) and Black and White Health Care Limited (“B&W”)
are entities controlled by the Company’s Chief Executive Officer, President, director and majority stockholder, Dewan F.H.
Chowdhury.
These
condensed consolidated financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma
has a service agreement with DDL to undertake development, manufacture and regulatory approvals under Pharma’s ISO13485
accreditation. In lieu of these services, Pharma invoices DDL on a periodic basis for said services. Services are provided at
cost plus a service surcharge amounting to less than 10% of the total costs incurred.
The table
below provides a summary of activity between the Company and Pharma and NDM for the six months ended September 30, 2020 and 2019,
and the year ended March 31, 2020. These amounts are unsecured, interest free, and payable on demand.
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Six
Months Ended September 30, 2020
(unaudited)
($)
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Six
Months Ended September 30, 2019
(unaudited)
($)
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Year
Ended March 31, 2020
($)
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Liability due to related parties
at beginning of period
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830,093
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964,679
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964,679
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Amounts invoiced by Pharma to DDL, NM and
TCL (1)
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698,300
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966,425
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1,800,517
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Amounts invoiced by DDL to Pharma
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(7,060
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)
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(814
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)
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(10,963
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)
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Amounts paid by DDL to Pharma
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(1,388,874
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)
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|
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(867,013
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)
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|
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(1,897,222
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)
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Foreign exchange differences
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|
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21,074
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|
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(56,743
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)
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|
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(26,918
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)
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Liability due to related
parties at end of period
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|
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153,533
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|
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1,006,534
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830,093
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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.
No draw down has been made against this facility to date.
The Company
routinely reviews its condensed consolidated statements of cash flows presentation of related party transactions for financing
or operating classification based on the underlying nature of the item and intended repayment.
NOTE
5 – STOCKHOLDERS’ EQUITY
Reverse
stock split
The Company
was notified by The NASDAQ Stock Market (“NASDAQ”) on July 15, 2019 that the Company no longer met the requirements
of NASDAQ Rule 5550(a)(2) requiring listed securities to maintain a minimum closing bid price of $1.00 per share. Thereafter,
the Company effected:
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(i)
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A
reverse split of the Company’s issued and outstanding common stock on a one (1) for ten (10) basis; and
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(ii)
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A
decrease in the Company’s authorized number of shares of common stock on the same basis from 420,000,000 shares of common
stock to 42,000,000 shares of common stock.
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The reverse
stock split and decrease in authorized common stock were effective on December 5, 2019. On December 19, 2019, the Company received
confirmation from NASDAQ that the Company had regained compliance with NASDAQ’s minimum bid price rule and the matter is
now resolved. Amounts are retroactively restated for all periods presented.
Other equity
transactions
On October
19, 2018, the Company entered into an Equity Distribution Agreement (the “Distribution Agreement”) with Maxim Group
LLC, as sales agent (“Maxim”), pursuant to which the Company may offer and sell, from time to time, through Maxim
(the “Offering”), up to $20,000,000 in shares of its common stock. During the six month period ended September 30,
2020, a total of 408,718 shares were issued under the Distribution Agreement, generating gross proceeds of $4,250,676 with associated
costs of $127,520.
On August
8, 2020, pursuant to the terms of the Distribution Agreement, as amended, between the Company and Maxim, the Company provided
notice of termination of the Distribution Agreement, as amended, to Maxim. Accordingly, the Distribution Agreement, as amended,
terminated on August 18, 2020.
On
July 28, 2020, the Company entered into a placement agency agreement with Kingswood Capital Markets, a division of Benchmark Investments,
Inc. (“Kingswood” or the “Placement Agent”), with respect to the issuance and sale of an aggregate of
1,586,206 shares of the Company’s common stock, and warrants to purchase up to 793,103 shares of common stock. Each share
of common stock and accompanying one-half of a warrant were sold for a combined purchase price of $7.25, for a total deal size
of approximately $11.5 million, not including any future proceeds from the exercise of the warrants and before deducting the Placement
Agent fees and offering expenses. Each whole warrant is immediately exercisable at a price of $8.00 per share, subject to adjustment
in certain circumstances, and will expire five years from the date of issuance. The shares of common stock were offered together
with the warrants, but the securities were issued separately and are separately transferable.
The closing
of the offering took place on July 30, 2020 and the net proceeds from the sale of the common stock and warrants were approximately
$10.7 million after deducting the Placement Agent commission and other expenses incurred by the Company as a result of the offering.
During
the six month period ended September 30, 2020, 37,933 warrants were exercised, generating $394,475 in additional funds; no warrants
were exercised in the three month period ended September 30, 2020. During the six month period ended September 30, 2019, 2,500
warrants were exercised generating funds of $26,000, all of which were exercised during the three month period ended September
30, 2019.
At September
30, 2020, there were 940,740 warrants outstanding.
Effective
December 18, 2018, the Company issued a unit purchase option to the Placement Agent to purchase 9,710 shares and 9,710 warrants.
The Company has classified this option as equity. The unit purchase option has a term of three years and an exercise price of
$13.00.
Loss
per share
The
following table sets forth the computation of basic and diluted loss per share for the periods indicated.
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Three months ended September 30,
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Six months ended September 30,
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2020
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2019
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2020
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2019
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Net loss attributable to common stockholders ($)
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(1,581,217
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)
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(1,117,040
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)
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(2,681,273
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)
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(2,368,305
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)
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Weighted average basic and diluted shares outstanding
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22,390,114
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20,802,197
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21,638,907
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20,792,967
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Basic and diluted loss per share ($):
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(0.07
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)
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(0.05
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)
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|
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(0.12
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)
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|
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(0.11
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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
loss per share calculation.
Basic
loss per share is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding
during the period. For the three and six month periods ended September 30, 2020 and 2019, warrants to purchase one million shares
of common stock were anti-dilutive and were excluded from the calculation of diluted loss per share. For the three and six month
periods ended September 30, 2020, warrants to purchase 147,637 and 940,740 shares of common stock, respectively, and a unit purchase
option to purchase 9,710 shares of common stock were considered anti-dilutive and were also excluded from the calculation of diluted
loss per share. For the three and six month periods ended September 30, 2019, the equivalent number of warrants excluded from
this calculation was 185,570 and the unit purchase option was 9,710.
NOTE 6 –
NOTES PAYABLE
On April
15, 2020, the Company entered into a note purchase agreement (the “Note Purchase Agreement”) with Chicago Venture
Partners, L.P. (the “Investor”).
Pursuant
to the terms of the Note Purchase Agreement, the Company agreed to issue and sell to the Investor and the Investor agreed to purchase
from the Company, a secured promissory note (the “Secured Note”) in the original principal amount of $6,015,000. In
consideration thereof, on April 15, 2020 (the closing date), (i) the Investor (a) paid $1,000,000 in cash, (b) issued to the Company
(1) Investor Note #1 in the principal amount of $2,000,000 (“Investor Note #1”), and (2) Investor Note #2 in the principal
amount of $2,000,000 (“Investor Note #2” and together with Investor Note #1, the “Investor Notes”), and
(ii) the Company delivered the Secured Note on behalf of the Company, to the Investor, against delivery of the Purchase Price.
For these purposes, the “Purchase Price” means the Investor’s initial cash purchase price, together with the
sum of the initial principal amounts of the Investor Notes.
The Secured
Note is secured by all patents and related rights and items as defined in the related security agreement within the Secured Note.
The Secured Note carries an original issue discount (“OID”) of $1,000,000. In addition, the Company agreed to pay
$15,000 to the Investor to cover the Investor’s legal fees, accounting costs, due diligence, monitoring and other transaction
costs incurred in connection with the purchase and sale of the Secured Note (the “Transaction Expense Amount”), all
of which amount is included in the initial principal balance of the Secured Note. The Purchase Price for the Secured Note is $5,000,000,
computed as follows: $6,015,000 original principal balance, less the OID, less the commission expense of $325,000, resulting in
cash proceeds of $4,675,000. The debt less the discount will be accreted over the 24-month term of the Secured Note using the
effective interest method. The effective interest rate is 34.3%. A monitoring fee equal to 0.833% of the outstanding balance will
automatically be added to the outstanding balance on the first day of each month. Accretion for the three and six month periods
ended September 30, 2020 was $188,579 and $542,428, respectively.
NOTE
7 – OTHER ITEMS
(a) COVID-19
Pandemic
The outbreak
of COVID-19 originating in Wuhan, China, in December 2019 has since rapidly increased its exposure globally. On March 11, 2020,
the World Health Organization declared the outbreak a pandemic. We continue to monitor the global outbreak of COVID-19 and are
working with our customers, employees, suppliers and other stakeholders to mitigate the risks posed by its spread, COVID-19 is
not expected to have any long-term detrimental effect on the Company’s success. While key suppliers have not been accessible
throughout the whole period of the outbreak, we have been able to be flexible in our priorities and respond favorably to the challenges
faced during the outbreak. We have also seen a surge in the uptake of technologies for remote and patient self-monitoring, which
therefore potentially enhances the prospects for the likes of the Company and its CGM product and planned digital healthcare offering.
(b) Management
consultancy agreements
During
the six month period ended September 30, 2020, $59,000 in stock-based compensation was shown as expense in relation to a management
consulting company as a result of a release of prepaid expenses. This stock-based compensation was issued in the three month period
ended September 30, 2020.
Total stock-based
compensation recognized during the three and six month periods ended September 30, 2019 was $115,410 and $277,644, respectively.
(c) Subsequent
events
None noted
for disclosure.