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. While the Company’s key operations
and assets are located in England, the Company has recently commenced commercial operations in the United States.
The following diagram illustrates
Nemaura’s corporate structure as of December 31, 2020:
The Company was incorporated in 2013 and
has reported recurring losses from operations to date and an accumulated deficit of $21,714,045 as of December 31, 2020. These
operations have resulted in the successful completion of clinical programs to support approval of a CE mark (European Union approval
of the product) which is managed via an ISO 13485 accredited Quality Management System that is subject to annual audit by the accreditation
body (“BSI”); this accreditation was successfully renewed during November 2020. In addition to this, a medical
device Premarket Approval (“PMA”) application was submitted to the U.S. Food and Drug Administration (“FDA”)
in July 2020; however, we, along with other applicants, have been informed by the FDA that the approval process is currently subject
to delays as a result of the FDA’s Center for Devices and Radiological Health (“CDRH”) being actively engaged
in responding to the current pandemic caused by COVID-19. According to recent notifications received from the FDA, this has resulted
in staff being reallocated to other approval requests associated with COVID-19. As such, the timeline for other, non-COVID-19
related, approvals continues to be adversely impacted. Current guidance provided by the FDA indicates that this staff reallocation
is likely to last at least through mid-April, 2021.
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 after the date of issuance of these unaudited condensed consolidated financial statements.
On April 15, 2020, the Company entered
into a note purchase agreement resulting in net cash proceeds of $4,675,000, as further described in Note 6. The Company
had $14,959,785 of cash at December 31, 2020. The Company believes the cash position as of December 31, 2020, is adequate for our
current level of operations through at least February 2022, and for the achievement of certain of our product development
milestones. Our plan is to utilize the cash 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)
|
Basis of presentation
|
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 nine months ended December 31,
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 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”).
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(b)
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Changes to significant accounting policies
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The Company adopted the Financial
Accounting Standards Board’s 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 (the “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 $1.365 million and $1.240
million as of December 31, 2020 and March 31, 2020, respectively), which is wholly non-refundable, upon signing the Marketing Rights
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 quarter ending June 30, 2021. The upfront fees received from the Marketing Rights Agreement have been deferred and will be
recorded as income over the term of the Marketing Rights Agreement. Consequently, approximately $102,000 and $93,000 of the deferred
revenue has been classified as a current liability as of December 31, 2020 and March 31, 2020, respectively.
NOTE 4 – RELATED PARTY TRANSACTIONS
Nemaura Pharma Limited (“Pharma”),
NDM Technologies Limited (“NDM”) and Black and White Health Care Limited (“B&W”) are entities controlled
by the Company’s Chief Executive Officer, President, director and majority stockholder, Dewan F.H. Chowdhury.
These unaudited condensed consolidated
financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma has a service agreement
with DDL to undertake development, manufacture and regulatory approvals under Pharma’s ISO13485 accreditation. In lieu of
these services, Pharma invoices DDL on a periodic basis for said services. Services are provided at cost plus a service surcharge
amounting to less than 10% of the total costs incurred.
The table below provides a summary of
activity between the Company and Pharma and NDM for the nine months ended December 31, 2020 and 2019, and the year ended March
31, 2020. These amounts are unsecured, interest free, and payable on demand.
|
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Nine Months Ended
December 31, 2020
(unaudited)
($)
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Nine Months Ended
December 31, 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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|
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830,093
|
|
|
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964,679
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|
|
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964,679
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Amounts invoiced by Pharma to DDL, NDM and TCL (1)
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|
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1,859,548
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|
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1,369,272
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|
|
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1,800,517
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Amounts invoiced by DDL to Pharma
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|
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(17,213
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)
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|
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(5,874
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)
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|
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(10,963
|
)
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Amounts paid by DDL to Pharma
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|
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(2,338,701
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)
|
|
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(1,642,019
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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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62,196
|
|
|
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15,970
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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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395,923
|
|
|
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702,028
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|
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830,093
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(1)
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These amounts are primarily incurred as a result of research and development expenses charged to the Company by Pharma.
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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, up to $20,000,000 in shares of its common stock.
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.
During the nine month period ended December
31, 2020, for which the Distribution Agreement was active, a total of 408,718 shares were issued, generating gross proceeds of
$4,250,676 with associated costs of $127,520.
On
July 28, 2020, the Company entered into a placement agency agreement with Kingswood Capital Markets, a division of Benchmark Investments,
Inc., 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 nine month period ended December
31, 2020, 37,933 warrants were exercised, generating $394,475 in additional funds; no warrants were exercised in the three month
period ended December 31, 2020. During the nine month period ended December 31, 2019, 2,500 warrants were exercised generating
funds of $26,000, all of which were exercised during the three month period ended June 30, 2019.
At December 31, 2020, there were 940,740
warrants outstanding.
Effective December 18, 2018, the Company
issued a unit purchase option to Dawson James Securities, Inc., the then placement agent, to purchase 9,710 shares of common stock
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 $13.00.
Loss per share
The following table sets forth
the computation of basic and diluted loss per share for the periods indicated.
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Three months ended December 31,
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Nine months ended December 31,
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2020
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2019
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2020
|
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2019
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Net loss attributable to common stockholders ($)
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|
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(1,446,697
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)
|
|
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(445,007
|
)
|
|
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(4,127,970
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)
|
|
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(2,813,312
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)
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Weighted average basic and diluted shares outstanding
|
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22,922,387
|
|
|
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20,808,050
|
|
|
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22,068,290
|
|
|
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20,798,013
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Basic and diluted loss per share ($):
|
|
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(0.06
|
)
|
|
|
(0.02
|
)
|
|
|
(0.19
|
)
|
|
|
(0.14
|
)
|
|
|
|
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|
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Because the Company is in a loss
position, the Company excludes warrants outstanding, which are anti-dilutive, 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 nine month periods ended December 31, 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. Additionally, for the three and nine month
periods ended December 31, 2020, there were a further 940,740 shares of common stock, respectively, and a unit purchase option
to purchase 9,710 shares of common stock that were considered anti-dilutive and also excluded from the calculation of diluted loss
per share. For the three and nine month periods ended December 31, 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 an unrelated third party (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” 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 nine month periods ended December 31, 2020 was
$378,220 and $920,648, 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 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 nine month period ended December
31, 2020, $59,000 in stock-based compensation was shown as expense in relation to a management consulting company. No stock-based
compensation was provided during the three month period ended December 31, 2020 for these services.
Total stock-based compensation recognized
during the three and nine month periods ended December 31, 2019 was $40,000 and $317,664, respectively.
(c) Investor relations agreements
During the three and nine month periods ended
December 31, 2020, Nemaura entered into an agreement with a third party provider of investor relations services for which $25,000
in stock-based compensation was shown as expense in relation to the services received. The contract for services is for a 12 month
period, with a similar expense expected to be incurred through stock-based compensation in each quarter of this term.
No stock-based compensation expense was incurred
for any similar services for the three or nine month periods ended December 31, 2019.
(d) Subsequent events
On February 8, 2021, the Company
entered into an additional note purchase agreement (“Note Purchase Agreement 2”) with an affiliate of the unrelated
third party who holds the existing Note Purchase Agreement that was issued dated April 15, 2020 (the “Investor”),
see Note 6. Pursuant to the terms of Note Purchase Agreement 2, the Company agreed to issue and sell to the Investor
and the Investor agreed to purchase from the Company, a secured promissory note (“Secured Note 2”) in the original
principal amount of $24,015,000. In consideration thereof, on February 9, 2021 (the “closing date”), (i) the Investor
paid $20,000,000 in cash to the Company, and (ii) the Company delivered Secured Note 2 on behalf of the Company, to the Investor,
against the delivery of the Purchase Price. For these purposes, the “Purchase Price” means the Investor’s
initial cash purchase price. After adjusting for commission expense of $1,200,000, cash proceeds received were $18,800,000.
Secured Note 2 is secured against
all of the Company’s assets owned as of the closing date and extends to any assets acquired at any time that the Company’s
obligations under Secured Note 2 are outstanding.
The Company has taken on this additional,
non-dilutive funding, to enable the acceleration of future revenue growth.