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 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.
During the fiscal year ended March 31,
2021, the Board of Directors assessed the adequacy of the group’s organizational structure and concluded that the intermediate holding
company that sat below Nemaura Medical Inc., Region Green Limited (a British Virgin Islands corporation), was no longer required as the
entity had been effectively dormant since inception and no longer represented a requirement to be maintained. It was therefore determined
that Region Green Limited should be unwound, with the intention that the assets held by Region Green Limited be transferred up to Nemaura
Medical Inc. following which Region Green Limited would be dissolved.
The transfer of assets took place on March 5, 2021 and Region Green Limited
was formally dissolved as of April 23, 2021.
The following diagram illustrates Nemaura’s
corporate structure as of September 30, 2021:
The Company was incorporated in 2013 and
has reported recurring losses from operations to date and an accumulated deficit of $30,682,660 as of September 30, 2021. These operations
have resulted in the successful completion of clinical programs to support a CE mark (European Union approval of the product) approval,
and a Pre-Market Application (“PMA”) to the U.S. Food and Drug Administration (“FDA”) for sugarBEAT®
is currently under review.
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 decrease over time. Management has entered into licensing, supply, or collaboration agreements
with unrelated third parties relating to the United Kingdom (“UK”), Europe, Qatar, and all countries in the Gulf Cooperation
Council.
Going Concern Considerations
In
accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability
to Continue as a Going Concern, the ongoing loss making position of the Company is considered to demonstrate an adverse condition
that raises substantial doubt about the Company’s ability to continue as a going concern.
Management’s
plans to alleviate the substantial doubt raised as a consequence thereof includes their ability to adjust the timing and quantum of future
operational expenses, revise the loan repayment terms currently in place, and / or pursue additional capital raising opportunities.
Based on this, it is management’s
assessment that the Company has alleviated the risk above and 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.
Following the receipt of the CE mark approval
in the EU, and in support of our plans for similar certification with the FDA in the U.S., our plan is to utilize the cash on hand to
continue establishing commercial manufacturing operations for the commercial supply of the sugarBEAT® device and sensor patches in
our target markets.
Management's strategic plans include
the following:
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support the UK and EU launch of sugarBEAT®;
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obtaining further regulatory approval for the sugarBEAT® device in other
countries such as the U.S.;
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exploring licensing and partnership opportunities in other territories;
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developing the sugarBEAT® device platform for commercialization across
other applications; and
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pursue additional capital raising opportunities as required to accelerate
and support the future development of the business.
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NOTE 2 – BASIS OF PRESENTATION
(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 six months ended September 30, 2021 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, 2021, 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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Derivative Financial Instruments
Derivative financial instruments are used
as part of the overall strategy to manage exposure to foreign currency primarily associated with fluctuations in foreign currency exchange
rates. Derivative financial instruments are included in the consolidated balance sheets and are measured at fair value on a recurring
basis.
The Company is exposed to the impact of foreign
currency exchange fluctuations as a significant proportion of our expenses are incurred within our UK subsidiary which is denominated
GBP, with the remaining portion denominated in USD and a small amount in Euros (“EUR”). In addition to this we hold the majority
of our cash in USD, with amounts also held in GBP and, to a much smaller amount, in EURs. The Company’s objective is to reduce the
volatility associated with these foreign exchange rate changes to allow management to focus our attention on our core business strategy
and objectives. Accordingly, the Company entered into a target accrual redemption forward contract (“TARF”) agreement to sell
USD and buy GBP across 25 defined monthly fixings in order to fix the costs associated with the foreign currency exchange fluctuations
associated with our GBP denominated expenses. These fixings allow for $250,000 to be converted into GBP at a rate of $1.369 subject to
the spot rate on the fixing date being above the fixed rate. Should the spot rate fall below $1.369 on the scheduled fixing date, the
Company is obligated to convert $500,000 to GBP at the fixed rate. The exchange rate range experienced by the Company over the last two
years for USD: GBP has seen a high of approximately $1.163 in March 2020 and a low of approximately $1.423 in June 2021. Cumulative profit
on the sale of USD is capped at an aggregate of approximately $55,000 over the shorter of the life of the contract fixings or the utilization
of the cap.
At September 30, 2021, the Company held a forward
contract to sell up to $11 million, which when remeasured at fair value generated a non-cash item loss of $270,400 which has been accounted
for within General and administrative expenses and on balance sheet within Other liabilities
and accrued expenses. No such similar derivative financial instruments were in place at the fiscal periods ending March 31, 2021 or September
30, 2020.
The Company’s foreign currency forward
contracts are measured at fair value on a recurring basis and are classified as Level 2 under our fair value of financial instruments
policy, as set out in the Annual Report on Form 10-K for the year ended March 31, 2021, as filed with the SEC.
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, 2021, as filed with the SEC on June 29, 2021.
(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 $1.35 million and $1.38
million as of September 30, 2021 and March 31, 2021, respectively), which is wholly non-refundable, upon signing the Marketing
Rights Agreement. The upfront payment received from the Marketing Rights Agreement has been deferred and will be recorded as income over
the term of the Marketing Rights Agreement. Consequently, approximately $124,000
of the $624,000 deferred revenue balance classified as a current liability
as of September 30, 2021 relates to this upfront payment ($103,000 as at March 31, 2021).
The Company received an initial order in April
2021 from the Licensee, against which the Company expects to commence delivery in November 2021. Under the terms of the contact, the Company
was able to issue a “deposit” invoice to cover costs for purchases directly incurred in order to service orders made by the
Licensee, as such an invoice was raised with a net value of approximately $0.5 million. As at September 30, 2021, this invoice has been
treated as deferred revenue within current liabilities with the debit balance being captured within other receivables, the cash payment
for which was received on October 1, 2021 and so no recognition has been made for this during fiscal quarter ended September 30, 2021.
NOTE 4 – RELATED PARTY TRANSACTIONS
Nemaura Pharma Limited (“Pharma”),
NDM Technologies Limited (“NDM”) and Black and White Health Care Limited (“B&W”) are entities controlled by
the Company’s Chief Executive Officer, President, director and majority stockholder, Dewan F.H. Chowdhury. While transactions occurred
during the period between the Company and Pharma, no transactions were recorded with NDM or B&W.
These unaudited condensed consolidated
financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma has a service agreement with
DDL to undertake development, manufacture, and regulatory approvals under Pharma’s ISO13485 accreditation. In lieu of these services,
Pharma invoices DDL on a periodic basis for said services. Services are provided at cost plus a service surcharge amounting to less than
10% of the total costs incurred.
The table below provides a summary of activity
between the Company and Pharma for the six months ended September 30, 2021 and 2020, and the year ended March 31, 2021.
Schedule of Related Party Transactions
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Six Months Ended
September 30, 2021
(unaudited)
($)
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Six Months Ended
September 30, 2020
(unaudited)
($)
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Year Ended
March 31, 2021
($)
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Amounts due to related party at beginning of period
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148,795
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830,093
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830,093
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Amounts invoiced by Pharma to DDL (1)
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1,115,748
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698,300
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2,441,108
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Amounts invoiced by DDL to Pharma
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(2,495
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)
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(7,060
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)
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(17,213
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)
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Amounts paid by DDL to Pharma
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(1,770,942
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)
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(1,388,874
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)
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(3,209,084
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)
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Foreign exchange differences
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5,340
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21,074
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103,891
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Amounts due (from) / to related party at end of period
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(503,554
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)
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153,533
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148,795
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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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NOTE 5 – NOTES PAYABLE
NOTE PURCHASE AGREEMENT 1
On April 15, 2020, the Company entered into a note
purchase agreement (the “Note Purchase Agreement 1”) by and among the Company, DDL, TCL and a third-party investor (the “Investor”).
Pursuant to the terms of Note Purchase Agreement 1,
the Company agreed to issue and sell to the Investor and the Investor agreed to purchase from the Company a secured promissory note (the
“2020 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 “2020 Investor Notes”), and (ii) the Company delivered the 2020 Secured Note on behalf of the Company,
to the Investor, against delivery of the 2020 Purchase Price. For these purposes, the “2020 Purchase Price” means the Investor’s
initial cash purchase price, together with the sum of the initial principal amounts of the Investor Notes.
The 2020 Secured Note is secured by the Collateral
(as hereinafter defined). The 2020 Secured Note carries an original issue discount (“OID”) of $1,000,000 (16.7%). 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 2020 Secured Note (the “Transaction Expense
Amount”). In addition to this, a payment of $325,000 was made to Ascendiant Capital Markets, LLC for structuring the agreement between
both parties. The 2020 Purchase Price for the 2020 Secured Note is $4,675,000, computed as follows: $6,015,000 original principal balance,
less: OID, Transaction Expense Amount, and commission paid.
The borrowing period is 24 months, and the Company
shall pay the outstanding balance and all fees on maturity. A monitoring fee equal to 0.833% of the outstanding balance will automatically
be added to the outstanding balance on the first day of each month. The debt less the discount and transaction expenses will be accreted
over the term of the 2020 Secured Note using the effective interest method.
Security Agreement
On April 15, 2020, the Company entered into the Security
Agreement by the Company, DDL and TCL, in favor of the Investor (the “2020 Security Agreement”). Pursuant to the terms of
the 2020 Security Agreement, the Company granted the Investor a first-priority security interest in all rights, title, interest, claims
and demands of the Company in and to all of the Company’s patents and all other proprietary rights, and all rights corresponding
to the Company’s patents throughout the world, now owned and existing, and all replacements, proceeds, products, and accessions
thereof (the “Collateral”).
NOTE PURCHASE AGREEMENT 2
On February 8, 2021, the Company entered
into an additional note purchase agreement (“Note Purchase Agreement 2”) with the Investor. 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 (the “Secured Note 2”) in the original principal amount of $24,015,000. The Secured Note 2 carries
an OID of $4,000,000 (16.7%), and the Company agreed to pay $15,000 to the Investor to cover the Investor’s transaction expenses.
In addition to this, a commission of $1,200,000 was also payable to Ascendiant Capital Partners, LLC.
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 2021 Purchase Price. For these purposes, the “2021
Purchase Price” means the Investor’s initial cash purchase price. After adjusting for transaction expenses of $1,200,000,
cash proceeds received were $18,800,000.
The borrowing terms for Note Purchase
Agreement 2 are consistent with those of Note Purchase Agreement 1, with the borrowing period being 24 months from the date of the agreement,
the Company being required to pay the outstanding balance and all fees on maturity, and a monitoring fee equal to 0.833% of the outstanding
balance being automatically added to the outstanding balance on the first day of each month. The debt less discount and transaction expenses
will be accreted over the term of the Secured Note 2 using the effective interest rate method.
Security Agreement
On February 8, 2021, the 2020 Security Agreement was
extended to include Note Purchase Agreement 2, which is also secured against all of the Company’s assets owned as of the closing
date and extends to any assets acquired at any time that the Company’s obligations under Secured Note 2 are outstanding.
As of September 30, 2021, long-term debt matures as follows:
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Schedule of long term debt
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Notes Payable
($)
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Within 12 months
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15,829,764
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Within 24 months
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8,794,846
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24,624,610
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NOTE 6 – STOCKHOLDERS’
EQUITY
During the six month period ended September 30, 2021,
366,892 warrants were exercised, generating gross proceeds of $2,963,658. At September 30, 2021, there were 1,573,098 warrants outstanding.
No other shares were issued during this period.
During the six month period ended September 30, 2020,
a total of 408,718 shares of common stock were issued under the ATM Equity Distribution Agreement that was in place at the time with Maxim
Group LLC (this agreement was subsequently terminated in August 2020), which generated gross proceeds of $4,250,676 with associated costs
of $127,520.
On July 30, 2020, the Company also closed an offering
that saw a further 1,586,206 shares of common stock issued through Kingswood Capital Markets (the “Placement Agent”), along
with warrants to purchase up to 793,103 shares of common stock, for a total deal size of approximately $10.7 million, net of the Placement
Agent’s commission and related expenses, excluding any future proceeds from the exercise of the warrants.
During the six month period ended September 30, 2020,
37,933 warrants were exercised, generating $394,475 in additional funds. At September 30, 2020, there were 1,940,740 warrants outstanding.
Loss per share
The following table sets forth the computation
of basic and diluted loss per share for the periods indicated.
Schedule of earnings (loss) per share
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Three months ended September 30,
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Six months ended September 30,
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2021
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2020
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2021
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2020
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($, except share amounts)
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($, except share amounts)
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Net loss attributable to common stockholders
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(3,494,264
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(1,581,217
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(6,837,989
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(2,681,273
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Weighted average basic and diluted shares outstanding
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23,308,049
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22,390,114
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23,209,514
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21,638,907
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Basic and diluted loss per share:
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(0.15
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(0.07
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(0.29
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(0.12
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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, 2021, warrants to purchase 1,573,098 shares of common stock and a unit purchase option to purchase
9,710 shares of common stock, as well as warrants to purchase 9,710 shares of common stock, were considered 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 1,940,740
shares of common stock and a unit purchase option to purchase 9,710 shares of common stock, as well as warrants to purchase 9,710 shares
of common stock, were considered anti-dilutive and were also excluded from the calculation of diluted loss per share.
NOTE 7 – OTHER ITEMS
(a) COVID-19 Pandemic
The outbreak of COVID-19 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 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, 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
monitoring of patients and patient self-monitoring, which potentially enhances the prospects for the Company, its CGM product and its
planned digital healthcare offering.
(b) Management consultancy agreements
During the six month period ended September 30,
2021 and 2020, the Company did not issue any restricted common stock to management consultants; the stock-based compensation expense during
the three month period ended September 30, 2020 of $59,000 related to the release of prepayments and accrued expenses.
(c) Investor relations agreements
The Company has entered into contracts with several
investor relations specialists to help support the ongoing financing activities of the business.
During the six month periods ended September 30, 2021,
and 2020, fees paid for services associated with investor relations across various different providers were $323,000 and $388,000, respectively.
(d) Commitments and contingencies
As a consequence of the services provided
to the Company by Pharma, the Company issued a guarantee in favour of a key third party Pharma supplier, who is only used to support
Pharma’s arrangements with the Company, to secure certain materials that are currently subject to shortages brought on as a
result of COVID-19. This provides for the Company to make payment against any outstanding invoices unto a value of $250,000
should Pharma be unable. This guarantee arrangement is scheduled to extend out to June 2022.
(e) Subsequent events
Nothing noted