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 December 31, 2021:
The Company
was incorporated in 2013 and has reported recurring losses from operations to date and an accumulated deficit of $34,114,228 as of December
31, 2021. These operations have resulted in the successful completion of clinical programs to support a CE mark (European Union (the
“EU”) 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 such time that sufficient revenue and margin is generated through licensing
fees or product sales to offset these losses. However, given the completion of the requisite clinical programs combined with the commencement
of revenue recognition during the three month period ended December 31, 2021, these losses are expected to decrease over time. The Company
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 the Financial Accounting Standards Board’s (“FASB”) 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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–
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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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|
–
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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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–
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pursue
additional capital raising opportunities as required to accelerate and support the commercial
development of the business.
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NOTE 2 – BASIS OF PRESENTATION
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(a)
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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, 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. These unaudited condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included
in the Company’s Annual Report on Form 10-K for the year ended March 31, 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”).
|
(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
(“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 December 31,
2021, the Company held a forward contract to sell up to $9.5 million, which when remeasured at fair value generated a non-cash item loss
of $199,522 and has been accounted for within the foreign exchange translation adjustments line within general and administrative expenses
and is held on the Company’s balance sheet within other liabilities and accrued expenses. No such similar derivative financial
instruments were in place at the fiscal periods ended March 31, 2021 or December 31, 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 UK 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 December 31, 2021
and March 31, 2021, respectively), 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, which commenced upon the
first delivery of the sugarBEAT® device to the Licensee in December 2021. Consequently, approximately $135,000, and $103,000 is included
in deferred revenue classified as a current liability as of December 31, 2021 and March 31, 2021, respectively, with the remainder being
shown in the non-current portion of deferred revenue.
Under the terms
of the Marketing Rights Agreement, 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 $500,000, with
the expectation that revenue connected to this deposit invoice would be recognized as product deliveries are made to the Licensee. As
of December 31, 2021, $328,000 has been treated as deferred revenue within current liabilities, with the balance having been recognized
as revenue.
NOTE 4 – RELATED
PARTY TRANSACTIONS
Nemaura Pharma
Limited (“Pharma”), NDM Technologies Limited (“NDM”) and Black and White Health Care Limited (“B&W”)
are entities controlled by the Company’s Chief Executive Officer, President, director and majority stockholder, Dewan F.H. Chowdhury.
While transactions occurred during the period between the Company and Pharma, no transactions were recorded with NDM or B&W.
These unaudited
condensed consolidated financial statements are intended to reflect all costs associated with the operations of DDL and TCL. Pharma has
a service agreement with DDL to undertake development, manufacture, and regulatory approvals under Pharma’s ISO13485 accreditation.
In lieu of these services, Pharma invoices DDL on a periodic basis for said services. Services are provided at cost plus a service surcharge
amounting to less than 10% of the total costs incurred.
The table below
provides a summary of activity between the Company and Pharma for the nine months ended December 31, 2021 and 2020, and the year ended
March 31, 2021.
Schedule of Related Party Transactions
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|
|
|
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|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
December
31, 2021
(unaudited)
($)
|
|
Nine
Months Ended
December
31, 2020
(unaudited)
($)
|
|
Year
Ended
March
31, 2021
($)
|
Amounts due to related party at beginning
of period
|
|
|
148,795
|
|
|
|
830,093
|
|
|
|
830,093
|
|
Amounts invoiced by Pharma to DDL (1)
|
|
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2,114,801
|
|
|
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1,859,548
|
|
|
|
2,441,108
|
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Amounts invoiced by DDL to Pharma
|
|
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(2,495
|
)
|
|
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(17,213
|
)
|
|
|
(17,213
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)
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Amounts paid by DDL to Pharma
|
|
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(2,316,544
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)
|
|
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(2,338,701
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)
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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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(97,149
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)
|
|
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62,196
|
|
|
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103,891
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Amounts due (from) to related
party at end of period
|
|
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(152,592
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)
|
|
|
395,923
|
|
|
|
148,795
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|
|
(1)
|
These amounts are incurred as a result
of research and development expenses combined with costs of manufactured product 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, (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
(“Ascendiant”) 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.
In consideration
thereof, on February 9, 2021, (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 $18,800,000.
The
borrowing terms for Note Purchase Agreement 2 are consistent with those of Note Purchase Agreement 1, with the borrowing period being
24 months from the date of the agreement, the Company being required to pay the outstanding balance and all fees on maturity, and a monitoring
fee equal to 0.833% of the outstanding balance being automatically added to the outstanding balance on the first day of each month. The
debt less discount and transaction expenses will be accreted over the term of the Secured Note 2 using the effective interest rate method.
Security Agreement
On February 8, 2021,
the 2020 Security Agreement was extended to include Note Purchase Agreement 2, which is also secured against all of the Company’s
assets owned as of February 9, 2021 and extends to any assets acquired at any time that the Company’s obligations under Secured
Note 2 are outstanding.
As of December 31, 2021, long-term debt
matures as follows:
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NOTES PAYABLE
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|
|
|
|
|
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Notes
Payable
($)
|
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Within
12 months
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14,850,815
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Within
24 months
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|
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8,712,979
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|
|
|
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23,563,794
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NOTE
6 – STOCKHOLDERS’ EQUITY
During the nine month
period ended December 31, 2021, 366,892 warrants were exercised, generating gross proceeds of $2,963,658. At December 31, 2021, there
were 1,573,098 warrants outstanding. During the three month period ended December 31, 2021, 22,524 shares were sold under the ATM Equity
Distribution Agreement in place with H.C. Wainwright & Co., for total gross proceeds of $118,791, with associated costs of $4,382.
No other shares were issued during the three and nine month periods ended December 31, 2021.
During the nine month
period ended December 31, 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 nine month
period ended December 31, 2020, 37,933 warrants were exercised, generating $394,475 in additional funds; no warrants were issued during
the three month period ended December 31, 2020. At December 31, 2020, there were 1,940,740 warrants outstanding.
Loss
per share
The following
table sets forth the computation of basic and diluted loss per share for the periods indicated.
Schedule of earnings (loss) per share
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|
|
|
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|
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|
|
|
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Three months ended December 31,
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Nine months ended December 31,
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2021
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2020
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2021
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2020
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|
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($, except
per share amounts)
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|
($,
except per share amounts)
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Net loss attributable to common stockholders
|
|
|
(3,431,568
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)
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|
|
(1,446,697
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)
|
|
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(10,269,557
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)
|
|
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(4,127,970
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)
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Weighted average basic and diluted shares outstanding
|
|
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23,313,629
|
|
|
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22,922,387
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|
|
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23,244,345
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|
|
|
22,068,290
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Basic and diluted loss per share:
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|
|
(0.15
|
)
|
|
|
(0.06
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)
|
|
|
(0.44
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)
|
|
|
(0.19
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)
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|
|
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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 nine month periods ended December 31, 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 nine month periods ended December 31,
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, but 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
The Company engages
support from consultants from time to time to support the delivery of its strategic objectives.
During the nine
month period ended December 31, 2021, the Company did not issue any restricted common stock to management consultants. Stock-based compensation
of $59,000 was incurred in the nine month period ended December 31, 2020 in relation to a number of consultants used to facilitate business
development opportunities.
(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
nine month periods ended December 31, 2021, and 2020, fees paid for services associated with investor relations reflected $50,000 and
$25,000 reflected non-cash stock-based compensation, respectively.
(d) Commitments
and contingencies
As a consequence
of the services provided to the Company by Pharma, the Company issued a guarantee in favor 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 up to a value of $250,000
should Pharma be unable. This guarantee arrangement terminates in June 2022.
(e) Subsequent
events
Derivative
Financial Instruments
Effective January
10, 2022, the Company entered into an agreement (i) to terminate the TARF agreement that was entered into on June 10, 2021 to sell USD
and buy GBP as set out in Note 2(b) above, and (ii) to enter into a new TARF agreement.
The new TARF agreement
allows the Company to convert $250,000 into GBP across 25 scheduled fixings at the more favorable rate of $1.359 (as opposed to the previous
TARF rate of $1.369), as long as the spot rate on the day of fixing is above this rate. Should the spot rate be between $1.319 and $1.359,
the Company has the choice to sell the $250,000 at the prevailing spot rate on the day of fixing. If the spot rate were to fall below
$1.319 on the scheduled fixing date, the Company is obligated to convert $500,000 to GBP at the fixed rate. Cumulative profit on the
sale of USD is capped at an aggregate of approximately $46,000 over the shorter of the life of the contract fixings or the utilization
of the cap.
Issuance of
Stock Options to Board Directors
Effective January
28, 2022, 8,000 stock options were granted to each of the five Board Directors. The options vested immediately upon grant with an exercise
price set at the closing market price on the date of grant ($3.98), and an expiration date set at 5 years.
Issuance of Common Stock
The Company issued an aggregate of 750,000
shares of common stock to Tiger Partners Trading L.L.C. (“Tiger”), representing 3.1%
of the Company’s outstanding shares. Of the 750,000
shares, Tiger purchased 375,000
shares of common stock through the Company’s At The Market Offering on Monday, 7th February, and the Company sold a further
375,000
restricted shares to Tiger pursuant to a subscription agreement on Thursday 10th, February.