type html public "-//IETF//DTD HTML//EN"> Form 10-Q

Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(Mark One)


þ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  December 31, 2014

or

¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  

 to


Commission File Number:  333-194857


Nemaura Medical Inc.

(Exact name of small business issuer as specified in its charter)

 

 

NEVADA

 

46-5027260

 

 

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Tax. I.D. No.)

 

 

Charnwood Building,

Holywell Park, Ashby Road,

Loughborough, Leicestershire

LE11 2PU

United Kingdom

(Address of Principal Executive Offices)

 

+ 00 44 1509 222912

(Registrant’s Telephone Number, Including Area Code)


Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  þ  No  o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes þ  Noo  


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.


Large accelerated filer o

  

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

  

Smaller reporting company  þ

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o  No  þ

 

The number of shares of no par value common stock outstanding as of January 31, 2015 was 200,000,000.



  


 



1


Table of Contents



 

NEMAURA MEDICAL INC. 

TABLE OF CONTENTS


 

Page

PART I: FINANCIAL INFORMATION

3

ITEM 1

  

INTERIM FINANCIAL STATEMENTS

3

    

                             

Condensed Consolidated Balance Sheets as of December 31, 2014 (unaudited) and March 31, 2014

3

  

  

Condensed Consolidated Statements of Comprehensive Income/(Loss) for the Three and Nine Months Ended December 31, 2014 and 2013 (unaudited)

4

  

  

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2014 and 2013 (unaudited)

5

  

                             

Notes to Condensed Consolidated Financial Statements (unaudited)

6

ITEM 2

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

12

ITEM 3

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

15

ITEM 4

  

CONTROLS AND PROCEDURES

15

PART II: OTHER INFORMATION

17

ITEM 1

  

LEGAL PROCEEDINGS

17

ITEM 1A

  

RISK FACTORS

17

ITEM 2

  

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

17

ITEM 3

  

DEFAULTS UPON SENIOR SECURITIES

17

ITEM 4

  

MINE SAFETY DISCLOSURES

17

ITEM 5

  

OTHER INFORMATION

17

ITEM 6

  

EXHIBITS

17

SIGNATURES

17




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PART I – FINANCIAL INFORMATION


ITEM 1. INTERIM FINANCIAL STATEMENTS


NEMAURA MEDICAL INC.

Condensed Consolidated Balance Sheets


 

As of December 31,
2014

($)

As of March 31, 2014

($)

 

(Unaudited)

 

ASSETS

 

 

Current Assets:

 

 

Cash

613,608

1,873,141

Prepayments and Other assets

39,724

20,390

Prepayment to Related Party for clinical trials

465,454

-

Total Current Assets

1,118,786

1,893,531

 

 

 

Intangible assets, net of accumulated amortization

115,863

70,781

Tangible fixed assets

6,154

-

Restricted cash

-

85,462

 

122,017

156,243

 

 

 

Total assets

1,240,803

2,049,774

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

Current Liabilities:

 

 

Accounts payable

50,408

1,830

Other liabilities

4,362

6,844

 

 

 

Total current liabilities

                        54,770

8,674

 

 

 

Deferred revenue

1,566,600

1,667,200

 

 

 

Total liabilities

1,621,370

1,675,874

Commitments and contingencies:

 

 

Stockholders’ Equity:

 

 

Common stock, $0.001 par value,

 

 

420,000,000 shares authorized and 200,000,000

200,000

200,000

shares issued and outstanding

 

 

 

 

 

Additional paid in capital

2,924,672

2,924,672

Accumulated deficit

(3,525,791)

(2,741,890)

    Accumulated other comprehensive income (loss)

20,552

(8,882)

Total stockholders’ (deficit) equity

(380,567)

373,900

Total liabilities and stockholders’ equity

1,240,803

2,049,774


See notes to the unaudited condensed consolidated financial statements






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NEMAURA MEDICAL INC.

Condensed Consolidated Statements Of Comprehensive Income/(Loss)

(Unaudited)


 

Three Months Ended
December 31,

Nine Months Ended
December 31,

 

2014

($)

2013

($)

2014

($)

2013

($)

 

 

 

 

 

Revenue:

-

-

-

-

Total revenue

-

-

-

-

 

 

 

 

 

Operating Expenses:

 

 

 

 

Research and development

141,976

172,446

555,795

253,043

General and administrative

16,790

167,750

228,106

171,064

Total operating expenses

158,766

340,196

783,901

424,107

 

 

 

 

 

Loss from operations

(158,766)

(340,196)

(783,901)

(424,107)

 

 

 

 

 

Net loss

(158,766)

(340,196)

(783,901)

(424,107)

 

 

 

 

 

Other comprehensive income:

 

 

 

 

Foreign currency translation adjustment

24,580

(13,460)

29,434

9,906

Comprehensive loss

(134,186)

(353,656)

(754,467)

(414,201)

 

 

 

 

 

Loss per share

 

 

 

 

    Basic and diluted

*        

*

*

*

Weighted average number of shares outstanding

200,000,000

180,000,000

200,000,000

180,000,000


* Per share amounts are less than $0.01




See notes to the unaudited condensed consolidated financial statements



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NEMAURA MEDICAL INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


 

Nine Months Ended
December 31,

 

2014

($)

2013

($)

 

 

 

Cash Flows From Operating Activities:

 

 

Net Loss

(783,901)

(424,107)

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Depreciation and amortization

5,536

2,230

Contributed services to a related party

-

218,863

Changes in assets and liabilities:

 

 

Prepayments and other assets

(21,721)

(2,122)

Accounts payable and other liabilities

49,035

-

Prepayment to related party for clinical trials

(494,491)

-

Net cash used in operating activities

(1,245,542)

(205,136)

 

 

 

Cash Flows From Investing Activities:

 

 

Decrease in restricted cash

85,462

-

Purchase of intellectual property

(57,222)

(10,956)

Purchase of tangible fixed assets

(7,181)

-

Net cash provided by (used in) in investing activities

21,059

(10,956)

 

 

 

Cash Flows From Financing Activities:

 

 

Net cash provided by financing activities

-

-

 

 

 

Net decrease in cash

(1,224,483)

(216,092)

Effect of exchange rate changes on cash

(35,050)

22,433

Cash at beginning of period

1,873,141

200,485

Cash at end of period

613,608

6,826



See notes to the unaudited condensed consolidated financial statements




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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended December 31, 2014

 (Unaudited)


INTERIM FINANCIAL STATEMENTS



NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES


Nemaura Medical Inc. (“Nemaura” or the “Company”), through its operating subsidiaries, performs medical device research and manufacturing of a continuous glucose monitoring system (“CGM”). The CGM system 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 CGM  extracts  analytes, such as glucose, to the surface of the skin in a non-invasive manner to the surface of the skin where it is measured using unique sensors and interpreted using a unique algorithm.


Nemaura is a Nevada holding company organized in 2013 Nemaura owns one hundred percent (100%) of Region Green Limited, a British Virgin Islands corporation formed on December 12, 2013.  Region Green Limited owns one hundred percent (100%) of the stock in Dermal Diagnostic (Holdings) Limited, an England and Wales corporation formed on December 11, 2013, which in turn owns one hundred percent (100%) of Dermal Diagnostics Limited, an England and Wales corporation formed on January 20, 2009 (“DDL”), and one hundred percent (100%) of Trial Clinic Limited, an England and Wales corporation formed on January 12, 2011 (“TCL”).  


DDL is a diagnostic medical device company headquartered in Loughborough, Leicestershire, England, and is engaged in the discovery, development and commercialization of diagnostic medical devices. The Company’s initial focus has been on the development of the CGM device, which consists of a disposable patch containing a sensor, and a non-disposable miniature electronic watch with a re-chargeable power source, which can enable early detection of subtle changes in blood glucose levels.


The following diagram illustrates our corporate and shareholder structure as of December 31, 2014:


[nmi10q123114002.gif]





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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine Months Ended December 31, 2014

(Unaudited)




NOTE 2 -- BASIS OF PRESENTATION


The accompanying financial statements of Nemaura have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at December 31, 2014 and for all periods presented have been made. Certain information and footnote data necessary for fair presentation of financial position and results of operations in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company’s Registration Statement on Form S-1 filed with the Securities Exchange Commission on August 12, 2014. The results of operations for the period ended December 31, 2014 are not necessarily an indication of operating results for the full year.


In the quarter ending June 30, 2014, the Company elected to early adopt Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU has allowed the Company to remove the inception to date information and all references to development stage.


The functional currency for the majority of the Company’s operations is the Great Britain Pound Sterling (“GBP”), and the reporting currency is the US Dollar.



NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


(a)

Economic and political risk


The Company’s operations are conducted in the United Kingdom. Accordingly, the political, economic, and legal environments in the United Kingdom may influence the Company’s business, financial condition, and results of operations.


(b)

Cash and Restricted Cash


The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  Cash and cash equivalents consist primarily of cash deposits maintained in the United Kingdom. From time to time, the Company’s cash account balances exceed amounts covered by the Financial Services Compensation Scheme. The Company has never suffered a loss due to such excess balances. The Company’s restricted cash includes cash held in escrow with use restricted to certain future listing costs.


(c)

Fair value of financial instruments


The Company’s financial instruments primarily consist of cash and accounts payable. As of the period-end dates, the estimated fair values of financial instruments were not materially different from their carrying values as presented, due to their short maturities.  


(d)

Intangible assets


Intangible assets consist of licenses and patents associated with the CGM and are amortized on a straight-line basis, generally over their legal life.





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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine months Ended December 31, 2014

(Unaudited)



NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


(e)

Revenue Recognition


Revenue is recognized when the four basic criteria of revenue recognition are met:  (1) a contractual agreement exists; (2) transfer of rights has been completed; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured.  


The Company may enter into product development and other agreements with collaborative partners. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations.


The Company recognizes up front license payments as revenue upon delivery of the license only if the license has standalone value to the customer. However, where further performance criteria must be met, revenue is deferred and recognized on a straight line basis over the period the Company is expected to complete its performance obligations.


Royalty revenue will be recognized upon the sale of the related products provided the Company has no remaining performance obligations under the agreement.


(f)

Research and Development Expenses


The Company charges research and development expenses to operations as incurred. Research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services. Other research and development expenses include the costs of materials and supplies used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of facilities costs.


(g)

Income taxes


Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income tax assets will not be realized.


The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained.  Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company has elected to classify interest and penalties related to unrecognized tax benefits as part of income tax expense in the Consolidated Statements of Comprehensive Income (Loss).


(h)

Earnings per share


Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. There were no potentially dilutive securities as of December 31, 2014 and 2013.


(i)

Use of estimates


The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results may differ from those estimates.





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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine months Ended December 31, 2014

(Unaudited)



NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


(j)

Foreign currency translation


The functional currency of the Company is the Great Britain Pound Sterling (“GBP”).  The reporting currency is the United States dollar (US$).  Stockholders’ equity is translated into United States dollars from GBP at historical exchange rates.  Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rates prevailing during the reporting period.  

The translation rates are as follows:



 

December 31,

2014

(unaudited)

December 31,

2013

(unaudited)

March 31,

2014

Period end GBP : US$ exchange rate

1.567

1.656

1.667

Average period/yearly GBP : US$ exchange rate

1.601

1.560

1.588



Adjustments resulting from translating the financial statements into the United States dollar are recorded as a separate component of accumulated other comprehensive income in Stockholders’ Equity (Deficit).


(k)

Recent 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.


In May 2014, FASB issued ASU No. 2014-09 “Revenue from Contracts from Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to the exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016 and is to be applied retrospectively.  Early adoption is not permitted. The Company is currently evaluating the new standard and assessing the potential impact on its operations and financial statements.


In February 2013, FASB issued ASU No. 2013-02, “Comprehensive Income: Reporting the Amounts Reclassified Out of Accumulated Other Comprehensive Income” which expanded the disclosure requirements with respect to changes in accumulated other comprehensive income (AOCI). Under this new guidance, companies are required to disclose the amount of income (or loss) reclassified out of AOCI to each respective line item on the statements of earnings where net income is presented. The guidance allows companies to elect whether to disclose the reclassification either in the notes to the financial statements or parenthetically on the face of the financial statements. The adoption did not have a material impact on the Company’s consolidated financial statements.


In August 2014, the FASB issued ASU No. 2014-14, “Presentation of Financial Statements – Going Concern: Disclosures about an Entity’s Ability to Continue as a Going Concern.” The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The new guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter. The Company is currently assessing the impact of the adoption of the ASU No. 2014-15 on its financial position, results of operations and financial statements disclosures.





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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine months Ended December 31, 2014

(Unaudited)



NOTE 4 – LICENSING AGREEMENT


In March 2014, the Company entered into an Exclusive Marketing Rights Agreement with an unrelated third party that granted to the third party the exclusive right to market and promote the CGM and related patches under its own brand in the United Kingdom and the Republic of Ireland. The Company received a non-refundable, upfront cash payment of GBP 1,000,000 (approximately $1.57 million and $1.67 million as of December 31, 2014 and March 31, 2014 respectively), which is wholly non-refundable, upon signing the agreement. A supply cost for goods agreement will be finalized upon product approval and prior to launch, as part of the full commercial licensing agreement also to be signed closer to product approval and launch. 


As the Company has continuing performance obligations under the agreement, the upfront fees received from this agreement have been deferred and will be recorded as income over the term of the commercial licensing agreement.


In April 2014, a Letter of Intent was signed with the third party, which specified a 10 year term. This relates to a Full Commercial Licensing agreement.



NOTE 5 – CASH


As of December 31, 2014 and March 31, 2014, the Company held $613,608 and $1,873,141 in cash, respectively.



NOTE 6 – INTANGIBLE ASSETS


Intangible assets are summarized as follows:





December 31,

2014

(unaudited)

($)

March 31,

2014


($)

Patents and licenses

131,226

87,655

Less accumulated amortization

(15,363)

(16,874)

 

115,863

70,781


Estimated amortization expense is approximately $7,000 for each of the next five years.



NOTE 7 – RELATED PARTY TRANSACTIONS


Nemaura Pharma Limited (Pharma) and NDM Technologies Limited (NDM) are entities controlled by the Company’s majority shareholder Dewan FH Chowdhury.


From inception, Pharma invoiced DDL and TCL for research and development services. In addition, certain operating expenses of DDL and TCL were incurred and paid by Pharma and NDM. In accordance with the United States Securities and Exchange Commission (SEC) Staff Accounting Bulletin 55, these financial statements reflect all costs associated with the operations of DDL and TCL. While certain costs incurred by Pharma and NDM are directly attributable to DDL and TCL, other costs were shared between the organizations. In situations where the costs were shared, expense has been allocated between Pharma and NDM and DDL and TCL using a fixed percentage allocation. Management believes the methodologies used are reasonable and that the costs allocated are not materially different from what they would have been had Pharma and NDM been unaffiliated entities. DDL and TCL advanced Pharma certain amounts to cover a portion of the costs. The remaining amounts were contributed to the Company in the form of contributed services.






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NEMAURA MEDICAL INC.

Notes to Condensed Consolidated Financial Statements

Three and Nine months Ended December 31, 2014

(Unaudited)


NOTE 7 – RELATED PARTY TRANSACTIONS (continued)


Following is a summary of activity between the Company and Pharma and NDM as of December 31, 2014 (unaudited) and March 31, 2014:


 

Nine Months Ended

December 31, 2014

(unaudited)

($)

Year Ended

March 31, 2014


($)

Balance due (to) Pharma and NDM at beginning of period

-

-

Amounts advanced to Pharma

578,409

325,092

Amounts received from Pharma

(1,567)

(149,280)

Amounts invoiced by Pharma to DDL and TCL

(110,106)

(557,670)

Expenses paid by Pharma on behalf of DDL and TCL

-

(28,574)

Assets contributed by Pharma on behalf of DDL and TCL

-

(7,327)

Capital contribution by Pharma (excess of expenses paid over amounts advanced)

-

420,401

Foreign exchange differences

 (1,282)

(2,642)

Balance due from (to) Pharma and NDM at end of the period

465,454

-



Advances to Pharma as of December 31, 2014 consist of amounts advanced in connection with the Company’s planned clinical trials. These advances are expected to be expensed in the fourth quarter of fiscal 2015, as clinical trials commence.


In addition, the Company engaged a related party, One-E Consulting Limited, to provide certain consulting services, in the amount of $4,453 related to the Company’s public listing transaction.  Bashir Timol serves as Strategic Director of One-E Consulting Limited.  Mr. Timol is also a Director of the Company.







11


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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Management's plans and basis of presentation:


The  Company  has  experienced  recurring  losses  and  negative  cash  flows  from  operations. At December 31, 2014, the Company had cash of $613,608, working capital of $1,064,016, stockholders' deficit of $380,567 and an accumulated deficit of $3,525,791. To date, the Company has funded its operations through the issuances of equity, UK government grants and contributions of services from related entities.  The Company  expects  to  continue  to  incur  losses  from  operations  for  the  near-term  and  these  losses  could  be significant as product development,  clinical and regulatory  activities,  consulting  expenses  and other product  development  related expenses are incurred.


We believe that our current working capital position is sufficient to continue the ongoing clinical studies during this fiscal year. Our cash on hand is also sufficient to maintain our basic operations to December 2015.

During this reporting period we obtained conformance notifications from the Drug Controller General India (DCGI, the Indian regulatory authority for approval of drugs and medical devices), and Ethics approvals in multiple clinics in India, and the first stage of a 140 patient study was commenced in some of these clinics. This study is expected to run for 6-9 months depending on patient recruitment rates. We filed our algorithm patent in all major global territories, and filed an International patent (PCT) titled: Characterisation of Biological Substances. Furthermore during this period we submitted an application for the first CE approval to the notified body Intertek. We plan to commence scale-up manufacturing during the fourth fiscal quarter of 2015.


We continue to actively pursue various funding options, including equity offerings and debt financings, to obtain additional funds to continue the development of our products and bring them to commercial markets. We are closely monitoring our cash balances, cash needs and expense levels.


Management's strategic plans include the following:


It is our goal  to lead in the discovery, development and commercialization of innovative and targeted diagnostic medical devices that improve disease monitoring, management and overall patient care. We plan to take the following steps to implement our broad business strategy post-approval:


·

Develop our own specialty sales and marketing teams to market the CGM Watch in the European Union. We intend to develop specialty sales teams and/or enter into licensing agreements with established marketing companies for production and distribution of our product in the European Economic Area. We have a marketing rights agreement for the UK and Republic of Ireland with DB Pharma (Jersey) Ltd.


·

Expand the indications for which the CGM Watch may be used. We believe that the CGM Watch may offer other significant benefits other than those found in the non-acute setting for the monitoring of other diseases. This includes monitoring of lactic acid for performance athletics, and the monitoring of drugs. Initial proof of concept will be completed in laboratory settings followed by a clinical program.


·

Expand our product pipeline through our proprietary platform technologies, acquisitions and strategic licensing arrangements. We intend to leverage our proprietary platform technologies to grow our portfolio of product candidates for the diagnosis of diabetes and other diseases. In addition we intend to license our product and acquire products and technologies that are consistent with our research and development and business focus and strategies.


Results of Operations


Comparative Results for the Nine Months Ended December 31, 2014 and 2013


Revenue


In March 2014, we received an upfront non-refundable cash payment of GBP 1,000,000 (approximately $1.67 million) in connection with an Exclusive Marketing Rights Agreement with an unrelated third party that provides the third party the exclusive right to market and promote the CGM and related patch under its own brand in the United Kingdom and the Republic of Ireland.  We have deferred this licensing revenue until we complete our continuing performance obligations, which include securing successful CE marking of the CGM patch. We expect to record the revenue in income over an approximately 10 year term from the date CE marking approval is obtained.  Although the revenue is deferred at December 31, 2014, the cash payment became immediately available and will be used to fund our operations, including research and development costs associated with obtaining the CE marking approval.




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Research and Development Expenses

 

Research and development expenses were $555,795 and $253,043 for the nine month periods ended December 31, 2014 and 2013, respectively. The increase is due to the increased activity, mostly subcontracted, relating to preparation for our Ethics submission and our initial European Conformity Approval submission.  We expect research and development expenses to increase in future periods as we continue our clinical studies of our CGM Watch and pursue our strategic opportunities.


General and Administrative Expenses

 

General and administrative expenses were $228,106 and $171,064 for the periods ended December 31, 2014 and 2013, respectively.  General and administrative expenses increased approximately $57,000, primarily due to the ongoing costs associated with our audit and legal expenses related to the registration process with the Securities and Exchange Commission (“SEC”). We expect general and administrative expenses to increase going forward in the long term, as we move our technologies forward toward commercialization and incur additional costs and expenses related to ongoing compliance with SEC reporting.


Effects of exchange rate

 

For the periods ended December 31, 2014 and 2013 we had exchange rate fluctuations that affected our cash flows.  For the nine month periods ended December 31, 2014 and 2013, the effects of changes in foreign exchange rates on cash were ($35,050) and $22,433, respectively.



Comparative Results for the Three Months Ended December 31, 2014 and 2013


Revenue

 

There were no sales recognized in the quarters to December 2014 or 2013.


Research and Development Expenses

 

Research and development expenses were $141,976 and $172,446 for the three months ended December 31, 2014 and 2013, respectively. The decrease is due to the stage of development reached. More work was carried out in house in the quarter to December 2014 compared to the comparative period. We expect research and development expenses to increase in future periods as we continue our clinical studies of our CGM Watch and pursue our strategic opportunities.


General and Administrative Expenses

 

General and administrative expenses were $16,790 and $167,750 for the three months ended December 31, 2014 and 2013, respectively.  General and administrative expenses decreased approximately $156,000 as the quarter to December 2013 contained costs relating to the initial work being carried out towards our listing. Advisor and management fees were significant as a result. No significant one time fees feature in the quarter to December 2014. We expect general and administrative expenses to increase going forward in the long term, as we move our technologies forward toward commercialization and incur additional costs and expenses related to ongoing compliance with SEC reporting.


Liquidity and Capital Resources


We have experienced net losses and negative cash flows from operations since our inception.  We have sustained cumulative losses of $3,525,791 through December 31, 2014 as technical development has continued since March 31, 2014. We have historically financed our operations through the issuances of equity, UK government grants, and contributions of services from related entities.


We continue to actively pursue various funding options, including equity offerings and debt financings, to obtain additional funds to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be able to consummate any fund raising transactions on terms acceptable to us or at all.


Our cash position was $613,608 as of December 31, 2014, and is adequate for our current level of operations through to the end of the calendar year 2015, and for the achievement of certain of our product development milestones.  





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Through December 2014, we have incurred expenditures of approximately $67,000, and  $45,000, related to our submission for ethics approval and our CE approval, respectively. We advanced approximately $578,000 to Nemaura Pharma in connection with our milestone related to clinical studies in Type I and Type II Diabetic Subjects. Applications for ethics approval have been submitted to the Dubai Health authority and the UK MHRA (Medicines and Health Products Regulatory Agency), and two Clinical Centres in India with appropriate notification to the DCGI (Drug Controller General of India). Furthermore, 70 CGM devices have been manufactured and tested in preparation for the clinical studies, and request for CE (European Conformity) approval review was submitted in the second fiscal quarter of 2015 to the Notified body Intertek in the UK, for the initial proposed CE approval using literature based clinical evaluation. While our current cash level is sufficient for the commencement of the clinical studies and the initial scale up of our manufacturing, the completion of those milestones by the stated product development target dates is contingent upon our ability to raise additional funds.  This may include a combination of debt, equity and licensing fees.  If we are not successful in raising the funds needed in the specified timelines, the target dates for the achievement of the milestones will be extended.


There are no assurances that we will be able to raise additional capital as may be needed and meet our projections for operating expenses.   If we are unable to raise additional capital, our liquidity will be materially adversely affected and we may be forced to cease or significantly delay our clinical trials.


We believe that the successful growth and operation of our business is dependent upon our ability to obtain adequate sources of debt or equity financing to pay for our operating expenses and to fund our long-term business strategy.

 

There can be no assurance that we will be successful in achieving our long-term plans as set forth above, or that such plans, if consummated, will enable us to obtain profitable operations or continue in the long-term.

 

Net cash used by our operating activities for the nine months ended December 31, 2014 was $1,245,542 which reflected our net loss of $783,901 together with an increase in accounts payable of $49,035 and an increase in prepayments to a related party of $494,491.  Net cash used in operating activities for the period ended December 31, 2013 was $205,136, which reflected our net loss of $424,107 together with contributed services from a related party of $218,863.


Net cash provided by investing activities was $21,059 for the nine months ended December 31, 2014, which reflected a decrease in restricted cash less expenditure on fixed assets and intellectual property.  For the nine months ended December 31, 2013, net cash used in investing activities was $10,956 which reflected the purchase of intellectual property.


Critical Accounting Policies


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with research and development, income taxes and intangible assets.

 

The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. In order to get a full understanding of the Company’s financial statements, one must have a clear understanding of the accounting policies employed. A summary of the Company’s critical accounting policies follows:


Research and Development Expenses:  The Company charges research development expenses to operations as incurred.  Research and Development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services.  Other research and development expenses include the costs of materials and supplies used in research and development, prototype manufacturing, clinical studies, related information technology and an allocation of facilities costs.

 

Income taxes:  Income taxes are accounted for under the asset and liability method.  Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss carry forwards.  Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.  The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion, or all, of the deferred income tax assets will not be realized.


The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized.  Changes in




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recognition or measurement are reflected in the period in which the change in judgment occurs.  The Company has elected to classify interest and penalties related to unrecognized tax benefits as part of income tax expense in the consolidated statements of comprehensive income (loss).


Intangible Assets:    Intangible assets primarily represent legal costs and filings associated with obtaining patents on the Company’s new discoveries. The Company amortizes these costs over the shorter of the legal life of the patent or its estimated economic life using the straight-line method. The Company tests intangible assets with finite lives upon significant changes in the Company’s business environment and any resulting impairment charges are recorded at that time.


Revenue Recognition:  Revenue is recognized when the four basic criteria of revenue recognition are met:  (1) a contractual agreement exists; (2) transfer of rights has been completed; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured.   


The Company may enter into product development and other agreements and with collaborative partners. The terms of the agreements may include non-refundable signing and licensing fees, milestone payments and royalties on any product sales derived from collaborations.


The Company recognizes up front license payments as revenue upon delivery of the license only if the license has stand-alone value to the customer. However, where further performance criteria must be met, revenue is deferred and recognized on a straight line basis over the period the Company is expected to complete its performance obligations.


Royalty revenue will be recognized upon the sale of the related products provided the Company has no remaining performance obligations under the agreement.


Recently issued accounting pronouncements:  See Note 3 – Summary of Significant Accounting Policies to the accompanying financial statements for recently issued accounting pronouncements.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rates

As a smaller reporting company we are not required to provide information required by this Item

 


ITEM 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


Mr. Dewan F.H, Chowdhury, who is our  Chief Executive Officer and our Principal Financial and Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on this evaluation, management concluded that our disclosure controls and

procedures were not effective at the reasonable assurance level due to a material weakness in our internal control over financial reporting, which is described below.





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Changes in Internal Control over Financial Reporting


In connection with the preparation of our financial statements for the fiscal year ended March 31, 2014, we concluded there was a material weakness in the design and operating effectiveness of our internal control over financial reporting.  We have begun to establish a number of remediation measures, which we believe will remediate the material weaknesses identified, if such measures are effectively implemented and maintained.  As of the end of the period covered by the report, we continue the process of implementing and maintaining the remediation measures, but we cannot assure when or if we will be able to successfully implement these remedial measures. 


A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The primary factors contributing to the material weakness, which relates to our financial statement close process, were:


·

Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. Specifically, there is limited review of financial reporting and policies and procedures have not yet been implemented to analyze, document, monitor and report on non-routine and complex transactions that require management estimation or judgment.


·

Related party transactions. Specifically, there are limited controls over the authorization, recording and disclosure of related party transactions.


 We have begun taking steps and plan to take additional measures to remediate the underlying causes of the material weakness, primarily through the development and implementation of formal policies, improved processes and documented procedures, as well as the hiring of additional finance personnel.



Notwithstanding the identified material weakness, management believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.






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PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


None.


ITEM 1A.  RISK FACTORS

 

None.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None.

 

ITEM 4. MINE SAFETY DISCLOSURES


Not Applicable.


ITEM 5. OTHER INFORMATION

 

None.


ITEM 6. EXHIBITS


The exhibits listed on the Exhibit Index below are provided as part of this report.


Exhibit No.

Document Description

31.1

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

101

Interactive Data Files (1)


(1)  Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed by the Company for purposes of Section 18 or any other provision of the Exchange Act of 1934, as amended.


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.



  

NEMAURA MEDICAL INC.

  

    

  Dated:  February 12, 2015

/s/ Dewan F H Chowdhury

 

Dewan F H Chowdhury


Chief Executive Officer (Principal Executive Officer) and  Chief Financial Officer (Principal Financial Officer )






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