Nemaura Medical Inc. - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2023

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File Number: 001-38355

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 ☒  No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒   No o

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes o No ☒

The number of shares of common stock, par value $0.001 per share, outstanding as of August 14, 2023 was 28,899,402.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical fact, included in this Quarterly Report on Form 10-Q regarding development of our strategy, future operations, future financial position, projected costs, prospects, plans and objectives of management are forward-looking statements. Forward-looking statements may include, but are not limited to, statements about:

• any statements of the plans, strategies and objectives of management for future operations;
• any statements concerning proposed new products, services or developments;
• any statements regarding future economic conditions or performance;
• our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others;
• our estimates regarding the sufficiency of our cash resources and our need for additional funding;
• any statement that our business, financial condition and results of operations may be materially adversely affected by global health epidemics, including the recent COVID-19 pandemic; and
• any statement regarding the effectiveness of our continuous temperature monitoring system to assist with the diagnosis and monitoring of symptoms of COVID-19 or the effectiveness of our continuous lactate monitoring system (CLM) to monitor disease progression in COVID -19 patients.

The words "believe," "anticipate," "design," "estimate," "plan," "predict," "seek," "expect," "intend," "may," "could," "should," "potential," "likely," "projects," "continue," "will," and "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. We cannot guarantee that we actually will achieve the plans, intentions or expectations expressed in our forward-looking statements and you should not place undue reliance on these statements. There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. These factors and the other cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all related forward-looking statements whenever they appear herein. Except as required by law, we do not assume any obligation to update any forward-looking statement. We disclaim any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

NEMAURA MEDICAL INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

See notes to the unaudited condensed consolidated financial statements.

See notes to the unaudited condensed consolidated financial statements.

NEMAURA MEDICAL INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

Three Months Ended June 30, 2023 and 2022 (Unaudited) 

See notes to the unaudited condensed consolidated financial statements.

See notes to the unaudited condensed consolidated financial statements.

 NEMAURA MEDICAL INC.
Notes to Condensed Consolidated Financial Statements

For the Three Months Ended June 30, 2023 and 2022
(Unaudited)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the three months ended June 30, 2023, the Company recorded a net loss of $2,603,154 and used cash in operations of $2,521,327. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm in its report on the Company’s March 31, 2023 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In evaluating the going concern position of the company, management has considered potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. Subsequent to June 30, 2023, on August 10, 2023, the Company agreed to issue a note payable for $7,810,000 and net proceeds of $6,500,000 (see Note 5).

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of 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 presentation of the financial condition and results of operations for the interim periods. The results for the three-months ended June 30, 2023 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, 2023, 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”). Financial statements for foreign subsidiaries are translated into USD using period end exchange rates for assets and liabilities and average exchange rates for each period for revenue, costs and expenses.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant estimates include the assumptions used in the accrual for potential liabilities, the net realizable value of inventory, the valuation of debt and equity instruments, the fair value of derivative liabilities, valuation of stock options issued for services, and deferred tax valuation allowances. Actual results may differ from those estimates. 

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Cash and cash equivalents

Cash and cash equivalents consists primarily of cash deposits maintained in the United Kingdom (“UK”). We maintain cash balances in U.S. Dollar (“USD”), Great Britain Pound Sterling (“GBP”), and the Euro. The following table, reported in USD, disaggregates our cash balances by currency denomination:

Inventory

As of June 30, 2023 and March 31, 2023, inventory consisted of the following:

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out (“FIFO”) basis. For the three-months ended June 30, 2023 and 2022, there were no write-downs of inventory.

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.

Loss per share

Basic loss per share is computed by dividing the loss available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity.

Since the effects of outstanding options and warrants are anti-dilutive for the three months ended June 30, 2023 and the year ended March 31, 2023, shares of common stock underlying these instruments have been excluded from the computation of loss per common share.

The following sets forth the number of shares of common stock underlying outstanding options and warrants as of June 30, 2023 and June 30, 2022:

Stock-Based Compensation

The Company periodically issues share-based awards to employees and non-employees and consultants for services rendered. Stock options vest and expire according to terms established at the issuance date of each grant. Stock grants are measured at the grant date fair value. Stock-based compensation cost is measured at fair value on the grant date and is generally recognized as a charge to operations ratably over the requisite service, or vesting, period.

The Company values its equity awards using the Black-Scholes option-pricing model, and accounts for forfeitures when they occur. Use of the Black-Scholes option pricing model requires the input of subjective assumptions, including expected volatility, expected term, and a risk-free interest rate. The expected volatility is based on the historical volatility of the Company’s common stock, calculated utilizing a look-back period approximately equal to the contractual life of the stock option being granted. The expected life of the stock option is calculated as the mid-point between the vesting period and the contractual term (the “simplified method”). The risk-free interest rate is estimated using comparable published federal funds rates.

Fair Value of Financial Instruments

The authoritative guidance with respect to fair value established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels and requires that assets and liabilities carried at fair value be classified and disclosed in one of three categories, as presented below. Disclosure as to transfers in and out of Levels 1 and 2, and activity in Level 3 fair value measurements, is also required. Fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties.

The three levels of the fair value hierarchy are as follows:

Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.

Level 3 - Valuations based on inputs that are unobservable, supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Foreign exchange contract derivative liability are valued using Level 2 fair values while the warrant liability are valued using Level 3 fair values.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets and liabilities at fair value as of June 30, 2023 and March 31, 2023:

The following table provides a roll-forward of the warrant derivative liability measured at fair value on a recurring basis using unobservable level 3 inputs for the three months ended June 30, 2023:

As of June 30, 2023 and March 31, 2023, the Company’s outstanding warrants were treated as derivative liabilities and changes in the fair value were recognized in earnings (see Note 3).

The Company believes the carrying amounts of certain financial instruments, including cash, accounts receivable, and accounts payable and accrued liabilities, approximate fair value due to the short-term nature of such instruments and are excluded from the fair value tables above.

Reclassification

In presenting the Company’s condensed consolidated statement of operations for the three months ended June 30, 2022, the Company presented $839,584 change in fair value of foreign exchange derivative liability as part of General and administrative expense. In presenting the Company’s condensed consolidated statement of operations for the three months ended June 30, 2023, the Company has reclassified the $839,584 to Other income (expense) in the accompanying condensed consolidated statement of operations for the three months ended June 30, 2022. The reclassification had no effect on the previously reported amounts for net loss, cash flows, or net loss per share for the three months ended June 30, 2022, or financial position as of June 30, 2022.

Recent accounting pronouncements

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements. 

NOTE 2 – RELATED PARTY TRANSACTIONS

DDL has a service agreement with Nemaura Pharma Limited (“Pharma”), an entity controlled by the Company’s President and Chief Executive officer, to provide development, manufacture, and regulatory approval process under Pharma’s ISO13485 accreditation. Pharma invoices DDL for these services on a cost-plus basis.

The table below provides a summary of activity between the Company and Pharma for the three months ended June 30, 2023 and 2022.

NOTE 3 – DERIVATIVE LIABILITIES

Warrant liability  

In January 2023, the Company completed an equity offering, which included the issuance of 4,796,206 warrants. Upon the occurrence of certain transactions (“Fundamental Transactions,” as defined), the warrants provide for a value determined using a Black Scholes model with inputs calculated as described in the warrant agreement which includes a 100% floor on the volatility input to be utilized. The Company has determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company’s own equity shares. Accordingly, pursuant to ASC 815, the Company has classified the fair value of the warrants as a liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The warrant liability was valued at the following dates using a Black-Scholes model with the following assumptions:

The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility was determined based on the historical volatility data of the Company, and the expected term of the warrants granted are determined based on the duration of time the warrants are expected to be outstanding. The dividend yield on the Company’s warrants is assumed to be zero as the Company has not historically paid dividends.

Foreign exchange contract liability

The Company is exposed to the impact of foreign currency exchange fluctuations as a significant proportion of its expenses are denominated in GBP, and the Company’s cash is in USD and GBP. In February 2021, the Company entered into a forward contract to sell USD and buy GBP. The contract meets the definition of a derivative subject to the guidance of ASC 815, does not qualify for hedge accounting, and accordingly is recognized at fair value, with changes in fair value recognized in earnings.

The term of the contract is 25 months, beginning July, 2022, and ending August, 2024. The contract initially had a maximum notional amount of $6,250,000 (and a maximum leveraged amount equal to two times the notional amount, or$12,500,000). $250,000 of the contractual notional amount is settled (expires) each month through August 2024. On each monthly settlement date, if the USD/GBP spot rate is above $1.359, the Company has the right to convert $250,000 USD into GBP at a fixed rate of $1.359. If the spot rate is between $1.359 and $1.319 on the settlement date, the Company has no obligations, but can convert $250,000 USD into GBP at the spot rate. Finally, if the spot rate is below $1.319 on the monthly settlement date, the Company is obligated to convert $500,000 USD (the settlement date leveraged amount) into GBP at the fixed rate of $1.359. Alternatively, instead of selling $500,000 USD, the Company can pay the difference in the spot rate and the $1.359 exchange rate for $500,000 USD (net settle) to the counterparty. 

At June 30, 2023 and March 31, 2023, the fair value of the foreign currency contract liability was valued as follows:

The Company’s foreign currency forward contracts are measured at fair value on a recurring basis and are classified as Level 2 fair value measurement. As of June 30, 2023, and March 31, 2023, the Company has deposited $390,173 and $909,666, respectively, as collateral with the counterparty related to the foreign currency forward contract. 

NOTE 4 – NOTES PAYABLE

NOTE PURCHASE AGREEMENT 2

On February 8, 2021, the Company issued a note payable (“Note Purchase Agreement 2”, “Note 2”) to a third-party investor.  The note was for $24,015,000, originally matured on February 9, 2023, and is secured by all the assets of the Company. The Company agreed to make principal payments beginning in August 2021 of $400,000 monthly, which increased in February 2022 to $2,000,000 monthly. In addition, the Company is required to accrue a monthly PIK fee equal to 0.833% of the outstanding balance, which is in substance interest at an annual rate of approximately 10%, that is added to the note principal each month.

In May 2022, Note 2 was amended to reduce principal payments from $2,000,000 a month to $500,000 a month. In October 2022 Note 2 was again amended to extend the maturity from February 9, 2023 to July 1, 2024, and to increase principal payments to $1,000,000 per month beginning in March 2023. In consideration, the Company agreed to pay aggregate fees of $2,304,539 to the investor which were added to the principal balance of Note 2.

NOTE PURCHASE AGREEMENT 3 

On May 20, 2022, the Company issued a note payable (“Note Purchase Agreement 3”) with a third-party investor. The note was for $6,015,000, matures on May 20, 2024, and is secured by all the assets of the Company. The Company received cash proceeds of $4,700,000, resulting in a discount of $1,315,000 made up of an original issue discount (“OID”) of $1,000,000, commission of $300,000 that was paid from proceeds, and $15,000 to cover transaction expenses. In addition, the Company is required to accrue a monthly PIK fee equal to 0.833% of the outstanding balance, which is in substance interest at an annual rate of approximately 10%, that is added to the note principal each month. The debt less discount and transaction expenses will be accreted over the term of the note using the effective interest rate method. 

March 31, 2023, the unamortized debt discount was $767,083. During the three-month period ended June 30, 2023, debt discount amortization of $164,375 was recorded. At June 30, 2023, the unamortized debt discount was $602,708.

NOTE 5 – SUBSEQUENT EVENTS

Note Purchase Agreement

In August 2023, the Company agreed to issue a secured promissory note (“Note Agreement 4”) in the original principal amount of $7,810,000, that matures in August 2025, and is secured by substantially all the assets of the Company. The note carries an original issue discount (“OID”) of $1,300,000 (16.7%). In addition, a monitoring fee equal to 0.833% of the outstanding balance, which is in substance interest at an annual rate of approximately 10%, will be automatically added to the note principal each month. Net proceeds of Note Agreement 4 will be $6,500,000, after deducting $10,000 of transaction fees.

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

You should read the following discussion in conjunction with the Unaudited Condensed Consolidated Financial Statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected, or implied in the forward-looking statements. See "Cautionary Statement Concerning Forward-Looking Statements" below, and "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended March 31, 2023, as filed with the Securities and Exchange Commission, as the same may be updated from time to time, for a discussion of the uncertainties, risks and assumptions associated with these statements.

Overview

Business Review and Outlook

It is management’s view that the Company made good progress during and after the fiscal year ended March 31, 2023, and some of the key developments are listed as follows:

Management is working towards fulfilling the remainder of the UK licensees’ initial orders and supporting MSW’s UK launch plans, and for potential supplies to fulfill the provisional purchase order for the KSA from TPMENA. The company continues to also develop capabilities to develop and service new channels of business across other geographic markets via the use of our BEAT platform. To this end the company is now actively planning product launch in other territories that accept the CE mark registration. In addition, the company is seeking to exploit its product platform in the consumer space. All of these avenues are expected to strengthen revenue generation in future periods.

In line with this view, the Company has taken the following actions during and after the fiscal year ended March 31, 2023:

Affiliated Company Relationships

Pharma was incorporated in November 2005. Through October 2013, all technology development and related transactions were incurred by Pharma. As new technology platforms were invented and developed, additional companies were set up to contain these new technology platforms, and to aid in the process of raising further investments to progress the development of these subsequent technologies. However, due to the small size of the operations, low number of employees and laboratory and office space required, initially, certain costs were borne by Pharma and charged to DDL as required. On April 4, 2018, a service agreement was put into place between Pharma and DDL which covered the development of sugarBEAT® 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. This agreement includes all aspects of the development, registration and manufacture of sugarBEAT®.

Full legal title and beneficial ownership of the CE mark and all related intellectual property remains with Nemaura Medical under the terms of the service contract. 

Dr. D.F.H. Chowdhury, the Company’s Chief Executive Officer, President and Chairman of the Board, and Mr. Bashir Timol, a member of the Company’s Board of Directors, are officers of Pharma. The current management at DDL, including Dr. D. F. H. Chowdhury allocate 15% - 20% of their time to oversee the current operations at Pharma and will in due course implement a new management team in Pharma, and provide ongoing support in an advisory role. Pharma is a drug delivery company, which means that its activities are entirely related to the administration of drugs to the body of a human or animal subject. DDL is a diagnostic company, which means it is entirely focused on extracting molecules from the human or animal subject and analyzing it to make a diagnosis or to monitor the level of a particular molecule such as glucose. These are two independent businesses engaged in different activities, therefore there is no conflict of interest between the two and management does not see any conflicts arising from the allocations of some of DDL management time to overseeing the operations of Pharma.

Payments made solely for work that Dr. D. F. H. Chowdhury performs for Pharma in his capacity as manager are not charged to Nemaura Medical Inc. and are not included in our consolidated financial statements.

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 always 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 this period. We also recognize that one of the consequences of this pandemic has been 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.

Results of Operations

Comparative Results for the Three Months Ended June 30, 2023 and 2022

Revenue

There was no revenue recognized in the three month period ended June 30, 2023. There was also no revenue recognised in the three months ended June 30, 2022. Revenue is recognized as goods are dispatched and invoiced to our customer. Given lead times on manufacture, no goods were dispatched during the quarter ended June 30, 2023.

Research and Development Expenses

Research and development (“R&D”) expenses were $549,012 and $330,055 for the three months ended June 30, 2023 and 2022, respectively. This amount consisted primarily of expenditures on wages and sub-contractor activities incurred for improvements made to the sugarBEAT® device.

General and Administrative Expenses

General and administrative expenses were $1,508,467 and $1,267,251 for the three months ended June 30, 2023 and 2022, respectively. These expenses consisted of fees for legal, professional, consultancy, audit services, investor relations, insurance, advertising and general and operational wages.

As the Company continues to scale up to service its existing order book, it is expected that general and administrative expenses will continue to increase in a similar way moving forward, as the business transitions to a more operational focused base that will encompass an increase in functional expenses relating to production, sales, marketing, customer service, as well as enhancements to other existing functions.

Other Comprehensive Loss

For the three month periods ended June 30, 2023 and 2022 other comprehensive income saw a gain of $39,589 and loss of $444,937, respectively, arising from foreign currency translation adjustments.

Liquidity and Capital Resources

We have experienced net losses and negative cash flows from operations since our inception. We have sustained cumulative losses of $54,478,365 as of June 30, 2023. We have historically financed our operations through a combination of debt and equity funding.

As of June 30, 2023, the Company had a working capital deficiency of ($14,181,593), which included cash balances of $4,009,691 and current notes payable of $16,967,686. The Company reported a net loss for the three month periods ended June 30, 2023 and 2022 of $2,603,154 and $3,979,297, respectively. 

Subsequent to June 30, 2023, on August 10, 2023, the Company agreed to issue a secured note payable for $7,810,000 and net proceeds of $6,500,000.

At June 30, 2022, the Company had net working capital deficiency of ($375,486) which included cash balances of $14,751,833 and current notes payable of $16,186,387.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, for the three months ended June 30, 2023, the Company recorded a net loss of $2,603,154 and used cash in operations of $2,521,327. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm in its report on the Company’s March 31, 2023 financial statements, raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In evaluating the going concern position of the company, management has considered potential funding providers and believes that financing to fund future operations could be provided by equity and/or debt financing. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

Cash Flows

Net cash used in operating activities for the three months ended June 30, 2023 was $2,521,327, reflecting a net loss of $2,603,154, which includes accretion of debt discount expense and accrued interest totaling $657,012, the mark-to-market charge booked in relation to the revaluation of the foreign currency forward contracts of $224,082 and the depreciation and amortization charge of $98,085.

Cash was also impacted by increases in inventory of $596,434, which was directly driven as a result of commercial scale up.  

Prepayments dropped by $565,413, which was a result of the amounts paid to Hamilton Court, our forward contract provider, plus by savings on other prepayments.

There was a $69,691 reduction in accounts payable during the three months ended June 30, 2023 but increases in other liabilities and accrued expenses of $122,569. The related party payable balance dropped by $583,045.

Net cash used in operating activities for the three months ended June 30, 2022 was $2,384,143, reflecting a net loss of $3,888,910, adjusted for the add back of the non-cash amortization of debt discount expense of $1,452,020, the mark-to-market charge recorded in relation to the foreign currency forward contracts of $839,584 and the depreciation and amortization charge of $98,792. Cash was also impacted by increases in inventory of $137,386, which was directly driven as a result of the commercial scale up.

Prepayments increased by $355,329, which was also a direct result of amounts paid to our USD forward contract provider partially offset by a movement on value added tax debtor of $143,000. There was also a $43,609 decrease in accounts payable during the fiscal period, with decreases seen in both other liabilities and accrued expenses of $120,812.

Net cash used in investing activities for the three months ended June 30, 2023, was $29,206, which was from the purchase of property and equipment driven by the procurement to support the transition to operational production.

Net cash used in investing activities for the three months ended June 30, 2022, was $217,712, which reflected patent filing costs of $25,598, the purchase of property and equipment of $192,114 driven by the procurement to support the transition to operational production.

Net cash used in financing activities for the three months ended June 30, 2023 was $3,600,000, for the scheduled re-payment of notes payable.

Net cash used in financing activities for the three months ended June 30, 2022 was $74,282, comprising $4,700,000 from proceeds of long term debt offset by $4,774,282 for the scheduled repayments of notes payable.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

When we prepare our unaudited condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgements that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. We believe our critical accounting policies affect our more significant judgments and estimates used in the preparation of the unaudited condensed consolidated financial statements. For further discussion of our critical accounting policies, see Note 2.

During the three month period ended June 30, 2023, we have made no material changes or additions with regard to such policies and estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.

The Company’s Chief Executive Officer / Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2023. Based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2023 our disclosure controls and procedures were not effective as of June 30, 2023. As of June 30, 2023, management’s assessment identified the following material weaknesses in the Company’s internal control over financial reporting:

We continue to have a material weakness in our internal control over financial reporting as disclosed in the 2022 Form 10-K, in that the Company did not design and maintain effective controls over (i) accounting for the foreign currency balance for a mark-to-market contract; and (ii) accounting for certain debt issuance costs in the computation of the effective interest rate for a loan note mainly due to lack of adequate technical expertise. Management is developing and implementing remediation plans to address the material weaknesses.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recent three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2023, filed with the SEC on July 13, 2023.

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 filed as part of this report.

* Filed herewith.

** Furnished herewith. 

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.