Nutriband Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2022, compared with the three months ended April 30, 2021. The company is an early-stage transdermal pharmaceutical developer; it also earns revenue from coated-product sales and contract services.
Business context and results
- The company’s lead development program is AVERSA, an abuse-deterrent fentanyl transdermal system. Its Pocono subsidiary sells transdermal and coated products, while 4P Therapeutics performs contract research and development services.
- Revenue was $477,922, up 10.3% from $433,488. Product revenue rose to $401,990 from $327,512; service revenue fell to $75,932 from $105,976.
- Cost of revenue increased to $277,436 from $195,610. Gross profit declined to $200,486 from $237,878; reported consolidated gross margin fell to 42% from 55%.
- Research and development expense was $117,814, versus none reported in the prior-year quarter. Selling, general and administrative expense increased 39% to $768,551, which management attributed principally to higher administrative salaries, professional fees and travel.
- Operating loss was $685,879, compared with $314,064. Net loss was $689,989, or $0.09 per share, compared with $315,057, or $0.05 per share, as presented in the statements of operations. Interest expense declined to $4,110 from $40,869, largely because the prior-year amount included debt-discount amortization.
Cash flow, financial position and liquidity
- Cash and cash equivalents were $4.01 million at April 30, 2022, down from $4.89 million at January 31, 2022. Working capital was approximately $3.92 million.
- Operating activities used $744,257 of cash, compared with $279,415 used in the prior-year quarter. Investing activities used $43,803, primarily for equipment; financing activities used $93,164, including $89,196 for treasury-stock purchases. Cash declined $881,224 during the quarter.
- Total assets were $11.98 million and total liabilities were $904,375. Notes payable totaled approximately $139,495, comprising current and long-term portions; operating lease liabilities totaled approximately $99,454.
- Management said its forecasts indicated sufficient funds to operate for at least one year from issuance of the financial statements and concluded substantial doubt about the company’s ability to continue as a going concern was alleviated. The company has a history of operating losses and has relied on equity and debt financing.
Developments, outlook and risks
- The Kindeva feasibility workplan for AVERSA fentanyl began in February 2022. Its estimated cost is approximately $1.7 million, with an estimated completion period of eight to twelve months. Nutriband paid a $250,000 advance deposit and reported $36,000 of expenses incurred by April 30.
- The company previously budgeted $5.0 million for development of its abuse-deterrent fentanyl system, including clinical manufacturing and trials, but warned total costs could be substantially higher. No formal revenue or earnings guidance is provided.
- The Rambam closed-system transfer device program was suspended until further notice after preliminary market review found the product not commercially viable in its current form. The company reported no revenue from the Rambam arrangement.
- Key risks include FDA approval and clinical-development uncertainty, further funding needs, potential delays or higher development costs, commercialization and manufacturing challenges, competition, intellectual-property risks, and possible COVID-19 disruptions. Management stated the company has no product it can currently market in the United States.
- Disclosure controls and procedures were deemed ineffective. Management identified material weaknesses involving segregation of duties and accounting staffing, while describing added accounting personnel and monitoring controls as remediation steps.
- Pending litigation includes disputes relating to the company’s attempted rescission of an acquisition and recovery of shares; the filing describes discovery and a trial scheduled for June 2022 in one case. The filing does not quantify a potential financial exposure.
Important facts for investors to verify
- Reconcile apparent filing inconsistencies: the prior-year net loss is $315,057 in the statements of operations but $315,957 in the cash-flow and equity statements; the MD&A also gives a different contract-services revenue figure ($75,992) from the financial statements ($75,932).
- Confirm treasury-stock activity and share counts: the filing gives differing purchase quantities and amounts in different sections, and reports varying treasury-share totals.
- Assess the assumptions underlying management’s one-year liquidity and going-concern conclusion against continuing operating cash burn and AVERSA’s estimated development costs.
- Track Kindeva workplan timing, spending, milestones and any additional financing required, as well as the status of clinical and FDA plans.
- Monitor remediation of the disclosed control weaknesses and developments in the pending litigation.