Nutriband Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2020. The filing provides annual comparisons, not standalone 2019 Q4 results. Filed April 14, 2020.
Business context
Nutriband’s principal strategy is developing transdermal pharmaceutical products, led by an abuse-deterrent fentanyl patch acquired through 4P Therapeutics in August 2018. The company also describes candidates including exenatide, FSH and scopolamine patches. Due to insufficient funding, product-development work was on hold; the operating business was limited to contract research services and modest consumer-patch sales to a South Korean distributor awaiting regulatory approval.
Financial results and liquidity
| Metric | FY ended Jan. 31, 2020 | FY ended Jan. 31, 2019 |
|---|---|---|
| Revenue | $370,647 | $245,285 |
| Cost of revenue | $549,107 | $288,301 |
| Gross profit (loss) | $(178,460) | $(43,016) |
| Gross margin | Approximately (48.2%) | Approximately (17.5%) |
| Selling, general and administrative expense | $1,790,980 | $3,288,224 |
| Operating loss | $(1,969,440) | $(3,331,240) |
| Net loss | $(2,721,627) | $(3,331,240) |
| Net loss per share | $(0.50) | $(0.62) |
| Cash used in operating activities | $(894,470) | $(1,105,466) |
Revenue increased about 51%, but cost of revenue exceeded revenue in both years. The 2020 net loss included $767,650 of derivative expense, partially offset by an $88,876 gain on the derivative’s fair-value change, and $73,413 of interest expense. Stock-based compensation fell to $252,700 from $1,763,950.
At January 31, 2020, cash was $10,181; current assets were $43,181 and current liabilities were $2,022,322, implying a working-capital deficit of about $1.98 million. Current liabilities included accounts payable and accrued expenses of $771,931, a $928,774 derivative liability, $215,000 of notes payable, $29,067 due to related parties and $67,500 of convertible debt net of discount. Stockholders’ equity was $175,433. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
Cash provided by financing activities was $430,250, compared with $1,983,888 in the prior year. There were no investing cash flows in FY2020. The balance sheet included $1,719,235 of goodwill and $314,700 of net intangible assets.
Material changes and subsequent events
- Revenue growth reflected $245,679 in contract services and approximately $124,958–$124,968 in consumer-product sales; the filing reports inconsistent product and total revenue figures in different sections.
- Contract-service revenue declined from the prior year’s level according to management, and the filing says the largest customer’s contribution fell significantly. Contract work was not supported by long-term commitments and could be terminated at any time.
- After year-end, the company said it temporarily closed operations because of limited cash and declining business, and did not expect to resume development without substantial funding.
- In March 2020, Nutriband raised $515,113 in a private placement of 46,828 units, each comprising a share and a warrant. It used proceeds to repay $270,000 principal on convertible notes; total repayment including charges was reported as approximately $345,600. The $928,774 year-end derivative liability was reduced to zero following repayment.
- A stockholder loaned an additional $60,000 in March 2020, bringing such loans to $275,000; the company reported issuing 25,000 shares upon conversion of the notes.
Outlook, risks and unusual items
- No specific revenue, earnings or product-development guidance was provided. Management said it needs significant financing or a suitably funded joint venture to restart development; it cannot assure either is available on acceptable terms. A proposed public offering was withdrawn in March 2020.
- The company estimated $5.0 million for research and development of the lead fentanyl product, including clinical manufacturing and trials, while warning actual costs could be substantially higher. FDA approval, clinical progress, manufacturing readiness and commercialization are uncertain.
- COVID-19 could impair fundraising, joint-venture discussions, contract work, supply chains and overseas regulatory review. The company also cited potential delays to clinical programs and reduced operations.
- Best Choice had not obtained South Korean regulatory approval, had not met the stated minimum-purchase requirement as of the report date, and was the company’s only consumer-product distributor.
- The SEC settlement required the company and two officers to cease and desist, without admitting or denying findings, over prior disclosure violations concerning FDA oversight of consumer products. Each officer agreed to pay a $25,000 civil penalty; no monetary penalty was imposed on the company.
- Litigation concerning the proposed Advanced Health Brands acquisition and 1.2 million shares remained unresolved. In March 2020, an appellate court reversed dismissal of the company’s Florida complaint and allowed an amended complaint; a separate New York action also remained pending.
- Management concluded disclosure controls and internal control over financial reporting were ineffective, citing material weaknesses including inadequate review, lack of segregation of duties and limited qualified accounting personnel.
Key facts investors should verify
- Reconcile the filing’s revenue inconsistencies: audited statements report $370,647, while the revenue-disaggregation note reports $370,637; consumer-product revenue is also shown as both $124,958 and $124,968.
- Confirm current cash, liabilities, operating status and financing runway after the March 2020 financing, note repayment and stockholder loan/conversion.
- Track whether Nutriband obtains funding or a funded partner and whether development of the lead fentanyl product resumes, including the clinical and regulatory milestones required.
- Check South Korean regulatory progress and Best Choice’s distribution status and purchase commitments.
- Monitor the going-concern risk, remediation of material weaknesses, and outcomes of the Advanced Health Brands litigation and any related share-recovery efforts.