Nutriband Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended October 31, 2017; balance-sheet comparisons are to January 31, 2017. Amounts are in U.S. dollars. The interim financial statements are unaudited.
Business context
Nutriband was developing transdermal patches for health supplements and over-the-counter products, with plans to apply acquired intellectual property in prescription pharmaceuticals. Its disclosed product lines included energy, weight-management, and multivitamin patches. The company had not yet generated revenue.
Financial results and position
| Metric | Three months ended Oct. 31, 2017 | Nine months ended Oct. 31, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| SG&A expenses | $107,732 | $236,311 | $29,980 / $117,683 |
| Net loss | $107,732 | $236,311 | $29,980 / $117,683 |
| Net loss per share, basic and diluted | $0.01 | $0.01 | $0.00 / $0.01 |
- Cash flow: Operating activities used $81,463 in the first nine months of 2017, versus $115,839 in 2016. Financing provided $55,000, including $40,000 from stock sales and $15,000 of short-term borrowing. Cash fell from $27,124 at January 31 to $102 at October 31.
- Assets and liquidity: Total assets were $2,417,605, including $2,389,555 of net intangible assets; current assets were $28,050. Current liabilities were $34,714. The filing states the company lacked sufficient resources to carry out its business.
- Debt: Short-term debt totaled $16,704, including a $15,000 interest-free, demand loan from TII Jet Services and a $1,704 balance on an interest-free Dublin Council loan. Related-party, interest-free debt due on demand was $9,582.
- Equity and patents: The company issued 5,000,000 shares valued at $2,500,000 to acquire patent rights, and issued 80,000 shares for $40,000 cash. It also issued 115,000 shares for services valued at $57,500. Patent amortization was $110,445 for the nine months.
Changes and unusual items
- SG&A and losses increased materially from 2016; management attributed the increase primarily to amortization of newly acquired patents and higher legal fees.
- The patent acquisition was a significant noncash transaction, recorded at $2.5 million based on the price of the company’s most recent cash stock issuance. The provisional patents had generated no income or cash flow as of October 31; no impairment was recorded.
- The company’s agreement to acquire Edgemark Innovations was rescinded on November 9, 2017. The parties instead agreed to a mutual sales-representative arrangement, with Nutriband distributing Pura and Edgemark distributing Nutriband products.
- The company reported 20,767,100 common shares outstanding at October 31 and December 8, 2017. Warrants outstanding at October 31 totaled 730,000, with a weighted exercise price of $1.58.
Outlook, risks, and controls
- Management estimated next-12-month capital requirements of $85,000–$150,000 and expected at least $85,000 in operating expenses. It said additional funding would be needed through debt, equity, or a strategic arrangement; no financing arrangements were in place, and availability was not assured.
- Recurring losses, no revenue, $81,463 of operating cash use, and an accumulated deficit of $413,775 led management to conclude that substantial doubt existed about the company’s ability to continue as a going concern. Management expected proposed acquisitions to support cash needs, but the filing provides no assurance of financing or successful operations.
- Management identified risks including the ability to raise capital, execute its business plan, attract and retain personnel, competition, and general economic and market conditions. No off-balance-sheet arrangements were reported.
- Disclosure controls and procedures were concluded to be ineffective. No material changes to internal control over financial reporting were reported during the quarter.
- The company checked “No” for having filed all required reports during the preceding 12 months and “No” for having submitted and posted all required interactive data files.
Important facts for investors to verify
- Current cash, near-term funding needs, and whether financing has been secured since the filing.
- Status, ownership, regulatory and commercialization prospects of the provisional patent applications, including required filing deadlines.
- Progress and economics of the Edgemark mutual-distribution arrangement and any revenue generated afterward.
- Resolution and repayment status of demand loans and the Dublin Council loan.
- Whether the filing-compliance and disclosure-control deficiencies were subsequently remedied.