Mangoceuticals, Inc. — Form 10-Q Summary
Business context and reporting period
Mangoceuticals, Inc. markets men’s wellness products and telemedicine services, including Mango ED erectile-dysfunction products, Mango GROW hair-loss products, and Prime by MangoRx. Products are marketed primarily online and fulfilled through third-party providers, including related-party compounding pharmacy Epiq Scripts, LLC.
This report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. The company is a smaller reporting company and emerging growth company. Common stock trades on Nasdaq under MGRX. Shares outstanding were 23,619,500 at March 31, 2024 and 24,819,500 as of May 15, 2024.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $214,095 | $100,722 | +113% |
| Gross profit | $147,398 | $57,199 | +158% |
| Gross margin | 68.9% | 56.8% | +12.1 percentage points |
| Operating expenses | $2,515,015 | $2,616,324 | -4% |
| Loss from operations | $(2,367,617) | $(2,559,125) | Loss reduced 7% |
| Net loss attributable to Mangoceuticals | $(2,367,581) | $(2,560,885) | Loss reduced 8% |
| Basic and diluted loss per share | $(0.10) | $(0.23) | Improved |
| Net cash used in operating activities | $(991,131) | $(1,808,302) | Use reduced 45% |
| Cash and cash equivalents | $15,305 | $3,871,039 | Down from $739,006 at Dec. 31, 2023 |
Advertising and marketing expense increased to $852,383 from $284,364, and investor-relations expense was $143,000 versus none in the prior-year quarter. Salary and benefits increased to $293,209 from $177,918. Stock-based compensation declined to $454,465 from $764,271.
Cost of revenues consisted of $20,795 of non-related-party costs and $45,902 of related-party costs. Related-party revenue costs were paid to Epiq Scripts, which is 51% owned and controlled by CEO and Chairman Jacob D. Cohen.
Financial position, liquidity and capitalization
- Total assets declined to $301,447 from $1,050,793 at December 31, 2023, primarily because cash declined sharply.
- Current liabilities increased to $1,212,202 from $211,078, including $1,015,945 of accounts payable and accrued liabilities, $35,000 owed to related parties, $8,203 of payroll tax liabilities, $87,500 of notes payable to related parties, and $65,554 of current operating-lease liabilities.
- Total liabilities were $1,259,915, compared with $276,039 at year-end 2023. The company had a working-capital deficit of approximately $1.1 million and stockholders’ equity deficit of $958,468.
- The accumulated deficit was $13,595,754 at March 31, 2024.
- The company borrowed $37,500 from Ronin Equity Partners and $50,000 from Cohen Enterprises in March 2024. Both loans are payable on demand, bear no interest, and are controlled by or affiliated with Mr. Cohen.
- Operating lease liabilities totaled $113,267, comprising $65,554 current and $47,713 long-term portions.
- Management states that current resources are not expected to fund operations for the next 12 months. The financial statements include a going-concern uncertainty and state that additional capital will be required.
Material changes versus the prior comparable period
- Revenue more than doubled, attributed by management to increased marketing and brand recognition.
- Gross margin improved substantially despite higher related-party pharmacy costs and increased units sold.
- Operating expenses declined modestly overall, but the composition shifted toward substantially higher advertising, marketing, investor relations, and payroll costs.
- Operating cash burn improved, partly because accounts payable and accrued liabilities increased by approximately $910,000 and the company issued $416,500 of common stock for services.
- Financing cash inflows fell to $267,500 from $5.0 million in the prior-year quarter. Q1 2024 financing consisted of $180,000 from common-stock sales and $87,500 of related-party borrowings.
- Common shares outstanding increased to 23,619,500 from 21,419,500 at December 31, 2023. The company issued substantial equity for consulting and other services, including shares valued at approximately $416,340 during the quarter.
- Outstanding options declined to 2,366,667 after 283,333 options were forfeited following the resignation of former President and Director Jonathan Arango. Warrants outstanding increased to 1,385,000.
Guidance, outlook, risks and unusual items
Management plans to continue marketing and expanding Mango ED, Mango GROW and Prime by MangoRx, enhance its technology platform, develop additional wellness products, and pursue potential acquisitions, subject to available funding. No quantified revenue or profitability guidance is provided.
The company has substantial doubt about its ability to continue as a going concern without additional financing. Management expects to seek equity, debt, strategic transactions and other funding sources, which may be unavailable or may result in significant dilution.
- On April 5, 2024, the company completed an initial closing under a securities purchase agreement, issuing 500 shares of Series B Convertible Preferred Stock and warrants to purchase up to 3,300,000 common shares for aggregate proceeds of $500,000. The broader agreement contemplates up to $1.65 million of Series B preferred stock and $1.5 million of warrant-related purchase proceeds, subject to additional closings and stockholder approval.
- The company also entered into an equity line of credit permitting purchases of up to $25 million of common stock over two years, subject to conditions. It issued 1,000,000 commitment shares. Draws would be made at a discount to market prices and could cause significant dilution.
- On April 24, 2024, the company acquired patents and patent applications related to infection prevention for stated consideration of $20 million, consisting of 980,000 shares of 6% Series C Convertible Preferred Stock valued at $19.6 million and $400,000 of cash payable through November 2024. The filing states that the company intends to fund research, development and clinical testing of oral applications.
- Series B and Series C preferred stock have liquidation preferences and cumulative dividends. The Series B securities, Series C securities, warrants and equity-line shares may result in substantial dilution and pressure on the common-stock price.
- The company’s ED product has not been approved by the FDA, and management identifies regulatory, compounding, product safety, product-liability, cybersecurity, competition, third-party dependence, and intellectual-property risks.
- The company disclosed no pending or threatened litigation as of the filing date and stated that disclosure controls and procedures were effective as of March 31, 2024.
Most important facts for investors to verify
- Whether the company can obtain sufficient financing to fund operations beyond the next 12 months and on what terms.
- The timing and completion of the remaining Series B preferred-stock closings, stockholder approval, registration statements and equity-line draws.
- The potential number of common shares issuable upon conversion of preferred stock, exercise of warrants, payment of dividends in stock, and equity-line financing.
- The cash obligations and funding sources for the $400,000 patent-acquisition payments due in 2024, along with the commercial prospects and regulatory status of the acquired patents.
- The collectability and business purpose of the $60,051 related-party prepaid balance and the terms of transactions with Epiq Scripts and other Cohen-affiliated entities.
- The accuracy of the filing’s internally inconsistent warrant disclosures, including one statement referring to 1,385,000,000 shares despite the warrant schedule reporting 1,385,000 warrants.
- Whether revenue growth and gross-margin improvement can continue while marketing, payroll, investor-relations and other operating costs remain substantially above revenue.