Mangoceuticals, Inc. — Form 10-Q Summary
Business context and reporting period
Mangoceuticals, Inc. develops and markets men’s wellness products and telemedicine services, principally its online Mango ED compounded product. The company launched its website in November 2022 and sells through a telemedicine platform requiring physician prescriptions and pharmacy fulfillment. This report covers the unaudited quarter ended March 31, 2023, with comparison to the quarter ended March 31, 2022. The company is a smaller reporting company and emerging growth company. As of May 9, 2023, 16,020,000 common shares were outstanding.
Financial performance and condition
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $100,722 | $0 |
| Cost of revenue | $43,523, including $19,770 to a related party | $0 |
| Gross profit | $57,199 | $0 |
| Gross margin | Approximately 56.8% | Not meaningful |
| General and administrative expenses | $2,616,324 | $18,710 |
| Loss from operations | $(2,559,125) | $(18,710) |
| Net loss | $(2,560,885) | $(19,599) |
| Basic and diluted loss per share | $(0.23) | $(0.00) |
| Net cash used in operating activities | $(1,809,865) | $(18,710) |
| Net cash used in investing activities | $(3,519) | $0 |
| Net cash provided by financing activities | $4,921,740 | $50,000 |
Operating expenses included $764,271 of stock-based compensation, $284,366 of advertising and marketing expense, $400,000 of IPO-related placement agent fees, $139,579 of legal fees, $173,839 of salaries and benefits, $131,420 of software development expense, and $163,513 of consulting expense. The resulting net margin was approximately negative 2,542% of revenue.
Cash and cash equivalents were $3,791,216 at March 31, 2023, compared with $682,860 at December 31, 2022. Total assets were $4,115,285, total liabilities were $296,109, and stockholders’ equity was $3,819,176. Working capital was approximately $3.6 million. The company had an accumulated deficit of $4,576,641.
Current liabilities included $89,200 owed to a related party, $30,796 of accounts payable and accrued liabilities, $4,424 of payroll tax liabilities, and $58,422 of current operating lease liabilities. Total operating lease liabilities were $171,689. The $78,260 equipment note payable outstanding at December 31, 2022 was repaid during the quarter.
Material changes versus the prior comparable period
- Revenue began in 2023, totaling $100,722, compared with no revenue in the prior-year quarter.
- Net loss increased to $2.56 million from $19,599, primarily because of stock-based compensation, IPO and public-company costs, marketing, payroll, consulting, legal, accounting, and software development expenses.
- Operating cash use increased to $1.81 million from $18,710.
- Cash increased by $3.11 million, principally from the IPO, despite operating cash burn and capital expenditures.
- The company issued 700,000 common shares for services and 1,250,000 shares for $5.0 million of gross IPO proceeds. Net IPO proceeds were approximately $4.35 million after underwriting discounts, commissions, and offering costs.
- Shares outstanding increased from 13,365,000 at December 31, 2022 to 15,315,000 at March 31, 2023. The filing reports 16,020,000 shares outstanding as of May 9, 2023.
Guidance, outlook, risks, contingencies, and unusual items
Management does not provide quantitative revenue or earnings guidance. It expects to continue marketing the Mango ED product, enhance its technology platform, expand product offerings, and consider acquisitions. Management states that available cash, expected revenues, and the IPO proceeds are expected to fund operations at current levels for at least the next 12 months, although additional capital may be required for expansion or acquisitions.
The company has recurring losses, limited operating history, limited product sales, and substantial expected future spending. It may require additional debt or equity financing, which could increase leverage or dilute existing shareholders. The independent registered public accounting firm included a going-concern explanatory paragraph in its December 31, 2022 report.
The Mango ED product is not FDA-approved and is intended to be compounded under the Section 503A exemption. The filing identifies risks relating to product safety, lack of clinical testing, regulatory compliance, potential product liability, compounding restrictions, state pharmacy licensing, telehealth regulation, and possible FDA determinations that the product is essentially a copy of an approved drug.
The company relies on Epiq Scripts, a pharmacy 51% owned and controlled by CEO and Chairman Jacob D. Cohen, for compounding and pharmacy services. Epiq Scripts was licensed in 44 states at the filing date. The company also relies on Doctegrity for telemedicine services. These related-party and third-party dependencies create operational, regulatory, and conflict-of-interest risks.
As of March 31, 2023, 1,250,000 stock options and 2,087,500 warrants were outstanding and excluded from diluted loss per share because they were anti-dilutive. The filing states that the CEO beneficially controlled approximately 51.7% of voting power and that the company is a Nasdaq “controlled company.”
Subsequent to quarter-end, warrant holders exercised warrants for an aggregate of 450,000 shares for $450,000 in cash. The company also entered into a three-year COO employment agreement with a $150,000 annual salary, granted related equity awards, increased the CEO’s annual salary from $180,000 to $300,000, and agreed to pay $300,000 and issue 180,000 shares under a software development agreement.
The company reports no material pending legal proceedings, no defaults upon senior securities, and no material changes to the risk factors in its IPO prospectus. Management concluded that disclosure controls and procedures were effective as of March 31, 2023.
Important facts for investors to verify
- Whether revenue growth is sufficient to offset the company’s substantial operating expenses and recurring cash burn.
- The remaining cash runway after IPO proceeds, subsequent warrant exercises, marketing expenditures, compensation, and other public-company costs.
- The regulatory status of the Mango ED product, including compliance with Section 503A and applicable state pharmacy and telehealth requirements.
- The safety, efficacy, product-liability exposure, insurance coverage, and potential recall risks associated with the compounded product.
- The terms, pricing, and governance implications of transactions with Epiq Scripts and other related parties.
- The potential dilution from outstanding options, warrants, registered resale shares, subsequent equity issuances, and future financing.
- Whether the company can maintain Nasdaq listing requirements, including the minimum bid-price and stockholders’ equity requirements.
- The accuracy of the filing’s period comparison disclosures; one MD&A sentence appears to contain a typographical inconsistency regarding the period associated with gross profit and cost of revenue.