Nutriband Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended October 31, 2023; filed December 13, 2023. Financial statements are unaudited. Nutriband develops transdermal pharmaceutical products, including its lead AVERSA abuse-deterrent fentanyl patch, and operates a coated-products manufacturing business. The lead drug remains in development and requires FDA approval.
Financial results and position
| Metric | Three months ended Oct. 31, 2023 | Three months ended Oct. 31, 2022 | Nine months ended Oct. 31, 2023 | Nine months ended Oct. 31, 2022 |
|---|---|---|---|---|
| Revenue | $427,841 | $618,003 | $1,560,701 | $1,552,074 |
| Gross profit | $159,721 | $268,731 | $680,877 | $621,013 |
| Gross margin | 37.3% | 43.5% | 43.6% | 40.0% |
| Operating loss | $(1,723,511) | $(1,071,519) | $(3,565,577) | $(2,791,644) |
| Net loss | $(1,759,946) | $(1,075,485) | $(3,604,348) | $(2,804,149) |
| Net loss per share, basic and diluted | $(0.22) | $(0.14) | $(0.46) | $(0.32) |
| Cash used in operating activities | Not separately presented for the quarter | $(2,809,269) | $(2,173,193) |
- Balance sheet at October 31, 2023: Cash and equivalents $1,265,323; working capital $1,281,963; total assets $8,523,076; total liabilities $2,811,738; stockholders’ equity $5,711,338. Cash declined from $1,985,440 and working capital from $1,945,132 at January 31, 2023.
- Liquidity: Current assets were $1,999,737 and current liabilities $717,774. Cash flow from financing was $2,091,776, chiefly the $2 million related-party credit-line draw and $106,528 received against a bankruptcy claim; investing cash use was $2,624.
- Debt: A $5 million credit line from shareholder-owned TII Jet Services bears 7% interest and is due March 19, 2026; $2 million had been drawn. Other notes payable were $212,013 in total, including the $106,528 secured borrowing tied to the bankruptcy claim. The latter bears 10% interest and may require repayment if the claim is not paid in full.
- Revenue mix: Nine-month sales of goods were $1,395,667 and services revenue $165,034; all reported revenue was from the United States. The filing’s MD&A gives a slightly different sales-of-goods figure ($1,395,701); the financial-statement revenue breakdown reports $1,395,667.
Material changes versus the prior comparable period
- Third-quarter revenue fell about 31%, while nine-month revenue was nearly flat, up about 0.6%. The third-quarter revenue decline reflected no services revenue in the quarter; goods revenue was $427,841 versus $528,233.
- Gross margin declined in the quarter but improved for the nine-month period. Nine-month gross profit increased about 10% as cost of revenue fell despite slightly higher revenue.
- Net loss widened about 64% for the quarter and 29% for the nine months. Nine-month R&D expense rose to $1,397,055 from $686,401, primarily for AVERSA development and Kindeva costs. SG&A rose to $2,849,399 from $2,726,256, including investor-relations and non-cash equity compensation costs.
- Nine-month operating cash use increased to $2,809,269 from $2,173,193. Interest expense rose to $52,601 from $12,505, primarily due to related-party borrowing.
- The company recorded $742,696 of non-cash compensation for options and warrants during the nine months. The related-party credit facility added $2 million of debt; cash nevertheless decreased by $720,117 from January 31.
Outlook, risks, contingencies and unusual items
- Outlook and funding: No revenue or earnings guidance is provided. Management estimates approximately $13 million will be required for AVERSA research and development, including clinical manufacturing and trials, and says costs could be substantially higher. Management believes available resources and projected funds will support operations for at least one year from issuance and states that substantial doubt about going concern is alleviated. This assessment follows recurring losses and operating cash use; the $5 million facility had $3 million of undrawn capacity at quarter-end.
- Development and regulatory risk: AVERSA is not approved for marketing. FDA review, clinical development, manufacturing, financing, and commercialization involve substantial uncertainty and may take longer or cost more than anticipated. The company says its Kindeva feasibility workplan was estimated at about $2.1 million; $1,849,371 of expenses had been incurred by October 31, 2023, with a $250,000 advance deposit included in prepaid expenses.
- Litigation: Joseph Gunnar and its counsel sued over termination of an engagement letter for a proposed stock offering. Gunnar seeks damages exceeding $500,000, plus punitive damages; the company disputes the claims and filed counterclaims. Management says a loss is reasonably possible but cannot estimate a range, has accrued no amount, and believes any possible loss would not materially affect the statements. The outcome remains uncertain.
- Other contingent exposure: The company received $106,528 against a Sorrento Therapeutics bankruptcy claim of $118,675. It remains liable to the factor for any shortfall if the claim is reduced or unpaid; the bankruptcy claim was unresolved at quarter-end.
- Controls: Management concluded disclosure controls were not effective, citing material weaknesses in segregation of duties and qualified accounting staffing, as well as prior reliance on consultants. It reported adding accounting personnel and monitoring/review controls; no materially impactful control changes occurred during the quarter.
- Additional items: Approximately $0.5 million of cash exceeded federally insured limits. The company reports no material off-balance-sheet arrangements. COVID-19 disruptions were identified as a potential source of delays to programs and supply chains.
Important facts for investors to verify
- Cash runway assumptions and the availability, terms, and remaining capacity of the related-party credit line.
- AVERSA development milestones, total remaining costs, clinical-trial requirements, and FDA pathway.
- Whether product demand and gross margins can recover after the third-quarter revenue decline.
- Resolution and potential financial impact of the Gunnar litigation and the bankruptcy claim supporting the secured borrowing.
- Remediation of ineffective disclosure controls and progress toward adequate accounting staffing and segregation of duties.
- Potential dilution: quarter-end common shares outstanding were 7,833,150; 874,835 options and 1,283,038 warrants were outstanding, in addition to other potential share-based awards disclosed in the filing.