Nutriband Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2020. Financial statements are unaudited. The company develops transdermal pharmaceutical products and, following its August 2020 acquisition, also operates coated-products manufacturing and topical-product businesses.
Financial performance
| Metric | Three months ended Oct. 31, 2020 | Nine months ended Oct. 31, 2020 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $391,797 | $595,611 | $82,567 and $351,070, respectively |
| Cost of revenue | $228,772 | $420,648 | $106,126 and $422,879 |
| Gross profit (margin) | $163,025 (41.6%) | $174,963 (29.4%) | Gross losses of $23,559 and $71,809 |
| Operating loss | $40,951 | $414,261 | $330,574 and $1,353,347 |
| Net loss | $42,569 | $680,632 | $753,274 and $1,777,192 |
| Basic and diluted loss per share | $0.01 | $0.12 | $0.14 and $0.33 |
Quarterly revenue increased substantially year over year, while nine-month revenue rose about 70%. Nine-month SG&A fell to $589,224 from $1,281,538, largely reflecting lower payroll, noncash compensation and legal costs. Results include $206,836 of interest expense, including $202,500 of debt-discount amortization, a $69,131 early repayment fee and a $12,500 debt-extinguishment loss. The company reported a $22,096 gain from a change in derivative fair value.
Cash flow and liquidity: Cash was $193,392 at October 31, versus $10,181 at January 31, 2020. Operating activities used $213,909; financing activities provided $330,126. Current assets were $323,261 and current liabilities $2,553,601, resulting in a $2,230,340 working-capital deficit. Total liabilities were $2,825,708, compared with stockholders’ equity of $7,254,087. Assets included $8,187,196 of goodwill.
Business changes and material items
- On August 31, the company acquired assets of Pocono Coated Products’ transdermal, topical, cosmetic and nutraceutical business and all of Active Intelligence. Consideration was $6 million in stock and a $1.5 million promissory note; the acquired businesses’ results were included from September 1. The acquisition added provisional goodwill of $6,467,961.
- The acquisition note bears 0.17% interest and is due August 28, 2021, or earlier following a qualifying capital raise or public offering of at least $4 million. The filing identifies Pocono Coated Products as a related party and company shareholder.
- Nine-month revenue consisted of $357,484 from the South Korean distributor, $127,625 from research and development services, and $110,502 from Pocono product sales. The filing says distributor sales were for preliminary marketing efforts; the consumer product had not obtained regulatory approval for retail sales in South Korea.
- The company repaid its $270,000 convertible notes in March 2020, paying $345,565 including fees and accrued interest; the related derivative liability was reduced to zero. It also raised $515,108 in a March private placement and issued 46,828 shares and warrants.
Outlook, risks and contingencies
Management stated that it expected South Korean distributor revenue to increase substantially during the balance of the fiscal year, without quantifying the expectation. No formal financial guidance is provided. The company described a $5 million budget for research, clinical manufacturing and trials for its lead abuse-deterrent fentanyl patch, but said it lacked funds to proceed and would need substantial financing. Product development was suspended because of limited funding. Any product commercialization depends on successful development and FDA approval; management cautioned that costs could exceed the budget and approval is uncertain.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern for at least one year. It also says cash shortages and COVID-19-related business declines led to temporary closure of the 4P facility; 4P continued operations and expected to find new facilities. COVID-19 may disrupt operations, clinical programs, suppliers and materials. Other stated risks include financing needs, dilution, regulatory and manufacturing hurdles, distributor performance and intellectual-property risks.
Two lawsuits related to an earlier acquisition remained active: a Florida case seeking rescission and return of shares, and a federal securities-fraud case in discovery; no trial date had been set for the latter. The company reported ineffective disclosure controls and material weaknesses involving segregation of duties and accounting staffing, and said it was unlikely to implement effective controls in the near future.
Most important facts for investors to verify
- Available cash, near-term obligations and the ability to obtain financing; the filing identifies substantial going-concern doubt and a large working-capital deficit.
- Terms, related-party status and repayment timing of the $1.5 million acquisition note, as well as other debt and lease obligations.
- Actual post-acquisition revenue, profitability and integration performance of Pocono and Active Intelligence, including the basis for goodwill valuation.
- Status and funding needs of the lead product’s development, clinical program and FDA pathway, and regulatory status of products sold through distributors.
- Progress and potential consequences of the disclosed litigation, and remediation of the material weaknesses in financial reporting controls.
- The filing has small internal inconsistencies: the statements report quarterly revenue of $391,797 while MD&A cites $391,787; acquisition share counts also vary across sections. Investors should verify these figures against the filed financial statements and exhibits.