Nutriband Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended October 31, 2016. The unaudited consolidated statements cover Nutriband Inc. and its subsidiary. The company was formed in January 2016 and acquired Nutriband Ltd. to develop transdermal health-supplement products. Reported amounts below are in U.S. dollars.
Financial performance and position
| Metric | Three months ended Oct. 31, 2016 | Nine months ended Oct. 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Selling, general and administrative expenses | $29,980 | $117,683 | $0 |
| Net loss | $29,980 | $117,683 | $0 |
| Net loss per share, basic and diluted | $(0.00) | $(0.01) | $(0.00) |
- Cash flow: Nine-month operating cash use was $115,839. Financing provided $116,579, including $100,000 from common-stock issuance and $22,950 from related parties, partly offset by debt and related-party-payable payments. Ending cash was $857; there was no investing cash flow.
- Balance sheet at Oct. 31, 2016: Cash was $857, inventory $16,014, total current assets $17,103, and total assets $17,103. Current liabilities were $46,333, including $26,620 of demand loans from related parties, $1,153 of current long-term debt, and $18,560 of accounts payable and accrued expenses. Total liabilities were $46,333, with no long-term debt balance beyond the current portion. Working capital was negative $29,230; stockholders’ deficiency was $29,230.
- Margins: No revenue was reported, so operating margins are not meaningful.
- Equity and dilution: The company reported 22,375,000 shares outstanding at Oct. 31, 2016 and 22,525,000 at Dec. 12, 2016. It had 500,000 warrants outstanding at a $0.70 exercise price; they were not yet exercisable at quarter-end.
Material changes versus comparable periods
- The 2015 comparative statements show no revenue, expenses, or net loss; the company began operations and acquired Nutriband Ltd. during 2016, so the comparisons are not like-for-like.
- From Jan. 31 to Oct. 31, 2016, cash rose from $100 to $857 and inventory increased from zero to $16,014. Current liabilities increased from $11,114 to $46,333, while the working-capital deficit widened from $10,784 to $29,230.
- During February 2016, the company issued 500,000 shares for $100,000 and granted a warrant for 500,000 shares. The acquisition of Nutriband Ltd. was in exchange for 2,500,000 shares.
Outlook, risks and other notable items
- Funding and going concern: Management said cash resources were insufficient to execute the business plan and that additional funding was immediately necessary. The filing states that recurring losses, no revenue, operating cash use, and the working-capital deficit raise substantial doubt about the company’s ability to continue as a going concern. Failure to obtain funding could require curtailing operations or considering asset sales.
- Expected spending: Management estimated at least $85,000 of expenses over the next 12 months and estimated capital requirements of $85,000 to $150,000 for product development and marketing. It disclosed no financing arrangements or commitments and no assurance of access to additional capital.
- Business plans: The planned product lines are Energy, Weight Management, and Multivitamin patches. Management was exploring pharmaceutical-field acquisitions, but no agreements had been completed. The note says management believed prospective acquisitions could support group cash needs; this is not a secured source of funding.
- Related-party debt: $26,620 was owed to officers and related parties, interest-free and due on demand. A further $1,153 of interest-free council debt was payable in monthly installments and due October 2017.
- Subsequent event: On Nov. 11, 2016, the company entered a stock purchase agreement for 150,000 units at $0.50 each. Each unit was to include one common share and a warrant for one additional share at $3.50. The filing does not establish that the transaction had closed.
- Controls and filing status: Management concluded disclosure controls and procedures were not effective. The company checked “No” regarding whether it had filed all required reports during the preceding 12 months and whether it had submitted and posted all required interactive data files.
- The company reported no off-balance-sheet arrangements and stated that inflation had not materially affected operations. It cautioned that forward-looking statements are subject to risks including financing, growth execution, key personnel, competition, and economic conditions.
Important facts for investors to verify
- Whether the company obtained sufficient financing after quarter-end to fund its stated $85,000–$150,000 needs, and whether the Nov. 11 unit agreement closed.
- Whether product development, manufacturing, marketing, and sales progressed, given zero revenue and $16,014 of finished-goods inventory at quarter-end.
- The status and repayment terms of the $26,620 of related-party loans due on demand, and the $18,560 of payables and accrued expenses.
- Any remediation of the ineffective disclosure controls and the company’s late or incomplete filing history.
- Whether the acquisition opportunities described by management produced signed agreements, financing, or operating cash flows; none were consummated as of the filing.