Nutriband Inc. — Form 10-Q Summary
Reporting period: Three months ended April 30, 2021; comparative period is the three months ended April 30, 2020. Financial statements are unaudited. Nutriband develops transdermal pharmaceutical products and also earns revenue from contract services and, following its 2020 acquisition, coated-product manufacturing and product sales.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $433,488 | $119,364; up about 263% |
| Cost of revenue | $168,844 in the income statement | $74,939 |
| Gross profit and margin | Income-statement figures imply $264,644 and about 61.0%; MD&A instead states $264,844 | MD&A reports negative gross margin of $44,425 |
| SG&A | $579,608 | $191,917 |
| Operating loss | $314,964 | $147,492 |
| Net loss | $315,957; loss per share $0.05 | $412,194; loss per share $0.08 |
| Operating cash flow | $(279,415) | $(201,514) |
| Cash and cash equivalents | $410,754 at April 30, 2021 | $151,993 at January 31, 2021 |
| Working capital | Deficit of $1,587,766 | Deficit of $2,254,418 at January 31, 2021 |
| Total assets / liabilities | $10.56 million / $2.72 million | Assets were $9.93 million at January 31, 2021 |
Financing activities provided $576,955, principally $583,000 of common-stock proceeds; investing activities used $38,779 for equipment. Current liabilities were $2.52 million. They included $1.44 million due to a related party under the acquisition note, as well as current notes and lease liabilities. Total debt and lease obligations are not presented as a single summary figure in the filing. The related-party note bears 0.17% interest and is due August 28, 2021, or earlier following a qualifying financing.
Material changes and business developments
- Revenue increased substantially, reflecting acquired manufacturing and product sales alongside services. Management attributes $105,976 to contract research and development, $86,600 to South Korean distributor sales, and $240,912 to sales from the acquired business.
- SG&A rose by $387,691. The filing attributes the increase primarily to $127,500 of non-cash consulting expense and $164,637 of Active Intelligence expenses.
- Net loss narrowed by $96,237, aided in part by lower interest expense ($40,869 versus $205,167) and a $39,876 gain on debt extinguishment. The 2020 comparison included a $69,131 convertible-debt prepayment fee.
- Shares outstanding increased from 6,256,772 at January 31 to 6,356,270 at April 30. Equity activity included shares issued for a Rambam-related financing and consulting services.
- The February 2021 Rambam license covers development of a closed-system transfer device and other agreed products. BPM Inno purchased shares for $700,000 to fund product-development expenses; BPM also received distribution rights in Israel and certain rights of first refusal in other territories.
Outlook, risks, contingencies and unusual items
- No quantified forward guidance is provided. Management says it believes substantial doubt about going concern has been resolved and expects its implemented plans to cover obligations for at least one year after issuance. Cited plans include increased sales commitments, lower planned overhead, equity funding and revenue and cash flow from acquisitions.
- The filing also describes continued dependence on financing, a substantial working-capital deficit and negative operating cash flow. Pharmaceutical development is suspended for lack of funds; the lead abuse-deterrent fentanyl patch remains in development, with no U.S.-marketed product. The filing discusses a $5.0 million development budget, which could be exceeded.
- Management identifies COVID-19-related risks to productivity, clinical timelines, manufacturing personnel and supply chains. Drug-development, clinical-trial, FDA approval, commercialization, financing and intellectual-property risks are also emphasized.
- Disclosure controls were deemed ineffective. Management cites material weaknesses involving segregation of duties, qualified accounting personnel and reliance on third-party consultants, while describing remediation steps.
- Contingencies include ongoing litigation seeking recovery of shares and damages related to the Advanced Health Brands acquisition, with related proceedings in Florida, Ohio and federal court. The company also disclosed a prior SEC settlement and cease-and-desist order concerning inaccurate disclosure about FDA jurisdiction over consumer products; no monetary relief was imposed on the company.
- PPP debt forgiveness and forgiveness of certain loan payments generated debt-extinguishment gains. No derivative liabilities were reported at quarter-end. Goodwill was $7.53 million, a significant asset subject to impairment testing.
Most important facts for investors to verify
- Reconcile the income statement’s $168,844 cost of revenue with MD&A’s $168,644 and the resulting gross-profit figures ($264,644 implied by the statement versus $264,844 stated in MD&A).
- Confirm revenue composition and the acquired businesses’ contribution, including the South Korean sales’ regulatory status and the filing’s presentation of geographic revenue data.
- Assess liquidity and the ability to meet the $1.44 million related-party note when due, including whether anticipated financing and sales commitments materialize.
- Review the status and funding requirements of the suspended pharmaceutical development programs, the Rambam license and associated commercialization milestones.
- Track remediation of ineffective disclosure controls, the acquisition-related litigation and any developments in the disclosed legal proceedings.