Nutriband Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended October 31, 2021. The financial statements are unaudited. The company is a development-stage business focused on transdermal pharmaceuticals, alongside acquired coated-products manufacturing and contract services operations.
Financial performance and position
| Metric | Three months ended Oct. 31, 2021 | Nine months ended Oct. 31, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $283,037 | $930,264 | $391,797 quarter; $595,611 nine months |
| Gross profit / margin | $109,343 / 38.6% | $400,964 / 43.1% | $163,025 / 41.6% quarter; $174,963 / 29.4% nine months |
| Operating loss | $1,538,441 | $2,335,647 | $40,951 quarter; $414,261 nine months |
| Net loss | $1,571,821 | $2,407,701 | $42,569 quarter; $680,632 nine months |
| Net loss attributable to common shareholders | $1,768,410 | $2,604,290 | $42,569 quarter; $680,632 nine months |
| Basic and diluted loss per share | $0.27 | $0.40 | $0.01 quarter; $0.12 nine months |
The common-shareholder loss includes a $196,589 deemed dividend associated with a warrant adjustment. Nine-month revenue rose year over year, while quarterly revenue fell. The company attributed higher expenses and losses mainly to increased SG&A, including non-cash consulting and warrant compensation, and the inclusion of Active Intelligence costs. It began incurring R&D expense for its Aversa product during the quarter.
- Revenue mix: Nine-month 2021 revenue comprised $724,288 from goods and $205,976 from services. The filing attributes $637,688 to acquired transdermal-patch sales, $205,976 to contract R&D services, and $86,600 to sales to a South Korean distributor. It says the South Korean product had not received regulatory approval for retail sales there.
- Cash flow: Nine-month operating cash use was $1,576,789; investing cash use was $51,388; financing provided $6,961,528. Cash increased to $5,485,344 from $151,993 at January 31, 2021.
- Liquidity and debt: Working capital was positive $4,939,237, versus a $2,254,418 deficit at January 31. Total liabilities were $1,108,876. The $1.5 million related-party acquisition note was repaid in October. Remaining note payable was $118,720, and current finance-lease liabilities were $106,031; the company reported paying off equipment leases in November.
- Capital and dilution: The October public offering generated net proceeds of $5,836,230. The company also reported $2,062,500 from warrant exercises during the period. Shares outstanding were 7,743,963 at October 31 and 7,773,962 at December 13, 2021.
Material changes versus the prior comparable periods
- Nine-month revenue increased 56% year over year, but quarterly revenue declined about 28%. Nine-month gross margin improved to 43.1% from 29.4%.
- Nine-month operating loss widened to $2.34 million from $0.41 million, principally as SG&A increased to $2.58 million from $0.59 million. R&D expense was $161,000, compared with none in the prior-year period.
- Cash and working capital improved substantially following the public offering, warrant exercises, and repayment of the related-party note. The company moved from a working-capital deficit to positive working capital.
Outlook, risks, contingencies, and unusual items
- Management said substantial doubt about the company’s ability to continue as a going concern had been alleviated, citing available cash, positive working capital, debt reduction, and projected sales commitments. It said its plans should enable it to meet obligations for at least one year from issuance of the statements. However, the company continued to report losses and nine-month operating cash use; the filing provides no quantified sales guidance.
- The lead abuse-deterrent fentanyl patch remains in development. Management estimated a $5 million budget for its R&D, clinical manufacturing, and trials, while warning total costs could be materially higher. FDA approval is required before marketing pharmaceutical products in the United States; approval and commercialization are not assured.
- The filing describes development efforts as having been put on hold because of the company’s financial position, while also reporting that Aversa R&D began in the quarter. Management also cited projected sales commitments and expected South Korean customer revenue to recommence in the fourth quarter.
- Risks include early-stage operations, continuing losses, financing needs, clinical and regulatory uncertainty, commercialization and manufacturing challenges, competition, intellectual-property and product-liability exposure, and possible COVID-19 effects on operations and supply chains.
- Disclosure controls and procedures were deemed ineffective. Management cited material weaknesses involving segregation of duties, accounting staffing, and reliance on outside consultants, and described remediation efforts.
- Contingencies include ongoing litigation seeking recovery of shares and damages related to a disputed prior acquisition, and a stayed Ohio action linked to that litigation. The company also disclosed a settled SEC administrative proceeding concerning earlier filing disclosures; the company and officers consented to cease-and-desist orders without admitting or denying the findings, and the officers agreed to civil penalties.
- Unusual items include $754,400 of nine-month stock-based compensation, $365,000 fair value of warrants issued for services, and the $196,589 warrant-related deemed dividend. Subsequent events included a new 350,000-share option plan and 163,500 options granted to officers and directors.
Important facts for investors to verify
- Whether projected sales commitments and the anticipated resumption of South Korean customer revenue materialized, and how they affect cash generation.
- Cash runway and funding needs against continued losses, planned product-development costs, and the filing’s going-concern assessment.
- Development, clinical-trial, regulatory, and commercialization milestones for Aversa and the lead fentanyl product, including whether the stated $5 million budget remains adequate.
- The reasons quarterly revenue declined despite nine-month growth, and the sustainability and margins of acquired product sales and contract services.
- Progress in remediating the disclosed material weaknesses and the effectiveness of financial reporting controls.
- Potential outcomes and financial effects of the disclosed litigation, SEC-related obligations, and equity awards or warrants that may dilute shareholders.