Nutriband Inc. — Form 10-Q Summary
Reporting period: Three and six months ended July 31, 2021; filed September 3, 2021. Financial statements are unaudited and consolidated.
Business context
Nutriband develops transdermal pharmaceutical products, including an abuse-deterrent fentanyl patch, but says financial constraints have suspended pharmaceutical product development. Current activity centers on contract services and product sales from its Pocono/Active Intelligence acquisition, which added coated-products manufacturing and consumer transdermal products. The company has no product it can market in the United States and has not sought U.S. FDA approval for its consumer products.
Financial performance and position
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Revenue | $213,739 | $84,450 | $647,227 | $203,814 |
| Gross profit (loss) | $26,977 | $(32,487) | $291,621 | $11,938 |
| Gross margin | 12.6% | Negative | 45.1% | 5.9% |
| Operating loss | $(482,242) | $(225,818) | $(797,206) | $(373,310) |
| Net loss | $(519,923) | $(225,869) | $(835,880) | $(638,063) |
| Basic and diluted loss per share | $(0.08) | $(0.04) | $(0.13) | $(0.12) |
For the first half of 2021, revenue comprised $454,651 from acquired transdermal products, $105,976 from research and development services, and $86,600 from consumer product sales to a South Korean distributor for preliminary marketing. Revenue in the second quarter was from product sales; management said sales to the South Korean customer were absent during the quarter and expected to resume in the third quarter.
At July 31, 2021, cash and cash equivalents were $304,258, versus $151,993 at January 31, 2021. Current assets were $606,750 and current liabilities $2,655,556, a working-capital deficit of $2,048,806. Total assets were $10.16 million, total liabilities $2.85 million, and stockholders’ equity $7.32 million. Goodwill was $7.53 million.
Current liabilities included $1.476 million of related-party notes payable, $114,119 of current notes payable, and $25,506 of current finance leases. Long-term notes payable were $108,077 and long-term finance lease liabilities $83,856. The related-party acquisition note’s due date was extended to September 30, 2021. The filing describes the note as $1.5 million principal in some passages and reports a $1,475,631 balance-sheet amount; see investor verification items below.
For the first half, operating cash outflow was $367,944, investing cash outflow $49,396 (primarily equipment purchases), and financing cash inflow $569,605, including $583,000 from common-stock sales. Cash increased by $152,265. Interest expense was $81,888 for the first half, compared with $205,218 in 2020.
Material changes versus prior comparable periods
- First-half revenue more than tripled year over year, reflecting acquired product sales and continued service revenue. Second-quarter revenue also increased, and gross profit improved from a loss in the prior-year quarter.
- Despite higher revenue, first-half operating loss increased to $797,206 from $373,310, primarily alongside higher selling, general and administrative expenses. The filing attributes the increase in part to noncash consulting costs and Active Intelligence expenses.
- First-half net loss widened to $835,880 from $638,063. The comparison includes a $43,214 gain on extinguishment of debt in 2021; 2020 included a $22,096 derivative fair-value gain and $69,131 early prepayment fee.
- Cash rose from January 31, 2021, supported by equity proceeds, but the company continued to report substantial negative working capital and operating cash use. Common shares outstanding increased to 6,356,270 from 6,256,770 at January 31.
Outlook, risks, contingencies and unusual items
- Management states it believes substantial doubt about going concern has been resolved and says implemented plans—including increased sales commitments, lower planned overhead, received and expected equity funding, and acquisition-related revenue—should support obligations for at least one year from issuance. This assessment is qualified by continuing losses, negative working capital, cash outflow and reliance on future financing and revenue.
- Development of the lead fentanyl product and other pharmaceutical products remains on hold for lack of funds. Management previously estimated $5.0 million for development of the fentanyl system, while noting total costs could be substantially higher. FDA approval, clinical success, commercialization, financing and distribution remain uncertain.
- The Pocono acquisition note was extended from August 31 to September 30, 2021. The acquisition agreement also linked payment and certain listing conditions to a capital raise or public offering of at least $4 million. The filing does not establish that such financing had been completed.
- COVID-19 could disrupt operations, clinical timelines, third-party manufacturing and supply availability. The company also faces product-development, regulatory, market-acceptance, intellectual-property and financing risks.
- Legal matters include litigation seeking recovery of shares and damages related to the Advanced Health Brands transaction, with related proceedings in Florida, Ohio and federal court. The SEC previously entered a cease-and-desist order concerning inaccurate disclosures about FDA jurisdiction; the company and officers settled without admitting or denying findings, and the officers agreed to civil penalties.
- Disclosure controls were assessed as ineffective. Management identified material weaknesses involving segregation of duties and qualified accounting staffing, while describing steps taken to strengthen accounting review and monitoring.
- No off-balance-sheet arrangements were reported. The filing also reports no derivative liabilities at July 31, 2021.
Important facts for investors to verify
- Reconcile filing inconsistencies: the financial statements report second-quarter net loss of $519,923, while MD&A states $519,523; the statements report first-half SG&A of $1,088,827 and prior-year first-half SG&A of $385,248, while MD&A gives $355,248 for 2020. MD&A also cites $625,000 of stock-based compensation adjustments, whereas the cash-flow statement lists $225,000.
- Confirm the related-party note’s principal, carrying amount and maturity: disclosures cite $1.5 million principal, $1,475,631 on the July 31 balance sheet, and an extension to September 30, 2021.
- Reconcile deferred revenue: the balance sheet lists $64,704 at July 31, 2021, while MD&A states $69,894; the January 31, 2021 amount is $86,846.
- Monitor liquidity, the working-capital deficit, financing availability and payment of the acquisition note, as well as whether projected sales commitments and expected funding materialize.
- Track any resumption of product development, clinical and regulatory milestones, commercial sales and the status and potential outcomes of the disclosed litigation.