Nutriband Inc. — Form 10-Q Summary
Reporting period: Three and six months ended July 31, 2022; filed September 7, 2022. The interim financial statements are unaudited. Nutriband develops transdermal pharmaceutical products, including its AVERSA abuse-deterrent fentanyl patch, and also earns revenue from coated-product sales and contract services.
Key financial results
| Metric | Three months ended July 31, 2022 | Six months ended July 31, 2022 |
|---|---|---|
| Revenue | $456,149, up from $213,739 | $934,071, up from $647,227 |
| Gross profit and margin | $151,796; 33%, versus a $716 gross loss | $352,282; 37%, versus $237,621 and 37% |
| Operating loss | $1,034,246, versus $482,242 | $1,720,125, versus $797,206 |
| Net loss | $1,038,675, or $0.12 per share, versus $519,923 | $1,728,664, or $0.20 per share, versus $835,880 |
| Operating cash flow | Not separately presented for the quarter | $(1,652,750), versus $(367,944) |
For the six months, product sales were $796,894 and services revenue was $137,177. Research and development expense was $395,683, compared with none reported in the prior-year period; selling, general and administrative expense was $1,676,724, versus $1,034,827. No income tax provision was recorded.
Financial position and liquidity
- At July 31, cash and cash equivalents were $3,344,558, down from $4,891,868 at January 31; working capital was $3,310,032, down from $4,686,112.
- Current assets were $4,113,956 and current liabilities $803,924. Total liabilities were $985,242; notes payable totaled approximately $133,372, and operating lease liabilities approximately $85,095.
- Six-month investing cash use was $68,009, primarily equipment purchases. Financing provided $173,449, including $296,875 from warrant exercises, partly offset by treasury-stock purchases.
- Management said its forecasts indicated sufficient funds for at least one year from issuance of the statements and concluded substantial doubt about going concern was alleviated. The company nevertheless reported operating losses and cash outflows and has historically relied on securities sales and debt.
Material changes, outlook, and risks
- Revenue increased, primarily with higher demand in the Pocono products business. Management said this demand continued into the subsequent quarter. Losses widened as operating costs rose, including R&D for AVERSA and higher administrative, professional, and travel costs.
- The Kindeva feasibility workplan for AVERSA began in February 2022. Its estimated cost is approximately $1.7 million, with an expected completion period of eight to twelve months. The company reported $232,055 of expenses incurred and a $250,000 advance deposit included in prepaid expenses. Management also described a $5.0 million budget for development of the abuse-deterrent fentanyl system, including clinical manufacturing and trials, while warning total costs could be substantially higher.
- The company has no product it can currently market in the United States; development, clinical testing, FDA approval, financing, manufacturing, and commercialization remain uncertain. COVID-19-related disruptions could delay programs or affect suppliers and materials.
- Development of the Rambam closed-system transfer device was suspended until further notice after preliminary review and market research found it commercially unviable in its current form.
- A court judgment and August 2022 settlement confirmed the return and cancellation of 1.4 million shares issued in the 2017 Advanced Health Brands transaction; related Ohio and New York lawsuits were dismissed.
- A 7-for-6 forward stock split became effective for trading on August 12, 2022, after the reporting date; the filing retroactively reflects the split in share and per-share data.
- Disclosure controls were deemed ineffective. Management cited material weaknesses involving segregation of duties and qualified accounting personnel, while reporting added accounting staff and monitoring controls. The company reported no material changes to internal controls during the quarter.
Important facts to verify
- Cash runway assumptions and whether operating performance can support management’s one-year funding assessment, given six-month operating cash use of $1.65 million.
- AVERSA development milestones, total funding needs, clinical-trial plans, and the timing and likelihood of FDA approval.
- Whether the reported increase in product demand persisted and whether product and service gross margins can be sustained.
- Reconciliation of MD&A comparative expense figures with the financial statements: the MD&A gives prior-period quarterly SG&A of $509,219 versus $481,526 in the statements, and six-month SG&A of $1,088,827 versus $1,034,827. The MD&A also cites prior-quarter loss per share of $0.08 versus $0.07 in the statements.
- Progress in remediating the disclosed control weaknesses and any continuing effect on financial reporting.