Nutriband Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2019, compared with the year ended January 31, 2018. Although the request metadata refers to 2018 Q4, this filing reports annual results, not standalone quarterly results.
Business context
Nutriband shifted its principal focus from consumer transdermal patches to developing pharmaceutical transdermal products after acquiring 4P Therapeutics on August 1, 2018. Its lead candidate is an abuse-deterrent fentanyl patch; other early-stage candidates include transdermal exenatide, FSH and generic scopolamine. The pharmaceutical candidates have not received FDA marketing approval and are primarily in preclinical development. Consumer-product sales remain limited and are not authorized for sale in the United States.
The 4P acquisition consideration was $2.25 million: $400,000 cash and 250,000 shares valued at $1.85 million, plus a 6% royalty to the former owner on revenue derived from the acquired abuse-deterrent intellectual property.
Financial performance and position
| Metric | FY ended Jan. 31, 2019 | FY ended Jan. 31, 2018 |
|---|---|---|
| Revenue | $245,285 | $0 |
| Cost of revenue | $288,301 | Not reported |
| Gross profit (loss) | $(43,016); (17.5%) margin | Not reported |
| Operating expenses | $3,288,224 | $171,946 |
| Net loss | $(3,331,240); $(0.16) per share | $(2,671,946); $(0.14) per share |
| Cash used in operations | $(1,105,466) | $(92,858) |
| Cash and cash equivalents at year-end | $474,653 | $0 |
| Total current assets | $590,466 | $164,899 |
| Total current liabilities | $403,006 | $43,391 |
| Note payable | $40,000 | $16,820 |
FY2019 revenue comprised $196,285 from contract research and development services and $49,000 from consumer-product sales to Best Choice. Three customers accounted for all revenue; two customers accounted for all accounts receivable. The filing reports $1,763,950 of stock-based compensation in FY2019, a substantial component of operating expense.
Financing activities provided $1,983,888, principally $1.5 million from stock sales and $500,000 from warrant exercises. Investing activities used $404,163, including the $400,000 cash portion of the 4P acquisition. The $40,000 note payable was interest-free and due on demand. No off-balance-sheet arrangements were reported.
Changes, outlook, risks and unusual items
- Revenue began during FY2019; the prior year had no revenue. FY2019 results include 4P only from the acquisition date. Pro forma FY2019 revenue was $577,149 and pro forma net loss was $3,307,614, but these unaudited figures are not presented as actual results.
- Management budgeted $5.0 million for development of the fentanyl candidate, including clinical manufacturing and trials, while stating that it did not have sufficient funds to complete development. The filing gives no revenue or earnings guidance and says significant Best Choice revenue is not expected in the year ending January 31, 2020.
- The auditor included a going-concern explanatory paragraph; management and the auditor cite recurring losses and substantial doubt about the company’s ability to continue as a going concern. Additional financing, development, clinical testing, FDA approval and commercialization are uncertain.
- Best Choice had not obtained South Korean regulatory authorization and had missed the agreement’s first-year $2.0 million minimum purchase target; Nutriband said it would not terminate the agreement for that shortfall. Manufacturing delays involving foil supply, packaging changes and quality issues also affected the first order.
- The SEC settlement followed inaccurate prior disclosures about FDA jurisdiction and the legality of U.S. consumer-product sales. The company and officers consented to cease-and-desist orders without admitting or denying findings; the two officers each agreed to pay a $25,000 civil penalty, with no monetary penalty against the company.
- The company reported ineffective disclosure controls and material weaknesses in financial reporting controls, including limited internal audit capacity, inadequate review and lack of segregation of duties. Management said financial constraints made near-term remediation unlikely.
- Litigation over the 2017 Advanced Health Brands acquisition continued: the court dismissed Nutriband’s complaint with prejudice, ordered assignment of six patent applications, and Nutriband appealed. One defendant returned 200,000 shares, which were canceled. The proposed Carmel Biosciences acquisition was terminated without obligation after concerns about valsartan-related risks.
- The European Patent Office granted patent protection for the abuse-deterrent technology in March 2019; U.S. patent prosecution remained unresolved in the filing. Product development also faces clinical, regulatory, manufacturing, intellectual-property, competition and financing risks.
Most important facts for investors to verify
- Reconcile the MD&A working-capital figure of $487,460 with the balance-sheet amounts, which imply $187,460 ($590,466 current assets less $403,006 current liabilities).
- Review available cash and financing needs against the $5.0 million development budget, cash used in operations, and the auditor’s going-concern warning.
- Confirm the fentanyl candidate’s development milestones, trial plans, regulatory pathway and funding status; no FDA-approved pharmaceutical product or commercial product revenue was reported.
- Check Best Choice’s regulatory progress, purchase activity and the terms or status of its distribution agreement.
- Assess the 4P acquisition’s 6% royalty, the pending Advanced Health Brands appeal, and the value and impairment risk of acquired goodwill and intangible assets.
- Review remediation of the disclosed material weaknesses and the continuing effects of the SEC settlement.