Nutriband Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2018. The filing is unaudited; balance-sheet comparisons are to January 31, 2018.
Business context
Nutriband is developing consumer health products and a pipeline of transdermal prescription products. Its products were not sold or available for sale in the United States, where the company said FDA counsel advised that they are regulated as drugs and require the relevant development and approval process. The company reported a distribution contract with Best Choice Inc. in South Korea.
Financial performance and position
| Metric | Three months ended July 31, 2018 | Six months ended July 31, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net loss | $1,878,772 | $2,326,870 | $92,962; $128,579, respectively |
| SG&A expense | $392,322 | $562,920 | $92,962; $128,579, respectively |
| Non-cash compensation | $1,486,450 | $1,763,950 | $0 |
| Basic and diluted loss per share | $0.09 | $0.11 | $0.00; $0.01, respectively |
With no revenue, gross margin and operating margin are not meaningful. The filing attributes higher SG&A primarily to legal, accounting and payroll costs; non-cash compensation related to shares issued for services to executives and directors.
- Cash flow: Six-month operating cash use was $382,942, versus $58,729 in 2017. Investing cash use was $4,163. Financing provided $1,483,880, including $1 million from a stock sale and $500,000 from warrant exercises. Cash increased to $1,097,181 from zero at the period start.
- Liquidity: Current assets were $1,217,290 and current liabilities $162,120, yielding working capital of $1,055,170. Management reported working capital of $121,508 at January 31, 2018.
- Debt: Notes payable were $40,000, consisting of an interest-free, on-demand loan from TII Jet Services LDA. Related-party advances and the South County Dublin Council loan had been repaid by July 31. Accounts payable and accrued expenses were $73,120; deferred revenue was $49,000.
- Capital and equity: Total assets were $3,071,106 and stockholders’ equity $2,908,986. Shares outstanding increased from 20,877,100 to 21,824,100. Stock issued for services generated $1,763,950 of non-cash compensation; 250,000 shares valued at $1,850,000 were issued as an acquisition deposit.
Changes, outlook and risks
- Loss increased sharply year over year, principally reflecting the $1,763,950 non-cash compensation charge and higher SG&A; revenue remained zero.
- The company reported completing its acquisition of 4P Therapeutics after the quarter: 250,000 shares had been issued by July 31 and a $400,000 cash payment was made in August. 4P is intended to be Nutriband’s pharmaceutical and development arm.
- Nutriband estimated capital needs of up to $2 million for the next 12 months. Management expected cash flows from 4P and the Best Choice distribution agreement to fund operations, while cautioning that additional capital may not be available and disclosing no financing arrangements. The filing does not provide quantified cash-flow forecasts for those sources.
- A proposed acquisition of Carmel Biosciences, valued at approximately $3.3 million and expected to be paid for with 450,000 shares, remained subject to due diligence; no completion date was estimated.
- The company sought to rescind its Advanced Health Brands share-exchange agreement and recover or cancel shares issued in that transaction. Litigation was pending in Florida, with a related action filed in Ohio; court motions remained unresolved.
- In August 2018, the SEC Enforcement Division issued a Wells notice concerning prior disclosures about FDA requirements. The company and its officers submitted a response in September; staff review was ongoing. The company disputed the allegations. Potential penalties or other outcomes were not quantified.
- Management said disclosure controls and procedures were not effective as of July 31, citing issues discussed in the prior Form 10-K. No material changes to internal control over financial reporting were reported during the quarter.
Key facts for investors to verify
- Progress toward FDA classification, development requirements and any approvals for U.S. products, and the commercial status and economics of the Best Choice distribution agreement.
- Actual revenue, costs and cash flows from 4P Therapeutics, and whether the stated $2 million capital requirement can be met without further financing.
- Status and final consideration for the proposed Carmel Biosciences acquisition.
- Outcome and potential financial or share-count effects of the Advanced Health Brands litigation and the SEC investigation.
- Share issuances and compensation disclosures: the filing reports 322,000 shares issued for services, while total shares outstanding rose by 947,000 during the six-month period.