UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OctoberJuly 31, 20172019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 000-55654
NUTRIBAND INC.
(Exact name of registrant as specified in its charter)
| NEVADA | 81-1118176 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(385) 881-3385(407) 377-6695
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | Smaller reporting company | ☒ | |
| Emerging growth company | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock, par value $0.001 per share, was 20,767,1005,423,956 as of December 8, 2017.September 11, 2019.
NUTRIBAND INC.
NUTRIBAND INC.
INDEX
i
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended January 31, 2018, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.
We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
References to “we,” “us,” “our” and words of like import refer to Nutriband Inc. and its subsidiaries unless the context indicates otherwise. Unless the context indicates otherwise, references to 4P Therapeutics relate to the operations of 4P Therapeutics LLC prior to our acquisition of 4P Therapeutics on August 1, 2018.
ii
| ITEM 1. | FINANCIAL STATEMENTS |
Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.
The results of operations for the nine months ended October 31, 2017 and 2016 are not necessarily indicative of the results for the entire fiscal year or for any other period.
NUTRIBAND INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| October 31, | January 31, | |||||||
| 2017 | 2017 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 102 | $ | 27,124 | ||||
| Inventories | 2,638 | 8,048 | ||||||
| Prepaid expenses | 25,063 | 2,326 | ||||||
| VAT receivable | 247 | 229 | ||||||
| Total Current Assets | 28,050 | 37,727 | ||||||
| Intangible assets-net | 2,389,555 | - | ||||||
| TOTAL ASSETS | $ | 2,417,605 | $ | 37,727 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short-term debt to related parties | $ | 9,582 | $ | 8,888 | ||||
| Short-term debt | 16,704 | 1,581 | ||||||
| Accounts payable and accrued expenses | 8,428 | 4,149 | ||||||
| Total Current Liabilities | 34,714 | 14,618 | ||||||
| Commitments and Contingencies | - | - | ||||||
| STOCKHOLDERS’ EQUITY : | ||||||||
| Preferred stock, $.001 par value, 10,000,000 shares authorized, -0- outstanding | - | - | ||||||
| Common stock, $.001 par value, 100,000,000 shares authorized; 20,767,100 and 15,572,100 shares issued and outstanding at October 31, 2017 and January 31, 2017, respectively | 20,767 | 15,572 | ||||||
| Additional paid-in-capital | 2,775,597 | 183,292 | ||||||
| Accumulated other comprehensive income | 302 | 1,709 | ||||||
| Accumulated deficit | (413,775 | ) | (177,464 | ) | ||||
| Total Stockholders’ Equity | 2,382,891 | 23,109 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,417,605 | $ | 37,727 | ||||
| July 31, | January 31, | |||||||
| 2019 | 2019 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 13,833 | $ | 474,653 | ||||
| Accounts receivable | 70,542 | 13,088 | ||||||
| Prepaid expenses | 68,500 | 102,725 | ||||||
| Total Current Assets | 152,875 | 590,466 | ||||||
| PROPERTY & EQUIPMENT-net | 128,588 | 146,147 | ||||||
| OTHER ASSETS: | ||||||||
| Goodwill | 1,719,235 | 1,719,235 | ||||||
| Right of use asset-net | 19,218 | - | ||||||
| Intangible assets-net | 333,235 | 351,770 | ||||||
| TOTAL ASSETS | $ | 2,353,151 | $ | 2,807,618 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 610,357 | $ | 291,781 | ||||
| Customer deposits | - | 71,225 | ||||||
| Operating lease liability | 19,652 | - | ||||||
| Note payable | 90,000 | 40,000 | ||||||
| Total Current Liabilities | 720,009 | 403,006 | ||||||
| Commitments and Contingencies | - | - | ||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $.001 par value, 10,000,000 shares authorized, -0- outstanding | - | - | ||||||
| Common stock, $.001 par value, 25,000,000 shares authorized; 5,423,956 shares issued and outstanding at July 31, 2019 and January 31, 2019 | 5,424 | 5,424 | ||||||
| Additional paid-in-capital | 8,832,590 | 8,579,890 | ||||||
| Accumulated other comprehensive loss | (304 | ) | (52 | ) | ||||
| Accumulated deficit | (7,204,568 | ) | (6,180,650 | ) | ||||
| Total Stockholders' Equity | 1,633,142 | 2,404,612 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 2,353,151 | $ | 2,807,618 | ||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
| Three Months Ended | Six Months Ended | |||||||||||||||
| July 31, | July 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Revenue | $ | 74,913 | $ | - | $ | 268,503 | $ | - | ||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenues | 117,959 | - | 316,753 | - | ||||||||||||
| Selling, general and administrative expenses | 406,566 | 1,878,772 | 974,523 | 2,326,870 | ||||||||||||
| Total Costs and Expenses | 524,525 | 1,878,772 | 1,291,276 | 2,326,870 | ||||||||||||
| Loss from operations | (449,612 | ) | (1,878,772 | ) | (1,022,773 | ) | (2,326,870 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | (953 | ) | - | (1,145 | ) | - | ||||||||||
| Loss from operations before provision for income taxes | (450,565 | ) | (1,878,772 | ) | (1,023,918 | ) | (2,326,870 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (450,565 | ) | $ | (1,878,772 | ) | $ | (1,023,918 | ) | $ | (2,326,870 | ) | ||||
| Net loss per share of common stock-basic and diluted | $ | (0.08 | ) | $ | (0.36 | ) | $ | (0.19 | ) | $ | (0.44 | ) | ||||
| Weighted average shares of common stock outstanding - basic and diluted | 5,423,956 | 5,310,033 | 5,423,956 | 5,265,406 | ||||||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||||
| Net loss | $ | (573,353 | ) | $ | (1,878,772 | ) | $ | (1,023,918 | ) | $ | (2,326,870 | ) | ||||
| Foreign currency translation adjustment | - | 252 | (252 | ) | 398 | |||||||||||
| Total Comprehensive Income (Loss) | $ | (573,353 | ) | $ | (1,878,520 | ) | $ | (1,024,170 | ) | $ | (2,326,472 | ) | ||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Six Months Ended July 31, 2018 | Accumulated | |||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | |||||||||||||||||||||
| Total | shares | Amount | Capital | Income(Loss) | Deficit | |||||||||||||||||||
| Balance, February 1, 2018 | $ | 121,508 | 5,219,275 | $ | 5,219 | $ | 2,966,145 | $ | (446 | ) | $ | (2,849,410 | ) | |||||||||||
| Issuance of common stock for services | 1,763,950 | 80,500 | 80 | 1,763,870 | - | - | ||||||||||||||||||
| Sale of common stock for cash | 1,000,000 | 62,500 | 63 | 999,937 | - | - | ||||||||||||||||||
| Common stock issued upon the exercise of warrants | 500,000 | 31,250 | 31 | 499,969 | - | - | ||||||||||||||||||
| Common stock issued for acquisition | 1,850,000 | 62,500 | 63 | 1,849,937 | - | - | ||||||||||||||||||
| Foreign currency translation adjustment | 398 | - | - | - | 398 | - | ||||||||||||||||||
| Net loss for the six months ended July 31, 2018 | (2,326,870 | ) | - | - | - | - | (2,326,870 | ) | ||||||||||||||||
| Balance, July 31, 2018 | $ | 2,908,986 | 5,456,025 | $ | 5,456 | $ | 8,079,858 | $ | (48 | ) | $ | (5,176,280 | ) | |||||||||||
| Six Months Ended July 31, 2019 | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | |||||||||||||||||||||
| Total | shares | Amount | Capital | Income(Loss) | Deficit | |||||||||||||||||||
| Balance, February 1, 2019 | $ | 2,404,612 | 5,423,956 | $ | 5,424 | $ | 8,579,890 | $ | (52 | ) | $ | (6,180,650 | ) | |||||||||||
| Issuance of warrants for services | 252,700 | - | - | 252,700 | - | - | ||||||||||||||||||
| Net loss for the six months ended July 31, 2019 | (1,023,918 | ) | - | - | - | - | (1,023,918 | ) | ||||||||||||||||
| Foreign currency translation adjustment | (252 | ) | - | - | - | (252 | ) | - | ||||||||||||||||
| Balance, July 31, 2019 | $ | 1,633,142 | 5,423,956 | $ | 5,424 | $ | 8,832,590 | $ | (304 | ) | $ | (7,204,568 | ) | |||||||||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Three Months Ended July 31, 2018 | Accumulated | |||||||||||||||||||||||||||
| Common Stock | Additional | Other | Common | |||||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | stock | ||||||||||||||||||||||||
| Total | shares | Amount | Capital | Income(Loss) | Deficit | to be issued | ||||||||||||||||||||||
| Balance, April 30, 2018 | $ | (48,944 | ) | 5,219,275 | $ | 5,219 | $ | 2,966,145 | $ | (300 | ) | $ | (3,297,508 | ) | $ | 277,500 | ||||||||||||
| Issuance of common stock for services | 1,486,450 | 80,500 | 80 | 1,763,870 | - | - | (277,500 | ) | ||||||||||||||||||||
| Sale of common stock for cash | 1,000,000 | 62,500 | 63 | 999,937 | - | - | - | |||||||||||||||||||||
| Common stock issued upon the exercise of warrants | 500,000 | 31,250 | 31 | 499,969 | - | - | - | |||||||||||||||||||||
| Common stock issued for acquisition | 1,850,000 | 62,500 | 63 | 1,849,937 | - | - | - | |||||||||||||||||||||
| Foreign currency translation adjustment | 252 | - | - | - | 252 | - | - | |||||||||||||||||||||
| Net loss for the three months ended July 31, 2018 | (1,878,772 | ) | - | - | - | - | (1,878,772 | ) | - | |||||||||||||||||||
| Balance, July 31, 2018 | $ | 2,908,986 | 5,456,025 | $ | 5,456 | $ | 8,079,858 | $ | (48 | ) | $ | (5,176,280 | ) | $ | - | |||||||||||||
| Three Months Ended July 31, 2019 | Accumulated | |||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | |||||||||||||||||||||
| Total | shares | Amount | Capital | Income(Loss) | Deficit | |||||||||||||||||||
| Balance, April 30, 2019 | $ | 2,083,707 | 5,423,956 | $ | 5,424 | $ | 8,832,590 | $ | (304 | ) | $ | (6,754,003 | ) | |||||||||||
| Net loss for the three months ended July 31, 2019 | (450,565 | ) | - | - | - | - | (450,565 | ) | ||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | ||||||||||||||||||
| Balance, July 31, 2019 | $ | 1,633,142 | 5,423,956 | $ | 5,424 | $ | 8,832,590 | $ | (304 | ) | $ | (7,204,568 | ) | |||||||||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARYSUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)CASH FLOWS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| October 31, | October 31, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||||||
| Costs and expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 107,732 | 29,980 | 236,311 | 117,683 | ||||||||||||
| Loss from operations before provision for income taxes | (107,732 | ) | (29,980 | ) | (236,311 | ) | (117,683 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (107,732 | ) | $ | (29,980 | ) | $ | (236,311 | ) | $ | (117,683 | ) | ||||
| Net loss per common share-basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted average common shares outstanding | ||||||||||||||||
| - basic and diluted | 20,767,100 | 22,375,000 | 17,594,199 | 22,342,153 | ||||||||||||
| Other Comprehensive Income (Loss): | ||||||||||||||||
| Net loss | $ | (107,732 | ) | $ | (29,980 | ) | $ | (236,311 | ) | $ | (117,683 | ) | ||||
| Foreign currency translation adjustment | 160 | 268 | (1,407 | ) | (77 | ) | ||||||||||
| Total Comprehensive Loss | $ | (107,572 | ) | $ | (29,712 | ) | $ | (237,718 | ) | $ | (117,760 | ) | ||||
| Six Months Ended | ||||||||
| July 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (1,023,918 | ) | $ | (2,326,870 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Expenses paid on behalf of the Company by related party | - | 24,300 | ||||||
| Depreciation and amortization | 36,094 | 347 | ||||||
| Amortization of right of use asset | 9,609 | - | ||||||
| Stock-based compensation | 252,700 | 1,763,950 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventories | - | (50,473 | ) | |||||
| Accounts receivable | (57,454 | ) | 263 | |||||
| Prepaid expenses | 34,225 | 95,000 | ||||||
| Deferred revenue | - | 49,000 | ||||||
| Deposit on sales | (71,225 | ) | - | |||||
| Operating lease liability | (9,175 | ) | - | |||||
| Accounts payable and accrued expenses | 318,576 | 61,541 | ||||||
| Net Cash Used In Operating Activities | (510,568 | ) | (382,942 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | - | (4,163 | ) | |||||
| Net Cash Used in Investing Activities | - | (4,163 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Payment of bank overdraft | - | (762 | ) | |||||
| Proceeds from sale of common stock | - | 1,000,000 | ||||||
| Proceeds from exercise of warrants | - | 500,000 | ||||||
| Proceeds from notes payable | 50,000 | 25,000 | ||||||
| Payment of notes payable | - | (1,820 | ) | |||||
| Proceeds from related parties | - | 2,500 | ||||||
| Payment of related party payables | - | (41,038 | ) | |||||
| Net Cash Provided by Financing Activities | 50,000 | 1,483,880 | ||||||
| Effect of exchange rate on cash | (252 | ) | 406 | |||||
| Net change in cash | (460,820 | ) | 1,097,181 | |||||
| Cash and cash equivalents - Beginning of period | 474,653 | - | ||||||
| Cash and cash equivalents - End of period | $ | 13,833 | $ | 1,097,181 | ||||
| Supplementary information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Common stock to be issued for services | $ | - | $ | 1,763,950 | ||||
| Adoption of ASC 842 Operating lease asset and liability | $ | 28,827 | $ | - | ||||
| Common stock issued for deposit on acquisition | $ | - | $ | 1,850,000 | ||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
as of and for the Six Months Ended July 31, 2019 And 2018
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
Nutriband Inc. (the “Company”) is a Nevada corporation, incorporated on January 4, 2016. In January 2016, the Company acquired Nutriband Ltd., an Irish company which was formed by the Company’s chief executive officer in 2012 to enter the health and wellness market by marketing transdermal patches. References to the Company relate to the Company and its subsidiaries unless the context indicates otherwise.
On August 1, 2018, the Company acquired 4P Therapeutics LLC (“4P Therapeutics”) for $2,250,000, consisting of 62,500 shares of common stock, valued at $1,850,000, and $400,000, and a royalty payable to the former owner of 4P Therapeutics, of 6% on all revenue generated by the Company from the abuse deterrent intellectual property that had been developed by 4P Therapeutics. The former owner of 4P Therapeutics has been a director of the Company since April 2018, when the Company entered into the agreement to acquire 4P Therapeutics.
4P Therapeutics is engaged in the development of a series of transdermal pharmaceutical products that are in the preclinical stage of development. Prior to the acquisition of 4P Therapeutics, the Company’s business was the development and marketing of a range of transdermal consumer patches. Most of these products are considered drugs in the United States and cannot be marketed in the United States without approval by the Food and Drug Administration (the “FDA”). The Company is not presently taking any steps to seek FDA approval of its consumer transdermal products and its consumer products are not being marketed in the United States.
With the acquisition of 4P Therapeutics, 4P Therapeutics’ drug development business became the Company’s principal business. The Company’s approach is to use generic drugs that are off patent and incorporate them into the Company’s transdermal drug delivery system. Although these medications have received FDA approval in oral or injectable form, the Company needs to conduct a transdermal product development program which will include the preclinical and clinical trials that are necessary to receive FDA approval before we can market any of our pharmaceutical transdermal products.
Reverse Stock Split and Reduction in Authorized Common Stock
On June 25, 2019, the Company effected one-for-four reverse split, pursuant to which each share of common stock became and was converted into 0.25 share of common stock, and the Company decreased its authorized common stock from 100,000,000 shares to 25,000,000 shares. The reverse split became effective in the marketplace on July 24, 2019. All share and per share information in these financial statements retroactively reflect the reverse split.
Going Concern
The Company’s consolidated financial statements for the six months ended July 31, 2019 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company did not generate any revenue prior to the quarter ended October 31, 2018. For the six months ended July 31, 2019, the Company generated revenue of $268,503 on which it recorded cost of revenues of $316,753 and a loss from operations of $1,022,773. The Company requires substantial funding to execute its strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining significant additional financing, generating revenue primarily from its professional services to cover its overhead, developing its products, and obtaining FDA approval to market any product it develops and implementing a marketing program for such products. The Company will not be able to generate any revenue from its proposed transdermal pharmaceutical products without FDA approval. These factors raise substantial doubt about ability of the Company to continue as a going concern.
NUTRIBAND INC. AND SUBSIDIARYSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSNotes to Unaudited Consolidated Financial Statements
(Unaudited)as of and for the Six Months Ended July 31, 2019 And 2018
| Nine Months Ended | Nine Months Ended | |||||||
| October 31, 2017 | October 31, 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (236,311 | ) | $ | (117,683 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization | 110,445 | |||||||
| Expenses paid on behalf of Company by related party | - | 471 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Inventories | 5,410 | (16,014 | ) | |||||
| Prepaid expenses | 34,763 | |||||||
| Accounts payable and accrued expenses | 4,230 | 17,387 | ||||||
| Net Cash Used In Operating Activities | (81,463 | ) | (115,839 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Net Cash Provided by Investing Activities | - | - | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | 40,000 | 100,000 | ||||||
| Proceeds from short-term debt | 15,000 | - | ||||||
| Payment of long-term debt | - | (471 | ) | |||||
| Proceeds from related parties | 8,250 | 22,950 | ||||||
| Payment of related party payables | (8,250 | ) | (5,900 | ) | ||||
| Net Cash Provided by Financing Activities | 55,000 | 116,579 | ||||||
| Effect of exchange rate on cash | (559 | ) | 17 | |||||
| Net increase (decrease) in cash | (27,022 | ) | 757 | |||||
| Cash and cash equivalents - Beginning of period | 27,124 | 100 | ||||||
| Cash and cash equivalents - End of period | $ | 102 | $ | 857 | ||||
| Supplementary information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash Investing Activities: | ||||||||
| Common stock issued for purchase of patents | $ | 2,500,000 | $ | - | ||||
| Common stock issued for prepaid expenses | $ | 57,500 | $ | - | ||||
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS2. SUMMARY OF AND FOR THE NINE AND THREESIGNIFICANT ACCOUNTING POLICIES
MONTHS ENDED OCTOBER 31, 2017 AND 2016
The consolidated balance sheet as of OctoberJuly 31, 20172019 and the consolidated statements of operations, stockholders’ equity, and cash flows for the periods presented have been prepared by Nutriband, Inc. and Subsidiary (the “Company” or “Nutriband”)the Company and are unaudited. The consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods pursuant to Rule 8-03 of Regulation S-X, and consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders’stockholders' equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of January 31, 20172019 was derived from audited financial statements of the Company.
Organization
Nutriband Inc. (the “Company” or “Nutriband”) was incorporated The Company’s significant accounting policies are found below. These policies should be read in conjunction with Note 1 in the State of Nevada in January 2016. In January 2016, the Company acquired Nutriband Ltd. (“Nutriband Ltd”), a company registered in Dublin, Ireland, to enter the health supplement market with new applications of transdermal patches for delivery of supplements. Nutriband Ltd. moved manufacturing and operations to the United States during 2016. The product line consists of three products: an Energy Patchline, Weight Management Patchline, and a Multivitamin Patchline.
Going Concern
The consolidatedCompany’s audited financial statements for the nine monthsyear ended OctoberJanuary 31, 2017, have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations. The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue to support its cost structure. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
Management acquired Nutriband Ltd. in 2016 to enter the health supplement market. The Company is also exploring some acquisition opportunities which would expand the Company’s operations into the pharmaceutical field.
Management believes these proposed acquisitions will be profitable and the cash flows from these operations will enable the Company to fund the operations of the consolidated group over the next twelve months. Therefore, the annual financial statements continue to be prepared on a going concern basis.
Significant Accounting Policies2019.
Principles of Consolidation
The consolidated financial statements of the Company include the Company and its wholly-owned subsidiary.subsidiaries. All material intercompany balances and transactions have been eliminated. The operations of 4P Therapeutics are included in the Company’s financial statements from the date of acquisition of August 1, 2018.
EvaluationUse of Long-lived AssetsEstimates
Patents representThe preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an important componentongoing basis, the Company evaluates its estimates including, but not limited to, those related to such items as income tax exposures, accruals, depreciable/useful lives, allowance for doubtful accounts and valuation allowances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Revenue Recognition
The Company recognized revenue in accordance with Topic 606 “Revenue from Contracts with Customers. Topic 606 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to a customer. The Company adopted the guidance under the new revenue standards using the modified retrospective method effective February 1, 2018 and determined no cumulative effect adjusted to retained earnings was necessary upon adoption. Topic 606 requires the Company to recognize revenues when control of the promised goods or services and receipt of payment is probable. The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.
Upon adoption, Topic 606 replaced most existing revenue recognition guidance in U.S. GAAP. The adoption of Topic the new revenue recognition standards did not have any impact on its consolidated financial statements since the Company did not recognize any revenue prior to the third quarter of 2018, and all revenue is recognized pursuant to Topic 606.
Revenue Service Types
The following is a description of the Company’s total assets.revenue service types, which include professional services and sale of goods:
| ● | Professional services include contract research and development related services with clients in the life sciences field on an as-needed basis. Deliverables primarily consist of detailed findings and conclusion reports provided to the client for each given research project engaged. |
| ● | Sales revenues are derived from the sale of products. To date, sales related to consumer products sold to the Company’s South Korean distributor. Upon receipt of a purchase order, the Company has the order filled and shipped. |
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
as of and for the Six Months Ended July 31, 2019 And 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Contracts with Customers
A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue types, the performance obligation is satisfied at different times. The Company‘s performance obligations include providing products and professional services in the area of research. The Company amortizesrecognizes product revenue performance obligations in most cases when the product has shipped to the customer. When the Company performs professional service work, it recognizes revenue when it has the right to invoice the customer for the work completed, which typically occurs on a monthly basis for the work performed during that month.
All revenue recognized in the statement of operations is revenue from contracts with customers.
Disaggregation of Revenues
The Company disaggregates its patentsrevenue from contracts with customers by service type and by geographical location. The following tables set forth revenue by service type and by geographical location.
Revenue by service type:
| Three months ended July 31, | Six months ended July 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Sale of goods | $ | - | $ | - | $ | 142,450 | $ | - | ||||||||
| Services | 74,913 | - | 126,053 | - | ||||||||||||
| Total | $ | 74,913 | $ | - | $ | 268,503 | $ | - | ||||||||
Revenue by geographic location:
| Three months ended July 31, | Six months ended July 31, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| United States | $ | 74,913 | $ | - | $ | 126,053 | $ | - | ||||||||
| Non-United States | - | - | 142,450 | - | ||||||||||||
| Total | $ | 74,913 | $ | - | $ | 268,503 | $ | - | ||||||||
Property, Plant and Equipment
The Company depreciates its plant and equipment on a straight-line basis over the estimated useful life of the assets. Property, plant and equipment is stated at historical cost. Expenditures for minor repairs, maintenance and replacement parts which do not increase the useful lives of the assets. assets are charged to expense as incurred. All major additions and improvements are capitalized. Depreciation is computed using the straight-line method. The lives over which the fixed assets are depreciated range from 3 to 5 years as follows:
| Lab equipment | 5 years | |||
| Furniture, fixtures and equipment | 3 years |
8
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
as of and for the Six Months Ended July 31, 2019 And 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Intangibles Assets
Intangibles assets include trademarks, intellectual property and customer base acquired through business combinations. The Company accounts for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” The Company capitalizes certain costs related to patent technology. A substantial component of the purchase price related to the Company’s acquisition in 2018 has also been assigned to intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Trademarks, intellectual property and customer base are being amortized over their estimated useful lives of ten years.
Goodwill
Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. The Company does not amortize goodwill in accordance with ASC 350.
Long-lived Assets
Management reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ImpairmentAn impairment exists when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the related net book value. There was no impairment as of October 31, 2017.
The Company’s significant accounting policies are summarized in Note 1Earnings per Share
Basic earnings per share of common stock is computed by dividing net earnings by the Company’s Annual Report on Form 10-K for the year ended January 31, 2017. There were no significant changes to these accounting policiesweighted average number of shares of common stock outstanding during the nine months ended October 31, 2017period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of shares of common stock and potential shares of common stock outstanding during the Company does not expect thatperiod. Potential shares of common stock consist of shares issuable upon the adoptionexercise of other recent accounting pronouncements will have a material effect on its financial statements.
Inventory as of October 31, 2017outstanding options and January 31, 2017 are as follows:
| October 31, | January 31, | ||||||||
| 2017 | 2017 | ||||||||
| Finished goods | $ | 2,638 | $ | 8,048 | |||||
| Work in progress | - | - | |||||||
| Raw materials | - | - | |||||||
| $ | 2,638 | $ | 8,048 | ||||||
Short-term debt-related parties as of October 31, 2017 and January 31, 2017, consists of loans from officers and related parties, that are interest free and due on demand. As of October 31, 2017, and January 31, 2017, short-term debt amounted to $9,582
and $8,888, respectively.
Short-term debt as of October 31, 2017 and January 31, 2017, consists of a loan from South County Dublin Council that is interest free with monthly payments of $75. The loan is due October 2017.common stock purchase warrants. As of July 31, 2017,2019 and January2018, there were 57,500 and 182,500 common stock equivalents outstanding, respectively, that were not included in the calculation of dilutive earnings per share as their effect would be anti-dilutive.
Stock-Based Compensation
ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services, and, since February 1, 2019, non-employees, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
For the six months ended July 31, 2017,2018, the totalCompany accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity - Based Payments to Non-Employees.” Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. As of February 1, 2019, pursuant to ASU 2018-07, ASC 718 was applied to stock-based compensation for both employees and non-employees.
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
as of and for the Six Months Ended July 31, 2019 And 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Leases
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.
The Company adopted ASU 2016-02 as amended effective February 1, 2019 using the modified retrospective approach. In connection with the adoption, the Company elected to utilize the Comparative Under 840 Option whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted under the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company completed the necessary changes to its accounting policies, processes, disclosure and internal control over financial reporting.
Adoption of the new standard resulted in the recording of right-to-use assets in the amount of $28,827 and lease liabilities related to operating leases in the amount of $28,827 on the Company’s consolidated balance sheet as of long-term debt (current portion)February 1, 2019. See Note 10, Leases, for Topic 842 disclosures in connection with the adoption of ASU 2016-02.
Recent Accounting Standards
The Company has implemented all new pronouncements, including the adoption of ASC 842 and 718, that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements or results of operations.
3. PROPERTY AND EQUIPMENT
| July 31, | January 31, | |||||||
| 2019 | 2018 | |||||||
| Lab equipment | $ | 144,585 | $ | 144,585 | ||||
| Furniture, fixtures and equipment | 19,643 | 19,643 | ||||||
| 164,228 | 164,228 | |||||||
| Less: Accumulated depreciation | (35,640 | ) | (18,081 | ) | ||||
| Net Property and Equipment | $ | 128,588 | $ | 146,147 | ||||
Depreciation expense amounted to $1,704$17,559 and $1,581,$347 for the six months ended July 31, 2019 and 2018, respectively.
4. DEBT
On September 12, 2017, the Company receivedborrowed $15,000 on an interest-free loanbasis from TII Jet Services LDA ina minority stockholder. In April 2018, the amount of $15,000.Company borrowed an additional $25,000 from the minority stockholder. In July 2019, the Company borrowed an additional $50,000. The loan isloans are interest free and due upon demand. As of OctoberThe balance due on such loans was $90,000 on July 31, 2017, the amount2019, and $40,000 on January 31, 2019, which is included in short-term debt.notes payable.
NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Six Months Ended July 31, 2019 And 2018 5. ACQUISITION OF BUSINESS On August 1, 2018, the Company acquired 100% of the membership interests of 4P Therapeutics, pursuant to an agreement dated April 5, 2018, for $2,250,000, consisting of 62,500 shares of common stock, valued at $1,850,000, and $400,000, and a royalty payable to the former owner of 4P Therapeutics, of 6% on all revenue generated by us from the abuse deterrent intellectual property that had been developed by 4P Therapeutics. The primary purpose of the acquisition is to acquire the intellectual property of 4P Therapeutics and complete the development and seek FDA approval on a number of transdermal pharmaceutical products under development by 4P Therapeutics which are in the preclinical stage. As a result of the acquisition of 4P Therapeutics, the Company has a pipeline of potential products. Acquisition costs, which were minimal, have been expensed as incurred in accordance with ASC 350. Details of the net assets acquired are as follows:
The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and 4P Therapeutics as if the acquisition occurred as of the beginning of six-month period ended July 31, 2018. The unaudited pro forma condensed financial information is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition occurred at the beginning of the period presented and should not be taken as being representation of the future consolidated results of operations of the Company.
6. INTANGIBLE ASSETS AND GOODWILL At July 31, 2019 and January 31, 2019, intangible assets consisted of intellectual property, customer base and trademarks, net of amortization, as follows:
NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Six Months Ended July 31, 2019 And 2018 6. INTANGIBLE ASSETS AND GOODWILL, continued The value of the intangible assets, consisting of intellectual property and customer base has been recorded at their fair value by the Company after completing a valuation and are being amortized over a period of ten years. Amortization expense for the six months ended July 31, 2019 and 2018 was $18,535 and $-0- respectively. No value has been given to the potential royalty payable to the former owner since the royalty is contingent upon the Company generating revenue from any source and there is no marketable product and there are material uncertainties, including the need for FDA approval, as to whether or when any revenue will be generated from the intellectual property subject to the royalty. If any royalties are paid to the former owner of 4P Therapeutics, the royalties will be expensed as incurred and treated as a cost of revenue.
7. RELATED PARTY TRANSACTIONS
NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Six Months Ended July 31, 2019 And 2018 8. COMMON STOCK During the six months ended July 31, 2018, the Company issued:
On May 2, 2018, the Company sold to an unrelated party for $1.0 million, 62,500 shares stock and 30-day warrants to purchase 62,500 shares of common stock at $16.00 per share. On May 27, 2018, the unrelated party exercised warrants to purchase 31,250 shares of common stock for proceeds of $500,000 and on June 2, 2018, warrants to purchase 31,250 shares of common stock expired unexercised. On July 31, 2018, the Company issued 62,500 shares of common stock valued at $1,850,000 representing a portion of the purchase price for the equity of 4P Therapeutics. See Notes 4 and 6. In November 2018, one of the defendants in the legal proceedings with Advanced Health Brands, Inc., returned 50,000 shares of common stock that had been issued to her, and these shares were cancelled as of January 31, 2019. On May 24, 2019, the Board of Directors created a series of preferred stock consisting of 2,500,000 shares designated as the Series A Convertible Preferred Stock (“Series A Preferred Stock”). On June 20, 2019, the Series A preferred Stock was terminated and the 2,500,000 shares were restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, until such stock is once more designated as part of a particular series by the Board of Directors. 9. WARRANTS AND OPTIONS
The following table summarizes the changes in warrants outstanding and the related price of the shares of the Company’s common stock issued to non-employees of the Company.
NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the 9. WARRANTS AND OPTIONS, continued The following table summarizes the
10. LEASES The Company has
The components of
Supplementary cash flow information related to leases are as follows:
NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Six Months Ended July 31, 2019 And 2018
10. LEASES, continued Supplementary balance sheet information related to leases are as follows:
Our discount rate is based on our incremental borrowing rate. Maturities of lease liabilities were as follows as of July 31, 2019:
11. CONTINGENCIES On
On On April 29, 2019, the Company filed a securities fraud action in the U.S. District Court for the Eastern District of New York against Raymond Kalmar, Paul Murphy, Michelle Polly-Murphy, Advanced Health Brands and TD Therapeutic, Inc. In the complaint the Company alleges that in 2017, the
12. SUBSEQUENT EVENTS
On August 14, 2019, the Company borrowed an additional $50,000 from a minority stockholder, bringing the total loans from the minority stockholder to $140,000. See Note 4.
With our acquisition of 4P Therapeutics has not generated any revenue from
$126,053. Our revenue from our South Korean distributor for the six months ended July 31, 2019 was With the change in our focus, our capital requirement have increased substantially. The process of developing pharmaceutical products and submitting them for FDA approval is both time consuming and expensive, with no assurance of obtaining approval from the FDA to market our product in the United States. We have budgeted $5.0 million for research and development of our abuse deterrent fentanyl transdermal system, including clinical manufacturing and clinical trials that need to be completed in order to obtain FDA approval. However, the total cost could be substantially in excess of that amount. We do not presently have the funds to enable us to develop our lead product, and we are seeking funding from a proposed public offering for this purpose. We have filed a registration statement with respect to a proposed public offering. Even if we complete the offering, the net proceeds of the offering will not be sufficient for us to complete the development and clinical testing necessary for FDA approval for our lead product. In the event that we are not able to complete the offering, we may be unable to raise the funds necessary to develop our lead product. In the event that we are not able to complete our proposed public offering, we cannot assure you that we will be able to raise the funds to finance our operations, either through a private placement or a joint venture agreement or strategic relationship, and, if we cannot raise funds as required, we may not be able to fund the development of our product pipeline. Any money we raise in either the proposed public offering or private placement will most likely be at a discount to the then current market price and the discount could be significant, which would result in significant dilution to our stockholders with no assurance any proceeds we raise will be sufficient for us to complete the development of our lead product.
Three and We did not generate revenues during the three months ended July 31, 2018. For the three months ended July 31, 2019, we generated revenue of $74,913 and our costs of revenues were $117,959 resulting in negative gross profit of $43,046. Our revenue was derived from the continuation of research and development contracts of the type that 4P Therapeutics performed prior to our acquisition. There were no sales of transdermal products during the second quarter. Our cost of revenue for our research and development contract in both the three and six month periods includes fixed expenses, such as the compensation for Dr. Alan Smith, who is our chief operating officer and president of 4P Therapeutics, and the rent for 4P Therapeutics’ facilities. As a result, if we cannot generate sufficient revenue to cover the fixed expenses of 4P Therapeutics, we will continue to generate a negative gross margin from these operations.
For the three months ended
We did not generate any revenues during the six months ended July 31, 2018. For the six months ended July 31, 2019, we generated revenue of $268,503 and our costs of revenues were $316,753, resulting in negative gross profit of $48,250. Our revenue was derived from two sources – a continuation of research and development contracts of the type that 4P Therapeutics performed prior to our acquisition, which accounted for $126,053, and sales of our consumer transdermal product to our South Korean distributor, which accounted for $142,450, which were generated during the quarter ended April 30, 2019. The sales related to purchases by our South Korean distributor for its preliminary marketing efforts since the product has not obtained regulatory approval for retail sales. We anticipate that all of our revenue for the quarter ended October 31,
For the
As of For the
Off Balance Sheet Arrangements
We
Critical Accounting Policies
Our consolidated financial statements Use of Estimates The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to a customer. We adopted the guidance under the new revenue standards using the modified retrospective method effective February 1, 2018. Topic 606 requires us to recognize revenues when control of the promised goods or services and receipt of payment is probable. The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied. Revenue Service Types The following is a description of our revenue service types, which include professional services and sales of goods:
Contracts with Customers A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue service types, the performance obligation is satisfied at different times. Our performance obligations include providing products and professional services in the area of research. We recognize product revenue performance obligations in most cases when the product has shipped to the customer. When we perform professional service work, we recognize revenue when we have the right to invoice the customer for the work completed, which typically occurs on a monthly basis for work performed during that month. All revenue recognized in the statement of operations is considered to be revenue from contracts with customers. Intangible Assets Intangible assets include intellectual property and other customer base acquired through business combinations. We account for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” We capitalize certain costs related to patent technology, as a substantial portion of the purchase price related to our acquisition has been assigned to the intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Intellectual property and customer base are being amortized over their useful lives of ten years. Goodwill Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. In accordance with ASC 350, we do not amortize goodwill. Long-lived Assets Management reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the related net book value. Stock-Based Compensation ASC 718, “Compensation — Stock Compensation,” prescribes accounting and reporting standards for all stock-based payment transactions in which employee services, and, since February 1, 2019, non-employee services, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Stock-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). For the six months ended July 31, 2018, we account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity — Based Payments to Non-Employees.” Measurement of stock-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date. Leases In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. We adopted ASU 2016-02 as amended effective February 1, 2019 using the modified retrospective approach. In connection with the adoption, we elected to utilize the Comparative Under 840 Option whereby we will continue to present prior period financial statements and disclosures under ASC 840. In addition, we elected the transition package of three practical expedients permitted under the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We completed the necessary changes to our accounting policies, processes, disclosure and internal control over financial reporting. Adoption of the new standard resulted in the recording of right-to-use assets in the amount of Foreign Currency Translation The functional currency of our Irish subsidiary is the Euro. The assets and Business Combinations
New Financial Accounting Standards
Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the consolidated financial statements included herewith.
Not applicable.
Evaluation of Disclosure
As of the end of period covered by this report,
Until we generate significantly greater revenues and employ accounting personnel, it is doubtful that we will be able implement any system which provides us with any degree of internal controls over financial reporting. Due to the nature of this material weakness in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could not be prevented or detected. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Changes in Internal Control over Financial Reporting
No changes were made to
On April 23, 2019, we entered into employment agreements with Gareth Sheridan and Sergei Melnik pursuant to which we agree to employ Mr. Sheridan as chief executive officer and Mr. Melnik as chief financial officer. The agreements also provide that we will include each of them as our nominee for director. The agreements have a term ending on January 31, 2024, and continue on a year-to-year basis thereafter unless terminated by either party on not less than 30 days’ notice given prior to the expiration of the initial term or any one-year extension, Pursuant to the employment agreements, Mr. Sheridan is currently receiving compensation at the annual rate of $42,000, and Mr. Melnik is not currently receiving any compensation. Commencing with the month in which we have raised at least $2,500,000 from the public or private financing of our equity securities, they will each receive salary at the annual rate of $170,000. Exhibits
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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