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 October 31, 20212022
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.) |
121 South Orange Ave., Suite 1500, Orlando, FL | 32801 | |
(Address of Principal Executive Offices) | (Zip Code) |
(407) 377-6695
(Registrant’s Telephone Number, Including Area Code)
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 every Interactive Data File required to be submitted 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 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 7,773,9627,833,151 shares as of December 13, 2021.2, 2022.
NUTRIBAND INC.
INDEX
i
PART I. FINANCIAL INFORMATION
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 three and nine months ended October 31, 20212022 and 20202021 are not necessarily indicative of the results for the entire fiscal year or for any other period.
NUTRIBAND INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 31, | January 31, | |||||||||||||||
October 31, | January 31, | 2022 | 2022 | |||||||||||||
2021 | 2021 | (Unaudited) | ||||||||||||||
ASSETS | (Unaudited) | |||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash and cash equivalents | $ | 5,485,344 | $ | 151,993 | $ | 2,816,318 | $ | 4,891,868 | ||||||||
Accounts receivable | 146,411 | 109,347 | 80,455 | 71,380 | ||||||||||||
Inventory | 124,937 | 52,848 | 184,323 | 131,648 | ||||||||||||
Prepaid expenses | 191,820 | - | 426,105 | 370,472 | ||||||||||||
Total Current Assets | 5,948,512 | 314,188 | 3,507,201 | 5,465,368 | ||||||||||||
PROPERTY & EQUIPMENT-net | 989,997 | 1,076,626 | 933,642 | 979,297 | ||||||||||||
OTHER ASSETS: | ||||||||||||||||
Goodwill | 7,529,875 | 7,529,875 | 5,349,039 | 5,349,039 | ||||||||||||
Operating lease right of use asset | 70,599 | 19,043 | ||||||||||||||
Intangible assets-net | 959,367 | 1,006,730 | 808,718 | 926,913 | ||||||||||||
TOTAL ASSETS | $ | 15,427,751 | $ | 9,927,419 | $ | 10,669,199 | $ | 12,739,660 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 644,543 | $ | 940,612 | $ | 535,841 | $ | 639,539 | ||||||||
Deferred revenue | 239,582 | 86,846 | 201,990 | 106,267 | ||||||||||||
Notes payable-related party, net | - | 1,402,523 | ||||||||||||||
Finance lease liabilities-current portion | 106,031 | 24,740 | ||||||||||||||
Operating lease liability-current portion | 30,586 | 19,331 | ||||||||||||||
Notes payable-current portion | 14,119 | 113,885 | 21,335 | 14,119 | ||||||||||||
Total Current Liabilities | 1,004,275 | 2,568,606 | 789,752 | 779,256 | ||||||||||||
LONG-TERM LIABILITIES: | ||||||||||||||||
Note payable-net of current portion | 104,601 | 150,063 | 105,512 | 101,119 | ||||||||||||
Finance lease liabilities-net of currnt portion | - | 96,804 | ||||||||||||||
Operating lease liability-net of current portion | 42,369 | - | ||||||||||||||
Total Liabilities | 1,108,876 | 2,815,473 | 937,633 | 880,375 | ||||||||||||
Commitments and Contingencies | - | - | - | - | ||||||||||||
STOCKHOLDERS’ EQUITY: | ||||||||||||||||
Preferred stock, $.001 par value, 10,000,000 shares authorized, -0- outstanding | - | - | - | - | ||||||||||||
Common stock, $.001 par value, 250,000,000 shares authorized; 7,743,963 and 6,256,770 shares issued and outstanding as of October 31, 2021 and January 31, 2021, respectively | 7,744 | 6,257 | ||||||||||||||
Common stock, $.001 par value, 291,666,666 shares authorized; 7,843,146 shares issued at October 31, 2022 and 9,187,659 issued at January 31, 2022, 7,803,263 and 9,154,846 shares outstanding as of October 31,2022 and January 31, 2022, respectively | 7,803 | 9,155 | ||||||||||||||
Additional paid-in-capital | 28,487,341 | 18,871,098 | 30,669,580 | 29,966,132 | ||||||||||||
Subscription payable | 66,900 | 70,000 | ||||||||||||||
Accumulated other comprehensive loss | (304 | ) | (304 | ) | (304 | ) | (304 | ) | ||||||||
Treasury stock, 39,883 and 32,813 shares at cost, respectively | (130,133 | ) | (104,467 | ) | ||||||||||||
Accumulated deficit | (14,242,806 | ) | (11,835,105 | ) | (20,815,380 | ) | (18,011,231 | ) | ||||||||
Total Stockholders’ Equity | 14,318,875 | 7,111,946 | 9,731,566 | 11,859,285 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 15,427,751 | $ | 9,927,419 | $ | 10,669,199 | $ | 12,739,660 |
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(Unaudited)
For the | For the | |||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | 283,037 | $ | 391,797 | $ | 930,264 | $ | 595,611 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues | 173,694 | 228,772 | 529,300 | 420,648 | ||||||||||||
Research and development expenses | 161,000 | - | 161,000 | - | ||||||||||||
Selling, general and administrative expenses | 1,486,784 | 203,976 | 2,575,611 | 589,224 | ||||||||||||
Total Costs and Expenses | 1,821,478 | 432,748 | 3,265,911 | 1,009,872 | ||||||||||||
Loss from operations | (1,538,441 | ) | (40,951 | ) | (2,335,647 | ) | (414,261 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Gain (loss) on extinguishment of debt | - | - | 43,214 | (12,500 | ) | |||||||||||
Early prepayment fee on convertible debentures | - | - | - | (69,131 | ) | |||||||||||
Gain on change of fair value of derivative | - | - | - | 22,096 | ||||||||||||
Interest expense | (33,380 | ) | (1,618 | ) | (115,268 | ) | (206,836 | ) | ||||||||
Total other income (expense) | (33,380 | ) | (1,618 | ) | (72,054 | ) | (266,371 | ) | ||||||||
Loss before provision for income taxes | (1,571,821 | ) | (42,569 | ) | (2,407,701 | ) | (680,632 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net loss | (1,571,821 | ) | (42,569 | ) | (2,407,701 | ) | (680,632 | ) | ||||||||
Deemed dividend related to warrant round-down | (196,589 | ) | - | (196,589 | ) | - | ||||||||||
Net loss attributable to common shareholders | $ | (1,768,410 | ) | $ | (42,569 | ) | $ | (2,604,290 | ) | $ | (680,632 | ) | ||||
Net loss per share of common stock-basic and diluted | $ | (0.27 | ) | $ | (0.01 | ) | $ | (0.40 | ) | $ | (0.12 | ) | ||||
Weighted average shares of common stock outstanding - basic and diluted | 6,505,249 | 5,517,188 | 6,586,921 | 5,495,423 | ||||||||||||
Other Comprehensive Income (Loss): | ||||||||||||||||
Net loss | $ | (1,768,410 | ) | $ | (42,569 | ) | $ | (2,604,290 | ) | $ | (680,632 | ) | ||||
Foreign currency translation adjustment | - | - | - | - | ||||||||||||
Total Comprehensive Loss | $ | (1,768,410 | ) | $ | (42,569 | ) | $ | (2,604,290 | ) | $ | (680,632 | ) |
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | 618,003 | $ | 283,037 | $ | 1,552,074 | $ | 930,264 | ||||||||
Costs and expenses: | ||||||||||||||||
Cost of revenues | 349,272 | 207,700 | 931,061 | 617,300 | ||||||||||||
Research and development expenses | 290,718 | 161,000 | 686,401 | 161,000 | ||||||||||||
Selling, general and administrative expenses | 1,049,532 | 1,452,778 | 2,726,256 | 2,487,611 | ||||||||||||
Total Costs and Expenses | 1,689,522 | 1,821,478 | 4,343,718 | 3,265,911 | ||||||||||||
Loss from operations | (1,071,519 | ) | (1,538,441 | ) | (2,791,644 | ) | (2,335,647 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Gain on extinguishment of debt | - | - | - | 43,214 | ||||||||||||
Interest expense | (3,966 | ) | (33,380 | ) | (12,505 | ) | (115,268 | ) | ||||||||
Total other income (expense) | (3,966 | ) | (33,380 | ) | (12,505 | ) | (72,054 | ) | ||||||||
Loss before provision for income taxes | (1,075,485 | ) | (1,571,821 | ) | (2,804,149 | ) | (2,407,701 | ) | ||||||||
Provision for income taxes | - | - | - | - | ||||||||||||
Net loss | (1,075,485 | ) | (1,571,821 | ) | (2,804,149 | ) | (2,407,701 | ) | ||||||||
Deemed dividend related to warrant round-down | - | (196,589 | ) | - | (196,589 | ) | ||||||||||
Net loss attributable to common shareholders | $ | (1,075,485 | ) | $ | (1,768,410 | ) | $ | (2,804,149 | ) | $ | (2,604,290 | ) | ||||
Net loss per share of common stock-basic and diluted | $ | (0.14 | ) | $ | (0.23 | ) | $ | (0.32 | ) | $ | (0.34 | ) | ||||
Weighted average shares of common stock outstanding - basic and diluted | 7,803,264 | 7,589,457 | 8,659,522 | 7,684,741 | ||||||||||||
Other Comprehensive Loss: | ||||||||||||||||
Net loss | $ | (1,075,485 | ) | $ | (1,571,821 | ) | $ | (2,804,149 | ) | $ | (2,407,701 | ) | ||||
Foreign currency translation adjustment | - | - | - | - | ||||||||||||
Total Comprehensive Loss | $ | (1,075,485 | ) | $ | (1,571,821 | ) | $ | (2,804,149 | ) | $ | (2,407,701 | ) |
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended October 31, 2022
Accumulated | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | |||||||||||||||||||||||||||
Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | |||||||||||||||||||||||||
Balance, February 1, 2022 | $ | 11,859,285 | 9,154,846 | $ | 9,155 | $ | 29,966,132 | $ | (304 | ) | $ | (18,011,231 | ) | $ | - | $ | (104,467 | ) | ||||||||||||||
Exercise of warrants | 296,875 | 55,417 | 56 | 296,819 | - | - | - | - | ||||||||||||||||||||||||
Common stock returned in settlement | - | (1,400,000 | ) | (1,400 | ) | 1,400 | - | - | - | - | ||||||||||||||||||||||
Treasury stock issued for services | 93,100 | 28,583 | 28 | (28 | ) | - | - | - | 93,100 | |||||||||||||||||||||||
Treasury stock repurchased | (118,766 | ) | (35,583 | ) | (36 | ) | 36 | - | - | - | (118,766 | ) | ||||||||||||||||||||
Options issued for services | 405,221 | - | - | 405,221 | - | - | - | - | ||||||||||||||||||||||||
Net loss for the nine months ended October 31, 2022 | (2,804,149 | ) | - | - | - | - | (2,804,149 | ) | - | - | ||||||||||||||||||||||
Balance, October 31, 2022 | $ | 9,731,566 | 7,803,263 | $ | 7,803 | $ | 30,669,580 | $ | (304 | ) | $ | (20,815,380 | ) | $ | - | $ | (130,133 | ) |
Nine Months Ended October 31, 2021
Accumulated | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | Common Stock | Additional | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | ||||||||||||||||||||||||||||||||||||||||||||||||||
Total | shares | Amount | Capital | Income (Loss) | Deficit | Payable | Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, February 1, 2021 | $ | 7,111,946 | 6,256,772 | $ | 6,257 | $ | 18,871,098 | $ | (304 | ) | $ | (11,835,105 | ) | $ | 70,000 | $ | 7,111,946 | 7,299,567 | $ | 7,300 | $ | 18,870,055 | $ | (304 | ) | $ | (11,835,105 | ) | $ | 70,000 | $ | - | ||||||||||||||||||||||||||||
Common stock issued for proceeds and payment for license | 640,000 | 81,396 | 81 | 699,919 | - | - | (60,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Proceeds from sale of common stock and warrants in public offering | 5,836,230 | 1,056,000 | 1,056 | 5,835,174 | - | - | 0 | 5,836,230 | 1,232,000 | 1,232 | 5,834,998 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Proceeds from exercise of warrants | 2,062,500 | 275,000 | 275 | 2,062,225 | - | - | 0 | 2,062,500 | 320,833 | 321 | 2,062,179 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Cashless exercise of warrants | - | 14,869 | 15 | (15 | ) | - | - | 0 | - | 17,347 | 17 | (17 | ) | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for note payable | 100,000 | 17,182 | 17 | 99,983 | - | - | 0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for services | 466,900 | 18,102 | 18 | 409,982 | - | - | 56,900 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for notes payable | 100,000 | 20,046 | 20 | 99,980 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for settlement of liabilities | 144,000 | 24,642 | 25 | 143,975 | 144,000 | 28,749 | 29 | 143,971 | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||
Warrants issued for services | 365,000 | - | - | 365,000 | - | - | - | 365,000 | - | - | 365,000 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for proceeds and in payment for license | 640,000 | 94,962 | 95 | 699,905 | - | - | (60,000 | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued for services | 466,900 | 21,119 | 21 | 409,979 | - | - | 56,900 | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Settlement of warrant round down | 196,589 | - | - | 196,589 | - | - | - | 196,589 | - | - | 196,589 | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Deemed dividend from warrants | (196,589 | ) | - | - | (196,589 | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
Deemed dividend for warrants | (196,589 | ) | - | - | (196,589 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss for the nine months ended October 31, 2021 | (2,407,701 | ) | - | - | - | - | (2,407,701 | ) | - | (2,407,701 | ) | - | - | - | - | (2,407,701 | ) | - | - | |||||||||||||||||||||||||||||||||||||||||
Balance, October 31, 2021 | $ | 14,318,875 | 7,743,963 | $ | 7,744 | $ | 28,487,341 | $ | (304 | ) | $ | (14,242,806 | ) | $ | 66,900 | $ | 14,318,875 | 9,034,623 | $ | 9,035 | $ | 28,486,050 | $ | (304 | ) | $ | (14,242,806 | ) | $ | 66,900 | $ | - |
Nine
Three Months Ended October 31, 20202022
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | ||||||||||||||||||||||||
Total | shares | Amount | Capital | Income (Loss) | Deficit | Payable | ||||||||||||||||||||||
Balance, February 1, 2020 | $ | 175,433 | 5,441,100 | $ | 5,441 | $ | 9,072,573 | $ | (304 | ) | $ | (8,902,277 | ) | $ | - | |||||||||||||
Issuance of common stock for services | 50,000 | 5,000 | 5 | 49,995 | - | - | - | |||||||||||||||||||||
Sale of commonstock for cash | 515,108 | 46,828 | 47 | 515,061 | - | - | - | |||||||||||||||||||||
Conversion of debt for common stock | 287,500 | 25,000 | 25 | 287,475 | - | - | - | |||||||||||||||||||||
Issuance of common stock for acquisition | 6,000,000 | 608,581 | 609 | 5,999,391 | - | - | - | |||||||||||||||||||||
Reclassification of warrants from liability to equity | 906,678 | - | - | 906,678 | - | - | - | |||||||||||||||||||||
Net loss for the nine months ended October 31, 2020 | (680,632 | ) | - | - | - | - | (680,632 | ) | - | |||||||||||||||||||
Balance, October 31, 2020 | $ | 7,254,087 | 6,126,509 | $ | 6,127 | $ | 16,831,173 | $ | (304 | ) | $ | (9,582,909 | ) | $ | - |
Accumulated | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | |||||||||||||||||||||||||||
Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | |||||||||||||||||||||||||
Balance, July 1, 2022 | $ | 10,401,830 | 7,803,263 | $ | 7,803 | $ | 30,264,359 | $ | (304 | ) | $ | (19,739,895 | ) | $ | - | $ | (130,133 | ) | ||||||||||||||
Options issued for services | 405,221 | - | - | 405,221 | - | - | - | - | ||||||||||||||||||||||||
Net loss for the three months ended October 31, 2022 | (1,075,485 | ) | - | - | - | - | (1,075,485 | ) | - | - | ||||||||||||||||||||||
Balance, October 31, 2022 | $ | 9,731,566 | 7,803,263 | $ | 7,803 | $ | 30,669,580 | $ | (304 | ) | $ | (20,815,380 | ) | $ | - | $ | (130,133 | ) |
Three Months Ended October 31, 2021
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | ||||||||||||||||||||||||
Total | shares | Amount | Capital | Income (Loss) | Deficit | Payable | ||||||||||||||||||||||
Balance, July 31, 2021 | $ | 7,316,066 | 6,356,270 | $ | 6,356 | $ | 19,980,999 | $ | (304 | ) | $ | (12,670,985 | ) | $ | - | |||||||||||||
Proceeds from sale of common stock and warrants in public offering | 5,836,230 | 1,056,000 | 1,056 | 5,835,174 | - | - | - | |||||||||||||||||||||
Proceeds from exercise of warrants | 2,062,500 | 275,000 | 275 | 2,062,225 | - | - | - | |||||||||||||||||||||
Cashless exercise of warrants | - | 14,869 | 15 | (15 | ) | - | - | - | ||||||||||||||||||||
Issuance of common stock for note payable | 100,000 | 17,182 | 17 | 99,983 | - | - | - | |||||||||||||||||||||
Common stock issued for services | 66,900 | - | - | - | - | - | 66,900 | |||||||||||||||||||||
Common stock issued for settlement of liabilities | 144,000 | 24,642 | 25 | 143,975 | ||||||||||||||||||||||||
Warrants issued for services | 365,000 | - | - | 365,000 | - | - | - | |||||||||||||||||||||
Settlement of warrant round down | 196,589 | - | - | 196,589 | - | - | - | |||||||||||||||||||||
Deemed dividend from warrants | (196,589 | ) | - | - | (196,589 | ) | - | - | - | |||||||||||||||||||
Net loss for the three months ended October 31, 2021 | (1,571,821 | ) | - | - | - | - | (1,571,821 | ) | - | |||||||||||||||||||
Balance, October 31, 2021 | $ | 14,318,875 | 7,743,963 | $ | 7,744 | $ | 28,487,341 | $ | (304 | ) | $ | (14,242,806 | ) | $ | 66,900 |
Three Months Ended October 31, 2020
Accumulated | ||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | ||||||||||||||||||||||||
Total | shares | Amount | Capital | Income (Loss) | Deficit | Payable | ||||||||||||||||||||||
Balance, July 31, 2020 | $ | 1,296,656 | 5,517,928 | $ | 5,518 | $ | 10,831,782 | $ | (304 | ) | $ | (9,540,340 | ) | $ | - | |||||||||||||
Issuance of common stock for acquisition | 6,000,000 | 608,581 | 609 | 5,999,391 | - | - | - | |||||||||||||||||||||
Net loss for the three months ended October 31, 2020 | (42,569 | ) | - | - | - | - | (42,569 | ) | - | |||||||||||||||||||
Balance, October 31, 2020 | $ | 7,254,087 | 6,126,509 | $ | 6,127 | $ | 16,831,173 | $ | (304 | ) | $ | (9,582,909 | ) | $ | - |
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | ||||||||
October 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,407,701 | ) | $ | (680,632 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Expenses paid on behalf of the Company by related party | - | 3,628 | ||||||
Depreciation and amortization | 235,380 | 83,562 | ||||||
Amortization of debt discount | 97,477 | 202,500 | ||||||
Gain on change in fair value of derivative | - | (22,096 | ) | |||||
Early prepayment fee on convertible debentures | - | 69,131 | ||||||
Amortization of right of use asset | - | 9,610 | ||||||
(Gain) loss on extinguisment of debt | (43,214 | ) | 12,500 | |||||
Stock-based compensation | 754,400 | 50,000 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (37,064 | ) | (76,066 | ) | ||||
Prepaid expenses | (114,320 | ) | 20,167 | |||||
Inventories | (72,089 | ) | 3,404 | |||||
Deposit on sales | 152,736 | 91,166 | ||||||
Operating lease liability | - | (10,050 | ) | |||||
Accounts payable and accrued expenses | (142,394 | ) | 29,267 | |||||
Net Cash Used In Operating Activities | (1,576,789 | ) | (213,909 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash received from acquisition | - | 66,994 | ||||||
Purchase of equipment | (51,388 | ) | - | |||||
(51,388 | ) | 66,994 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock | 583,000 | 515,108 | ||||||
Proceeds from sale of common stock in public offering | 5,836,230 | - | ||||||
Proceeds from exercise of warrants | 2,062,500 | - | ||||||
Proceeds from notes payable | - | 194,870 | ||||||
Payment on convertible debt | - | (339,131 | ) | |||||
Payment on note payable | (4,689 | ) | (5,635 | ) | ||||
Payment on related party note payable | (1,500,000 | ) | - | |||||
Payment on finance leases | (15,513 | ) | (2,391 | ) | ||||
Proceeds from related parties | - | 11,567 | ||||||
Payment of related party payables | - | (44,262 | ) | |||||
Net Cash Provided by Financing Activities | 6,961,528 | 330,126 | ||||||
Effect of exchange rate on cash | - | - | ||||||
Net change in cash | 5,333,351 | 183,211 | ||||||
Cash and cash equivalents - Beginning of period | 151,993 | 10,181 | ||||||
Cash and cash equivalents - End of period | $ | 5,485,344 | $ | 193,392 | ||||
Supplementary information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 9,447 | $ | 7,488 | ||||
Income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Common stock issued for settlement of notes payable | $ | 100,000 | $ | 287,500 | ||||
Common stock issued for prepaid consulting | $ | 400,000 | $ | - | ||||
Non-cash payment for license agreement | $ | 57,000 | $ | - | ||||
Derivative liability warrant reclassed to equity | $ | - | $ | 906,678 | ||||
Common stock issued for subscription payable | $ | 70,000 | $ | - | ||||
Common stock and note issued in acquisition | $ | - | $ | 7,500,000 | ||||
Settlement of liabilities for common stock | $ | 144,000 | $ | - | ||||
Deemed dividend in connection with warrant round down | $ | 196,589 | $ | - | ||||
Cashless exercise of warrant | $ | 15 | $ | - |
Accumulated | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | |||||||||||||||||||||||||||
Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | |||||||||||||||||||||||||
Balance, July 1, 2021 | $ | 7,316,066 | 7,415,648 | $ | 7,416 | $ | 19,979,939 | $ | (304 | ) | $ | (12,670,985 | ) | $ | - | $ | - | |||||||||||||||
Proceeds from sale of common stock and warrants in public offering | 5,836,230 | 1,232,000 | 1,232 | 5,834,998 | - | - | - | - | ||||||||||||||||||||||||
Proceeds from exercise of warrants | 2,062,500 | 320,833 | 321 | 2,062,179 | - | - | - | - | ||||||||||||||||||||||||
Cashless exercise of warrants | - | 17,347 | 17 | (17 | ) | - | - | - | - | |||||||||||||||||||||||
Issuance of common stock for notes payable | 100,000 | 20,046 | 20 | 99,980 | - | - | - | - | ||||||||||||||||||||||||
Common stock issued for settlement of liabilities | 144,000 | 28,749 | 29 | 143,971 | - | - | - | - | ||||||||||||||||||||||||
Warrants issued for services | 365,000 | - | - | 365,000 | - | - | - | - | ||||||||||||||||||||||||
Settlement of warrant round down | 196,589 | - | - | 196,589 | - | - | - | - | ||||||||||||||||||||||||
Deemed dividend for warrants | (196,589 | ) | - | - | (196,589 | ) | - | - | - | - | ||||||||||||||||||||||
Subscription payable | 66,900 | - | - | - | - | - | 66,900 | - | ||||||||||||||||||||||||
Net loss for the three months ended October 31, 2021 | (1,571,821 | ) | - | - | - | - | (1,571,821 | ) | - | - | ||||||||||||||||||||||
Balance, October 31, 2021 | $ | 14,318,875 | 9,034,623 | $ | 9,035 | $ | 28,486,050 | $ | (304 | ) | $ | (14,242,806 | ) | $ | 66,900 | $ | - |
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | ||||||||
October 31, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (2,804,149 | ) | $ | (2,407,701 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 255,925 | 235,380 | ||||||
Amortization of debt discount | - | 97,477 | ||||||
Amortization of right of use asset | 42,578 | - | ||||||
(Gain) loss on extinguisment of debt | - | (43,214 | ) | |||||
Options issued for services | 405,221 | - | ||||||
Treasury stock issued for services | 93,100 | - | ||||||
Common stock issued for services | - | 754,400 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (9,075 | ) | (37,064 | ) | ||||
Prepaid expenses | (55,633 | ) | (114,320 | ) | ||||
Inventories | (52,675 | ) | (72,089 | ) | ||||
Deferred revenue | 95,723 | 152,736 | ||||||
Operating lease liability | (40,510 | ) | - | |||||
Accounts payable and accrued expenses | (103,698 | ) | (142,394 | ) | ||||
Net Cash Used In Operating Activities | (2,173,193 | ) | (1,576,789 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of equipment | (69,281 | ) | (51,388 | ) | ||||
Net Cash Used in Investing Activities | (69,281 | ) | (51,388 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of common stock | - | 583,000 | ||||||
Proceeds from sale of common stock in public offering | - | 5,836,230 | ||||||
Proceeds from the exercise of warrants | 296,875 | 2,062,500 | ||||||
Payment on note payable | (11,185 | ) | (4,689 | ) | ||||
Payment on related party note payable | - | (1,500,000 | ) | |||||
Payment on finance leases | - | (15,513 | ) | |||||
Purchase of treasury stock | (118,766 | ) | - | |||||
Net Cash Provided by (used in) Financing Activities | 166,924 | 6,961,528 | ||||||
Effect of exchange rate on cash | - | - | ||||||
Net change in cash | (2,075,550 | ) | 5,333,351 | |||||
Cash and cash equivalents - Beginning of period | 4,891,868 | 151,993 | ||||||
Cash and cash equivalents - End of period | $ | 2,816,318 | $ | 5,485,344 | ||||
Supplementary information: | ||||||||
Cash paid for: | ||||||||
Interest | $ | 12,505 | $ | 9,447 | ||||
Income taxes | $ | - | $ | - | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Common stock returned in settlement | $ | 1,400 | $ | - | ||||
Common stock issued for settlement of notes payable | $ | - | $ | 100,000 | ||||
Common stock issued for prepaid consulting | $ | - | $ | 400,000 | ||||
Non-cash payment for license agreement | $ | - | $ | 57,000 | ||||
Common stock issued for subscription payable | $ | - | $ | 70,000 | ||||
Adoption of ASC 842 Operating lease asset and liability | $ | 94,134 | $ | - | ||||
Promissory note on equipment purchase | $ | 32,843 | $ | - | ||||
Settlement of liabilities for common stock | $ | - | $ | 144,000 | ||||
Deemed dividend in connection with warrant round down | $ | - | $ | 144,000 | ||||
Cashless exercise of warrant | $ | - | $ | 15 |
See notes to unaudited consolidated financial statements
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
as of and for the Nine Months Ended October 31, 20212022 and 20202021
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 250,000 shares of common stock, valued at $1,850,000, and $400,000, and a royalty of 6% on all revenue generated by the Company from the abuse deterrent intellectual property that had been developed by 4P Therapeutics payable to the former owner of 4P Therapeutics. The former owner of 4P Therapeutics has been a director of the Company since April 2018, when the Company entered into an agreement to acquire 4P Therapeutics. The former owner resigned as a director in January 2022.
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 stepsentered a feasibility agreement as an initial step to seek FDA approval of its consumer transdermal products and its consumer products which 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 products.
On August 25, 2020, the Company formed Pocono Pharmaceuticals Inc. (“Pocono Pharmaceuticals”), a wholly owned subsidiary of the Company. On August 31, 2020, the Company acquired certain assets and liabilities associated with the Transdermal, Topical, Cosmetic, and Nutraceutical business of Pocono Coated Products LLC (“PCP”). The net assets were contributed to Pocono Pharmaceuticals. Included in the transaction, the CompanyPocono Pharmaceuticals also acquired 100% of the membership interests of Active Intelligence LLC (“Active Intelligence”). See Note 2 for further details of the acquisition.
Pocono Pharmaceuticals is a coated products manufacturing entity organized to take advantage of unique process capabilities and experience. Pocono helps their customer with product design and development along with manufacturing to bring new products to market with minimal capital investment. Pocono Pharmaceutical’s competitive edge is a low-cost manufacturing base: a result of its unique processes and state of the art material technology. Active Intelligence manufactures activated kinesiology tape. The tape has transdermal and topical properties. This tape is used as the same as traditional kinesiology tape.
In December 2019, COVID-19 emerged and has subsequently spread world-wide. The World Health Organization has declared COVID-19 a pandemic resulting in federal, state and local governments and private entities mediatingproscribing various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining people who may have been exposed to the virus. The effect of these orders, government imposed quarantines and measures the Company wouldand suppliers and customers it works with might have to take, such as work-at-home policies, may negatively impact productivity, disrupt our business and could delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and disruptions in our operations, could negatively impact our business, operating results and financial condition. Further, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns, or other restrictions on the conduct of business could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Unaudited Interim Financial Statements
The consolidated balance sheet as of October 31, 2021,2022, and the consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the periods presented have been prepared by the Company and are unaudited. 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’ equity and cash flows for all periods presented have been made. The results forof the nine months ended October 31, 2021,2022, are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Nutriband’s Annual Report on Form 10-K for the year ended January 31, 2021.2022.
Certain information and footnote disclosures required under generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements of the U.S. Securities and Exchange Commission (“SEC”). The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosures of contingent amounts in our consolidated financial statements and accompanying footnotes. Actual results could differ from estimates.
The Company’s significant accounting policies are summarized in Note 1 in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021.2022. There were no significant changes to these accounting policies during the nine months ended October 31, 2021.2022.
Forward Stock Split
On July 26, 2022, our Board of Directors approved the amendment to our Articles of Incorporation to effect a 7 for 6 forward stock split (the “Stock Split”) of our outstanding common stock. The Company filed the amendment set forth in a Certificate of Change with the Secretary of State of Nevada on August 4, 2022. The 7:6 forward stock split was effective for trading purposes on the Nasdaq Capital Market on August 12, 2022. Each shareholder of record as of the August 15, 2022 record date received one (1) additional share for each six (6) shares held as of the record date. No fractional shares of common stock were issued in connection with the Stock Split. Instead, all shares were rounded up to the next whole share. In connection with the Stock Split, which did not require shareholder approval under the Nevada corporation law, the number of shares of common stock of the Company was increased in the same ratio as the shares of outstanding common stock were increased in the Stock Split, from 250,000,000 authorized shares to 291,666,666 authorized shares.
All share and per share information in these financial statements retroactively reflect the forward stock split.
Going Concern Assessment
Management assesses liquidity and going concern uncertainty in the Company’s condensed financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of October 31, 2021,2022, we had cash and cash equivalents of $2,816,318 and working capital of $2,717,449. For the nine months ended October 31, 2022, the Company believes the substantial doubt about its status as a going concern has been resolved.incurred an operating loss of $2,791,644 and use cash flow from operations of $2,173,193. The going concern conditions that caused substantial doubt no longer exist as the Company has positivegenerated operating losses since its inception and has relied on sales of securities and issuance of third-party and related-party debt to support cash flow during the last quarter and as of October 31, 2021, has positive working capital.from operations. In October 2021, the Company consummated a public offering and received net proceeds of $5,836,230. The Company also received $2,026,500 ofto date $3,239,845 proceeds from the exercise of warrants. Management retired most of its debtThe Company has used these proceeds to fund operations and other current obligations. will continue to use the funds as needed.
Management has implemented other plansprepared estimates of operations for the next twelve months and believes that sufficient funds will be generated from operations to alleviatefund its operations for one year from the substantial doubt. These plans includedate of the filing of these condensed consolidated financial statements, which indicates improved operations and the Company’s ability to continue operations as a substantial increasegoing concern. The impact of COVID-19 on the Company’s business has been considered in projected sales commitments. These factors did not exist in prior years duringthese assumptions; however, it is too early to know the full impact of COVID-19 or its start-uptiming on a return to normal operations. The Company’s recent history of losses has continued but future positive cash flow projections due to its management’s plans which includes its acquisition in the latter part of 2020 will enable the Company to alleviate
Management believes the substantial doubt about the Company’s ability of the Company to continue as a going concern. Management’s plans have been currently implemented. The plans enableconcern is alleviated by the Company to meet its obligations for at least one year from the date when the financial statements are issued.above assessment.
Principles of Consolidation
The consolidated financial statements of the Company include the Company and its wholly owned 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, and the operations of Pocono and Active Intelligence are included in the Company’s financial statements from the date of acquisition of September 1, 2020. The wholly owned subsidiaries are as follows:
Nutriband Ltd.
4P Therapeutics LLC
Pocono Pharmaceuticals Inc.
Active Intelligence LLC
Use of Estimates
The 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 ongoing 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 other various 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
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. 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.
Revenue Types
The following is a description of the Company’s revenue types, which include professional services and sale of goods:
● | Service revenues include the contract of research and development related services with the Company’s 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. |
● | Product revenues are derived from the sale of the Company’s consumer transdermal and coated products. Upon the reception of a purchase order, we have the order filled and shipped. |
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.
Deferred RevenueContract Liabilities
Deferred revenue is a liability related to a revenue producing activity for which revenue has not been recognized. The Company records deferred revenue when it receives consideration from a contract before achieving certain criteria that must be met for revenue to be recognized in conformity with GAAP.
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. The Company’s performance obligations include providing products and professional services in the area of research. The Company recognizes 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 over time on a monthly basis for the work performed during that month.
All revenue recognized in the income statement is considered to be revenue from contracts with customers.
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by type and by geographical location. See the tables:
Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
October 31, | October 31, | October 31, | October 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue by type | ||||||||||||||||||||||||||||||||
Sale of goods | $ | 183,037 | $ | 347,216 | $ | 724,288 | $ | 467,986 | $ | 1,325,127 | $ | 724,288 | $ | 394,904 | $ | 183,037 | ||||||||||||||||
Services | 100,000 | 44,581 | 205,976 | 127,625 | 228,947 | 205,976 | 61,245 | 100,000 | ||||||||||||||||||||||||
Total | $ | 283,037 | $ | 391,797 | $ | 930,264 | $ | 595,611 | $ | 1,554,074 | $ | 930,264 | $ | 456,149 | $ | 283,037 |
Three Months Ended | Nine Months Ended | Nine Months Ended | Three Months Ended | |||||||||||||||||||||||||||||
October 31, | October 31, | October 31, | October 31, | |||||||||||||||||||||||||||||
2021 | 2020 | 2021 | 2020 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
Revenue by geographic location: | ||||||||||||||||||||||||||||||||
United States | $ | 283,037 | $ | 155,083 | $ | 843,664 | $ | 238,127 | $ | 1,554,074 | $ | 843,664 | $ | 456,149 | $ | 283,037 | ||||||||||||||||
Foreign | - | 236,714 | 86,600 | 357,484 | - | 86,600 | - | - | ||||||||||||||||||||||||
$ | 283,037 | $ | 391,797 | $ | 930,264 | $ | 595,611 | $ | 1,554,074 | $ | 930,264 | $ | 456,149 | $ | 283,037 |
Accounts receivable
Trade accounts receivables are recorded at the net invoice value and are not interest bearing. The Company maintains allowances for doubtful accounts for estimated losses from the inability of its customers to make required payments. The Company determines its allowances by both specific identification of customer accounts where appropriate and the application of historical loss to non-applicable accounts. For the nine months ended October 31, 20212022 and 2020,2021, the Company recorded no bad debt expense for doubtful accounts related to account receivable.
Inventories
Inventories are valued at the lower of cost and reasonable value determined using the first-in, first-out (FIFO) method. Net reasonablerealized value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The cost of finished goods and work in process is comprised of material costs, direct labor costs and other direct costs and related production overheads (based on normal operating capacity). As of October 31, 2021,2022 and January 31, 2022, 100% of the inventory consists of raw materials.
Property, Plant and Equipment
Property and equipment represent an important component of the Company’s assets. 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 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 20 years as follows:
Lab Equipment | 5-10 years | |
Furniture and fixtures | 3 years | |
Machinery and equipment | 10-20 years |
Intangible Assets
Intangible 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 acquisitions have 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 on January 31, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceeds their fair value. The Company does not amortize goodwill in accordance with ASC 350. In connection with the Company’s acquisition of 4P Therapeutics LLC in 2018, the Company recorded Goodwill of $1,719,235. On August 31, 2020, in connection with the Company’s acquisition of Pocono Coated Products LLC and Active Intelligence LLC, the Company recorded Goodwill of $5,810,640. During the year ended January 31, 2022, the Company recorded an impairment charge of $2,180,836 reducing the Active Intelligence LLC Goodwill to $3,629,813. As of October 31, 2021,2022 and January 31, 2022, Goodwill amounted to $7,529,875.$5,349,039.
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 the fair market value of the long-lived asset and the related book value.
Earnings per Share
Basic earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. 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 period. Potential shares of common stock consist of shares issuable upon the exercise of outstanding options and common stock purchase warrants. As of October 31, 2021,2022, and 2020,2021, there were 1,347,928 and141,8301,645,506 and 1,572,825 common stock equivalents outstanding, 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). As of February 1, 2019, pursuant to ASC 2018-07, ASC 718 was applied to stock-based compensation for both employees and non-employees.
Business Combinations
The Company recognizes the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the accounting literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair value.
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 applies the guidance for right-of-use accounting for all leases and records the operating lease liabilities on its balance sheet. The Company completed the necessary changes to its accounting policies, processes, disclosure and internal control over financial reporting.
Research and Development Expenses
Research and development expensescosts are expensed as incurred.
Income Taxes
Taxes are calculated in accordance with taxation principles currently effective in the United States and Ireland.
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent they believe these assets will more-likely-than-not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
Fair Value Measurements
FASB ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value.
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 | - | ||
Level 2 | - | ||
Level 3 | - |
The carrying value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses, and accrued expenses approximate their fair value due to the short maturities of these financial instruments.
Reclassification
The Company has reclassified prior year amounts to show the allocation of depreciation expense to cost of goods sold.
Recent Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies how to properly account for deferred revenue in a business combination. ASU 2021-08 is effective for periods after December 15, 2022. The Company adopted ASU 2021-08 on February 1, 2022. The adoption of ASU 2021-08 did not have a material effect on the Company’s consolidated financial statements.
The Company has implementedreviewed all other FASB-issued ASU accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. The Company has carefully considered the new pronouncements including the adoption of ASU 2018-13, ASU 2019-12 and ASU 2020-06, that are in effect and that may impact its consolidated financial statementsalter previous GAAP and does not believe that there are any other new accounting pronouncements that have been issued that mightor modified principles will have a material impact on its consolidatedthe Company’s reported financial statementsposition or resultsoperations in the near term. The applicability of operations.any standard is subject to the formal review of the Company’s financial management and certain standards are under consideration.
3. |
On August 31, 2020, the Company entered into a Purchase Agreement (“Agreement”), with Pocono Coated Products (“PCP”), pursuant to which PCP agreed to sell the Company certain of the assets and liabilities associated with its Transdermal, Topical, Cosmetic, and Nutraceutical business, including: (1) all the equipment, intellectual property and trade secrets, cash balances, receivables, bank accounts and inventory, free and clear of all liens, except for certain lease obligations, and (2), a 100% membership interest in Active Intelligence, LLC (collectively the “Assets”). The net assets acquired were contributed to Pocono Pharmaceuticals Inc, a newly formed wholly owned subsidiary of the Company. The purchase price for the Assets was (i) $6,085,180 paid with the issuance of 608,519 shares in the Company’s common stock of Nutriband at a value of the average price of the previous 90 days at the date of Closing (the “Shares”), and (ii) a promissory note of the Company, net of debt discount, in the principal amount, of $1,332,893 (the Note”) which is due upon the earlier of (a) twelve (12) months from issuance, or (b) immediately following a capital raise of not less than $4,000,000 and/or a public offering of no less than $4,000,000. Michael Myer, the CEO of PCP, has been elected to the Board of Directors of the Company for period of one year at the annual meeting of shareholders of the Company held in October 2020.
The Agreement provides that it is effective August 31, 2020, on which date the parties also entered into an escrow agreement (the “Escrow Agreement”), with legal counsel serving as the escrow agent, providing for holding of the Note, certificate for the shares, and title to the Assets (held in a special purpose subsidiary) as collateral security for completion of all closing conditions under the Agreement. On that date, the parties also entered into a security agreement granting PCP a security interest in all proceeds of the Assets held as collateral under the Escrow Agreement.
The purpose of the Company entering into the transaction is to enhance the transdermal products operations of the Company. The fair value of consideration given was allocated to the net tangible assets acquired. Under U.S. GAAP, both the PCP segment and Active Intelligence were considered to be businesses and, as such, the transaction was accounted for under the acquisition method of accounting.
Details of the net assets acquired are as follows:
Fair value | ||||
Recognized on | ||||
Acquisition | ||||
Common stock issued | $ | 6,085,180 | ||
Note payable issued | 1,332,893 | |||
$ | 7,418,073 | |||
Cash | $ | 66,994 | ||
Accounts receivable | 1,761 | |||
Inventory | 42,613 | |||
Equipment and fixtures | 1,056,935 | |||
Customer base | 177,600 | |||
Intellectual property and trademarks | 583,200 | |||
Goodwill | 5,810,640 | |||
Accounts payable and accrued expenses | (26,104 | ) | ||
Deferred revenue | (26,851 | ) | ||
Debt | (268,715 | ) | ||
Net assets acquired | $ | 7,418,073 |
The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and the two businesses acquired from PCP, Pocono and Active Intelligence, as if the acquisition occurred as part of the beginning of cash period presented. 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.
Nine Months Ended | ||||||||
October 31, | ||||||||
2020 | ||||||||
As Reported | Proforma | |||||||
Net revenue | $ | 595,611 | $ | 2,167,208 | ||||
Net loss | (680,632 | ) | (609,741 | ) | ||||
Loss per common share - basic and diluted | (0.12 | ) | (0.10 | ) |
PROPERTY AND EQUIPMENT |
October 31, | January 31, | October 31, | January 31, | |||||||||||||
2021 | 2021 | 2022 | 2022 | |||||||||||||
Lab equipment | $ | 144,585 | $ | 144,585 | $ | 144,585 | $ | 144,585 | ||||||||
Machinery and equipment | 1,099,524 | 1,056,935 | 1,230,605 | 1,138,530 | ||||||||||||
Furniture and fixtures | 28,442 | 19,643 | 19,643 | 19,643 | ||||||||||||
1,272,551 | 1,221,163 | 1,394,833 | 1,302,758 | |||||||||||||
Less: Accumulated depreciation | (282,554 | ) | (144,537 | ) | (461,191 | ) | (323,461 | ) | ||||||||
Net Property and Equipment | $ | 989,997 | $ | 1,076,626 | $ | 933,642 | $ | 979,297 |
Depreciation expense amounted to $138,017$137,730 and $55,760$138,017 for the nine months ended October 31, 2022 and 2021, respectively. During the nine months ended October 31, 2022 and 2020,2021, depreciation expense of $104,767 and $104,132, respectively,. have been allocated to cost of goods sold.
NOTES |
Notes Payable
On March 21, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES ACT” was enacted. The CARES ACT established the Paycheck Protection Program (“PPP”) which funds small businesses through federally guaranteed loans. Under the PPP, companies are eligible for forgiveness of principal and interest if the proceeds are used for eligible payroll costs, rent and utility costs. On June 17, 2020, the Company’s subsidiary, 4P Therapeutics, was advanced $34,870 under the PPP, all of which was forgiven as of April 30, 2021. The Company recorded a gain on the extinguishment of debt of $34,870 during the nine months ended OctoberJuly 31, 2021.
In July 2020, a minority shareholder made an additional loan to the Company in the amount of $100,000. The loan is interest- freeinterest-free and due upon demand. In October 2021, the loan was converted into 17,182 common shares of the Company. The shares were issued at fair market value and no gain or loss was recorded for the transaction.
Active Intelligence, the Company’s newly acquired subsidiary, entered into an agreement with the Carolina Small Business Development Fund for a line of credit of $160,000 due October 16, 2029, with interest of 5% per year. The amount assumed in Note 3 was $139,184. The loan requires monthly payments of principal and interest of $1,697. During the nine monthsyear ended OctoberJanuary 31, 2021,2022, principal and interest payments of $8,344 were forgiven under the Cares Act. The amount, $8,344, has been recorded as a gain on the forgiveness of debt. During the nine months ended October 31, 2022, the Company made $11,185 of principal payments. As of October 31, 2021,2022, the amount due was $118,720,$106,158, of which $14,119$17,010 is current.
On April 3, 2022, the Company entered into a retail installment agreement for the purchase of an automobile. The contract price was $32,274, of which $22,795 was financed. The agreement is for five years bearing interest at 2.95% per annum with payments of $495 per month. The loan is secured by automobile. As of October 31, 2022, the amount due was $20,599 of which $4,325 is current.
Finance Leases
Pocono hashad two finance leases secured by equipment. The leases mature in 2025 and 2026. The incremental borrowing rate is 5.0%. As of October 31, 2021, theThe amount due on the leases was $106,031,$121,544, all of which was paid in November 2021.during the year ended January 2022.
Related Party Payable
On August 31, 2020, in connection with the Company’s acquisition of Pocono Products LLC, the Company issued to Pocono Coated Products LLC a promissory note, net of debt discount, in the amount of $1,332,893 with interest accruing at an annual rate of 0.17%, due on August 28, 2021, or immediately following the earlier of a capital raise of no less than $4,000,000 and/or a public offering of no less than $4,000,000. The members of Pocono Coated Products LLC, which include Mike Myer who is a related party, is a shareholderare shareholders of the Company. During the ninethree months ended October 31,April 30, 2021, the Company recorded amortization of debt discount of $97,477.$36,554. In October 2021, the note in the amount of $1,500,000 was paid in full.
Convertible Debt
On October 30, 2019, the Company entered into a securities purchase agreement with two investors pursuant to which the Company issued to the investors (i) 6% one-year convertible promissory notes in the principal amount of $270,000 and (ii) three-year warrant to purchase 50,000 shares of common stock at an exercise price equal to the lesser of (i) $20.90 or (ii) if the Company completes a public offering, 110% of the initial public offering price of the common stock in the public offering. The loans contained an original issue discount of $20,000 resulting in gross proceeds from this financing of $250,000.
The notes are convertible at a conversion price equal to the lesser of (i) the per share price of our common stock offered in a public offering or (ii) the variable conversion price, which is defined as 70% of the lowest trading price of the common stock during the 20 trading days preceding the date of conversion. The conversion price and the percentage of the trading price is subject to downward adjustment in the event the Company fails to comply with the obligations under the notes. The Company has the right to prepay the notes during the 180 days following the issuance of the notes at a premium of 115% of the outstanding principal and interest during the 60 days following the date of issuance of the note, which percentage increases to 125% during the remainder of the 180-day period. The Company is required to pay the notes one business day after the closing of the first to occur of (a) the next public offering of the Company’s securities or (b) the next private placement of the Company’s equity or debt securities in which the Borrower received net proceeds of at least $1.0 million, (c) issuance of securities pursuant to an equity line of credit or (d) a financing with a bank or other institutional lender.
The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivative and Hedging. The initial fair of the conversion feature was $128,870 and the fair value of the warrants in connection with the notes were valued at $888,789 and were recorded based on their relative fair values. A debt discount to the note payables of $270,000 and an initial derivative expense of $767,650 was recorded.
The debt discount will be amortized over the life of the note. Amortization of the debt discount for the nine months ended October 31, 2020, was $202,500.
On March 25, 2020, the Company prepaid the convertible notes in the principal amount of $270,000 from the proceeds of a private placement. The total payments, including a prepayment fee of $69,131 and accrued interest, was $345,565. As a result of the payment of the notes, the derivative liability, which was $928,774 as of January 31, 2020, was reduced to zero. The warrants are no longer a derivative liability based on the notes being paid in full.
Interest expense for the nine months ended October 31, 2021was2022, was $12,505. Interest expense for the three months ended October 31, 2021, was $115,268 including the amortization of the debt discount of $97,477 and interest expense of $17,791. Interest expense for the nine months ended October 31, 2020, was $206,836 including the amortization of debt discount of $202,500 and interest expense of $4,336.
INTANGIBLE ASSETS |
As of October 31, 2021,2022 and January 31, 2021,2022, intangible assets consisted of intellectual property and trademarks, customer base, and trademarks,license agreement, net of amortization, as follows:
October 31, | January 31, | October 31, | January 31, | |||||||||||||
2021 | 2021 | 2022 | 2022 | |||||||||||||
Customer base | $ | 314,100 | $ | 314,100 | $ | 314,100 | $ | 314,100 | ||||||||
License agreement | 50,000 | - | - | 50,000 | ||||||||||||
Intellectual property | 817,400 | 817,400 | ||||||||||||||
Intellectual property and trademarks | 817,400 | 817,400 | ||||||||||||||
Total | 1,181,500 | 1,131,500 | 1,131,500 | 1,181,500 | ||||||||||||
Less: Accumulated amortization | (222,133 | ) | (124,770 | ) | (322,782 | ) | (254,587 | ) | ||||||||
Net Intangible Assets | $ | 959,367 | $ | 1,006,730 | $ | 808,718 | $ | 926,913 |
In February 2021, the Company acquired an IP license for $50,000, see Note 10- “Rambam Agreement” for further discussion regarding the license agreement. The value of the intangible assets, consisting of intellectual property, license agreement and customer base has been recorded at their fair value by the Company and are being amortized over a period of three to ten years. The Company terminated the license agreement in October 2022. The Company expensed the balance of the agreement of $33,334 during the nine months ended October 31, 2022, which is included in selling, general and administrative expenses. Amortization expense for the nine months ended October 31, 2022, and 2021 was $118,195 and 2020 was $97,363, and $27,802, respectively.
Estimated Amortization:
Year Ended January 31, | ||||||||
2023 | $ | 28,277 | ||||||
2024 | 113,109 | |||||||
2025 | 113,109 | |||||||
2026 | 113,109 | |||||||
2027 | 113,109 | |||||||
2028 and thereafter | 328,005 | |||||||
Total | $ | 808,718 | ||||||
Year Ended January 31, | ||||||||
Remainder of 2022 | $ | 32,416 | ||||||
2023 | 129,776 | |||||||
2924 | 129,776 | |||||||
2025 | 113,109 | |||||||
2026 and thereafter | 554,290 | |||||||
$ | 959,367 |
RELATED PARTY TRANSACTIONS |
a) | In connection with the acquisition of Pocono, the Company recorded various transactions and operations through Pocono Coated Products LLC, of which Mike Myer was a member and a related |
b) |
c) | On August 2, 2022, 137,084 options to purchase shares of the Company’s common stock were issued to executives of the Company |
d) | On September 30, 2022, 35,000 options to purchase shares of the |
STOCKHOLDERS’ EQUITY |
Preferred Stock
On January 15, 2016, the board of directors of the Company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 10,000,000 shares of Preferred Stock, par value $0.001 per share.
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.
Common Stock
On June 25, 2019, the Company effected a one-for fourone-for-four reverse stock split, pursuant to which each share of common stock became converted into 0.25 shares of common stock, and the Company decreased its authorized common stock from 100,000,000 to 25,000,000 shares.
On January 27, 2020, the Company amended its articlesArticles of incorporationIncorporation to increase its authorized common shares from 25,000,000 authorized shares to 250,000,000 authorized shares.
On July 26, 2022, the Company effected a 7-for-6 forward stock split pursuant to which each shareholder of record as of the August 15, 2022, record date received one (1) additional share for each six (6) shares held as of the record date.
On August 4, 2022, the Company amended its Articles of Incorporation to increase its authorized common shares from 250,000,000 authorized shares to 291,666,666 authorized shares.
Activity during the Nine Months Ended October 31, 20202022
On March 22, 2020, the Company issued in a private placement 46,828 units at a price of $11 per unit. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $14 per share. The warrants expire April 30, 2023. The Company issued a total of 46,828 shares of common stock and warrants to purchase 46,828 shares of common stock. The Company received proceeds of $515,108.
(a) | In March and May 2022, the Company purchased 35,583 shares of its common stock for $118,766 and recorded the purchase as Treasury Stock. In May 2022, the Company issued 28,583 shares of stock awards to management, directors and employees from the treasury shares and recorded the fair value of the compensation expense of $93,100. As of July 31, 2022, the Company holds 39,811 of its shares comprising the $130,133 of treasury stock. |
In March 2020, a minority shareholder who had previously made loans of $215,000, made an additional loan to the Company in the amount of $60,000, increasing the loans to shareholder to $275,000. On March 27, 2020, the Company issued 25,000 shares of common stock upon reaching a settlement with the noteholder to convert the notes in the principal amount of $275,000. The transaction resulted in a loss on extinguishment of $12,500.
(b) | On July 29, 2022, the Company received proceeds of $296,875 from the exercise of warrants and issued 55,417 shares of common stock. |
On June 30,2020, the Company issued 5,000 shares to a consultant for services rendered to the Company. The fair value of the common stock at the date of issuance was $50,000, of which $38,000 is included in selling and general administrative expenses and $12,000 is included in prepaid expenses.
On August 31, 2020, the Company acquired the membership interests in Pocono Coated Products LLC and issued 608,519 shares of its common stock, valued at $6,000,000, and issued a promissory note in the amount of $1,500,000. See Note 3 for further information.
(c) | In July 2022, the Company cancelled 1,400,000 shares received in connection with the settlement of a lawsuit. See Note 10 for further information. |
Activity during the Nine Months Ended October 31, 2021
On February 25, 2021, in connection with the Company’s License Agreement with Rambam, pursuant to a Stock Purchase Agreement with BPM Inno Ltd (“BPM”), the Company issued |
On February 25, 2021, the Company issued |
On February 15, 2021, the Company issued 12,500 shares of common stock, valued at $350,000, for consulting fees in connection with the Rambam License Agreement discussed in Note 10.
On October 5, 2021, the Company, having been approved for the listing of its common stock on The Nasdaq Capital Market effective October 1, 2021, consummated a public offering (the “IPO”) of |
On October 19, 2021, the Company issued |
On October 25, 2021, the Company issued |
On October |
On October 5, 2021, in connection with the Company’s IPO, two former debtholders were issued an additional |
On October 22, 2021, the Company issued |
8. | OPTIONS and WARRANTS |
Warrants
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. During the nine months ended October 31, 221, the Company issued 1,056,000 publicmanagement (87,500 warrants in connection with its public offering, 105,600 to the underwriters in connection with its public offering, 158,400 warrants issued to the underwriters for the related over-allotment, 125,000 (of which 75,000 were issued to the Chief Financial Officer) warrants for services and 72,200 warrants to previous convertible noteholders as additional compensation due tonon-employees of the warrant round down provisions of their agreement. See Note 5 for further discussion.Company during the year ended January 31, 2022.
The warrant exercise price to the previous convertible noteholders was adjusted to $6.25 for the round down provision and the resulting $196,589 of deemed dividend was recorded during the nine months ended October 31, 2021. The fair value of the 125,000 warrants issued for services amounted to $365,000 and was recorded during the same period. The Company used the Black-Scholes model to determine the fair value of both the $196,589 in deemed dividends and the $365,000 in compensation. The valuation model used a dividend rate of 0%; expected term of 1.5 years; volatilities ranging from 136% to 145%; and risk-free rate 0.10%.
Exercise | Remaining | Intrinsic | Exercise | Remaining | Intrinsic | |||||||||||||||||||||||||
Shares | Price | Life | Value | Shares | Price | Life | Value | |||||||||||||||||||||||
Outstanding, January 31, 2021 | 141,828 | $ | 11.99 | 2.16 years | $ | 285,000 | 165,466 | $ | 11.99 | 2.16 years | $ | - | ||||||||||||||||||
Granted | 1,517,200 | 7.23 | - | - | 1,770,068 | 6.19 | 4.70 years | - | ||||||||||||||||||||||
Expired/Cancelled | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
Exercised | (311,100 | ) | 7.35 | - | - | (499,912 | ) | 6.43 | - | - | ||||||||||||||||||||
Outstanding - period ending October 31, 2021 | 1,347,928 | $ | 7.36 | 4.09 years | $ | 171,301 | ||||||||||||||||||||||||
Outstanding, January 31, 2022 | 1,435,622 | 6.91 | 3.93 years | - | ||||||||||||||||||||||||||
Exercisable - period ending October 31, 2021 | 1,347,928 | $ | 7.36 | 4.09 years | $ | 171,301 | ||||||||||||||||||||||||
Granted | - | - | - | - | ||||||||||||||||||||||||||
Expired/Cancelled | (97,534 | ) | 5.36 | - | - | |||||||||||||||||||||||||
Exercised | (55,417 | ) | 5.36 | - | - | |||||||||||||||||||||||||
Outstanding- October 31, 2022 | 1,282,671 | $ | 6.41 | 3.56 years | $ | 11,667 | ||||||||||||||||||||||||
Exercisable - October 31, 2022 | 1,282,671 | $ | 6.41 | 3.56 years | $ | 11,667 |
The following table summarizes additional information relating to the warrants outstanding as of October 31, 2021:2022:
Range of Exercise | Number | Weighted Average Remaining Contractual | Weighted Average Exercise Price for Shares | Number | Weighted | Intrinsic | ||||||||||||||||
Prices | Outstanding | Life(Years) | Outstanding | Exercisable | Exercisable | Value | ||||||||||||||||
$ | 6.25 | 131,100 | 1.00 | $ | 6.25 | 131,100 | $ | 6.25 | $ | 1,301 | ||||||||||||
$ | 14.00 | 46,828 | 1.50 | $ | 14.00 | 46,828 | $ | 14.00 | $ | - | ||||||||||||
$ | 7.50 | 1,045,000 | 4.73 | $ | 7.50 | 1,045,000 | $ | 7.50 | $ | - | ||||||||||||
$ | 4.90 | 125,000 | 2.84 | $ | 4.90 | 125,000 | $ | 4.90 | $ | 170,000 |
Weighted Average | Weighted Average | Weighted Average | ||||||||||||||||||||||||
Range of Exercise | Number | Remaining Contractual | Exercise Price for Shares | Number | Exercise Price for Shares | Intrinsic | ||||||||||||||||||||
Prices | Outstanding | Life(Years) | Outstanding | Exercisable | Exercisable | Value | ||||||||||||||||||||
$ | 12.00 | 54,633 | 0.75 | $ | 12.00 | 54,633 | $ | 12.00 | $ | - | ||||||||||||||||
$ | 6.43 | 1,082,205 | 4.18 | $ | 6.43 | 1,082,205 | $ | 6.43 | $ | - | ||||||||||||||||
$ | 4.20 | 145,833 | 2.23 | $ | 4.20 | 145,833 | $ | 4.20 | $ | 11,667 |
Options
The following table summarizes the changes in options outstanding and the related price of the shares of the Company’s common stock issued to employees of the Company.
Exercise | Remaining | Intrinsic | ||||||||||||||
Shares | Price | Life | Value | |||||||||||||
Outstanding, January 31, 2021 | - | $ | - | - | ||||||||||||
Granted | 190,751 | 4.26 | 2.97 years | - | ||||||||||||
Expired/Cancelled | - | - | - | |||||||||||||
Exercised | - | - | - | |||||||||||||
Outstanding, January 31, 2022 | 190,751 | - | - | |||||||||||||
Granted | 172,084 | 4.13 | 3.00 years | - | ||||||||||||
Expired/Cancelled | - | - | - | |||||||||||||
Exercised | - | - | - | |||||||||||||
Outstanding- October 31, 2022 | 362,835 | $ | 4.20 | 2.49 years | $ | 56,815 | ||||||||||
Exercisable - October 31, 2022 | 362,835 | $ | 4.20 | 2.49 years | $ | 56,815 |
The following table summarizes additional information relating to the options outstanding as of October 31, 2022:
Range of Exercise | Number | Remaining Contractual | Exercise Price for Shares | Number | Exercise Price for Shares | Intrinsic | ||||||||||||||||||||
Prices | Outstanding | Life(Years) | Outstanding | Exercisable | Exercisable | Value | ||||||||||||||||||||
$ | 4.58 | 46,666 | 2.48 | $ | 4.58 | 46,666 | $ | 4.58 | $ | - | ||||||||||||||||
$ | 4.16 | 144,085 | 2.48 | $ | 4.16 | 144,085 | $ | 4.16 | $ | 17,702 | ||||||||||||||||
$ | 4.50 | 58,334 | 2.90 | $ | 4.50 | 58,334 | $ | 4.50 | $ | - | ||||||||||||||||
$ | 4.09 | 78,750 | 2.75 | $ | 4.09 | 78,750 | $ | 4.09 | $ | 14,963 | ||||||||||||||||
$ | 3.59 | 35,000 | 2.92 | $ | 3.59 | 35,000 | $ | 3.59 | $ | 24,150 |
9 | SEGMENT REPORTING |
Nine Months Ended | Three Months Ended | |||||||||||||||||||||||
October 31, 2022 | October 31, 2022 | |||||||||||||||||||||||
Transdermal | Contract | Transdermal | Contract | |||||||||||||||||||||
Patches | Services | Total | Patches | Services | Total | |||||||||||||||||||
Revenue | $ | 1,325,127 | $ | 226,947 | $ | 1,552,074 | $ | 528,233 | $ | 89,770 | $ | 618,003 | ||||||||||||
Gross profit | 619,018 | 1,905 | 620,923 | 254,906 | 13,285 | 268,191 | ||||||||||||||||||
Gross profit % | 47 | % | 1 | % | 40 | % | 48 | % | 15 | % | 43 | % |
Nine Months Ended | Three Months Ended | |||||||||||||||||||||||
October 31, 2021 | October 31, 2021 | |||||||||||||||||||||||
Revenue | $ | 724,288 | $ | 205,976 | $ | 930,264 | $ | 207,587 | $ | 75,450 | $ | 283,037 | ||||||||||||
Gross profit | 318,341 | (5,377 | ) | 312,964 | 69,812 | 5,525 | 75,337 | |||||||||||||||||
Gross profit % | 44 | % | (3 | %) | 34 | % | 34 | % | 7 | % | 27 | % |
10. | COMMITMENTS AND CONTIGENCIES |
Legal Proceedings
OnFollowing a three-day trial, on July 27, 2018,20, 2022, the Company commenced an actionOrange County Circuit Court entered a Final Judgment in favor of Nutriband for breach of contract, replevin and rescission to rescind in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, againstMay 22, 2017 Share Exchange Agreement involving Nutriband, Advanced Health Brands Inc., and TD Therapeutics Inc. The Court directed the return and cancellation of the 1,400,000 Nutriband shares (adjusted for the 1-for-4 reverse stock split effective June 23, 2019 and the 7-for-6 forward stock split effective August 15, 2022) previously issued to Raymond Kalmar, Paul Murphy, Michelle Polly-Murphy Laura Fillman and John Baker, together with a Motion for Temporary Injunction Without Notice and a Motion for Prejudgment Writ of Replevin arising from the Company’s decision to seek to rescind for misrepresentation the agreement by which the Company acquired advanced Health Brands, Inc. for 1,250,000 shares of common stock valued at $2,500,000 and seek return of the shares. On August 2, 2018, the court entered a Temporary Injunction Without Notice and an Order to Show Cause against the defendants. Defendants Kalmar, Murphy, Polly-Murphy, and Baker filed a Motion to Dismiss the Company’s Verified Complaint, Motion to Dissolve Temporary Injunction Without Notice and Response to Order to Show Cause, and Motion to Compel Arbitration. On January 4, 2019, the court dismissed the Company’s complaint with prejudice, and directed the defendants to assign the Company within 30 days, the six patents never duly transferred to the Company. On February 1, 2019, the Company appealed the court’s order. Pursuant to a settlement agreement with one of the defendants, that defendant returned the 50,000 shares which had been issued to her, and the shares were cancelled as of January 31, 2019. On June 7, 2019, the individual defendants (other than the defendant whom the Company has a settlement agreement), filed a motion for sanctions and civil contempt against us, which generally claimed that we failed to comply with the Court’s January 4, 2019, order by refusing to issue the Ruling 144 letters that would allow the defendants to transfer their shares of common stock. On October 29, 2019, the Court denied the Defendants motion. On March 20, 2020, the Florida district court of appeal reversed the lower court ruling in the Florida state court action that dismissed our complaint, with prejudice, and gave us leave to file an amended complaint. On July 7, 2020, Defendants filed Notice for Trial, requesting the court to set a trial date. The Company and defendants have served their first set of interrogatories on each other and have filed answers and responses to each other’s first set of interrogatories.Baker.
OnThereafter, by Settlement Agreement and Release dated August 22, 2018, four19, 2022, all parties agreed that the above-referenced Final Judgment in favor of Nutriband is binding and enforceable, no appeal would be taken, related Ohio and New York lawsuits were dismissed and all of the defendants in the Florida action described in the previous paragraph filed a complaint against the Company in the Franklin County, Ohio Court of Common Pleas seeking a declaratory judgment permitting themoriginal Nutriband share certificates issued to sell the shares of common stock they received pursuant to the acquisition agreement. The parties have agreed to a stay pending the outcome of the Florida litigation.
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 defendants fraudulently and deceitfully obtained 1,250,000 shares of common stock by orchestrating a months-long schemeJohn Baker were returned to defraud the Company. The Company is seeking the return of the shares of common stock and monetary damages resulting from the defendants’ fraudulent conduct. The defendants filed a motion to dismiss the complaint on August 23, 2019, and on September 13, 2019, the Company filed its response. On July 20, 2020, the Court denied the defendant’s motion to dismiss the complaint, and the parties have recently commenced the discovery phase of the litigation. The Court has scheduled a trial date in early 2022.Nutriband.
Employment Agreements
The Company entered into a three-year employment agreement with Gareth Sheridan, our CEO, and Serguei Melnik, our President, effective April 25, 2019.February 1, 2022. The agreement also provides that the executiveexecutives will continue as a director. The agreement provides for an initial term, commencing on the effective date of the agreement and ending on January 31, 2024,2025, and continuing 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. For their services to the Company during the term of the agreement, Mr. Sheridan and Mr. Melnik will receive an annual salary of $250,000 per annum, commencing on the effective date of the agreement. Mr. Sheridan and Mr. Melnik will also receive a performance bonus of 3.5% of net income before income taxes. As of July 31, 2022, the Company and Mr. Sheridan and Mr. Melnik mutually agreed to reduce their annual salary to $150,000.
The Company entered into a three-year employment agreement with Gerald Goodman, our CFO, effective February 1, 2022. The agreement provides for an initial term, commencing on the effective date of the agreement and ending on January 31, 2025, and continuing 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. For his services to the Company during the term of the agreement, Mr. Sheridan receivesGoodman will receive an annual salary $42,000of $210,000 per annum, commencing on the effective date of the agreement and increasing to $250,000 per annum in the month in whichagreement. As of July 31, 2022, the Company shall have received not less than $2,500,000 from one or more public or private financings of the Company’s equity securities subsequentand Mr. Goodman mutually agreed to the date of the agreement. During the year ended January 31, 2021, thereduce his annual salary was increased to $60,000 per annum.$110,000.
Rambam Agreement
On December 9, 2020, the Company entered into a License Agreement (the “License Agreement”) with Rambam Med-Tech Ltd. (“Rambam”), Haifa, Israel, to develop the RAMBAM Closed System Transfer Device (“CTSD”) and such other products as the parties agree to develop/commercialize. The Company will license from Rambam the full technology, IP, and title to CTSD in the field, with an Initial license fee of $50,000 and running royalties on net sales. The $50,000 license fee was paid by a third party at the direction of the Company in February 2021, at which time the agreement became effective. As of October 31, 2022, the development of the RAMBAM CSTD Device has been suspended until further notice as preliminary reviews and market research found the product was not commercially viable in its current form. As of November 11, 2022, the Company has terminated the agreement with Rambam and all intellectual property has been returned to Rambam.
The Company had entered into a prior agreement, dated November 13, 2020, with BPM Inno Ltd., Kiryat, Israel (“BPM”), that, in consideration of BPM’s introduction of Rambam to the Company, provided for BPM to have the rights as the exclusive of agent of the Company with Rambam and any other parties similarly introduced by BPM, and for a commission payable to BPM by the Company of 4.5% of revenues received by the Company resulting from the introduction of Rambam (and any other companies as to which the exclusive agency of BPM was in effect), and for BPM’s payment of a royalty to Rambam. If the Company fails to commercialize the medical products subject to the License Agreement with Rambam within 36 months, under the November 13, 2020 agreement, BPM and the Company would share 50/50 in the revenues generated from sales of the licensed products from Rambam. This agreement further provides that it will be effective for a period of 10 years, with either party having the right to terminate on notice given 30 days prior to the desired termination, and also provided for certain territorial distribution rights of BPM as are set forth in the March 10, 2021 Distribution Agreement between the Company and BPM. As of October 31, 2022, no revenues have been earned and royalties have been accrued.
BPM Distribution and Stock Purchase Agreements
On March 10, 2021, the Company finalized the Distribution Agreement with BPM, providing for distribution of the medical products developed and produced under the License Agreement. Under the Distribution Agreement, BPM has the right to distribute the medical products in Israel and has a right of first refusal in relation to all other countries/states, other than United States, Korea, China, Vietnam, Canada and Ecuador, which are termed excluded countries.
Kindeva Drug Delivery Agreement
On January 4, 2022, the Company signed a feasibility agreement with Kindeva Drug Delivery, L.P. (“Kindeva”) to develop Nutriband’s lead product, AVERSAL Fentanyl, based on its proprietary AVERSAL abuse deterrent transdermal technology and Kindeva’s FDA-approved transdermal fentanyl patch (fentanyl transdermal system). The feasibility agreement is focused on adapting Kindeva’s commercial transdermal manufacturing process to incorporate AVERSAI technology.
The agreement will remain in force until the earlier of: (1) the completion of the work and deliverables under the Workplan; or (2) two (2) years after the Effective Date, after which time the agreement will expire.
The estimated cost to complete the feasibility Workplan is approximately $1.7 million and the timing to complete will be between eight to twelve months. Nutriband made an advance deposit of $250,000 in January 2022, to be applied against the final invoice. The Workplan has commenced in February 2022, and the parties believe the Workplan will be completed in the time estimated in the agreement. As of October 31, 2022, the Company has incurred expenses of $481,979 and the deposit of $250,000 is included in prepaid expenses.
Lease Agreement
On February 1, 2022, Pocono Pharmaceuticals entered into a lease agreement with Geometric Group, LLC for 12,000 square feet of warehouse space currently occupied by Active Intelligence. The monthly rental is $3,000 and the lease expires on January 31, 2025. The lease can be extended for an additional three years at the same monthly rental. The Company recorded a Right of Use asset in the amount of $94,134 in connection with the valuation.
11. | SUBSEQUENT EVENTS |
On November 1, 2021, The Board of Directors adopted the 2021 Employee Stock Option Plan (the “Plan”). The Company has reserved 350,000 shares under the Plan to issue and sell upon the exercise of stock options. On November 20,2021, 163,500 options to purchase shares of the Company’s common stock were issued to executive officers and directors of the Company at a price of $5.96 per share. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code of 1986 or which are not intended to qualify as Incentive Stock Options thereunder. The Plan also provides for restricted stock awards representing shares of common stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Board of Directors, or the committee administering the Plan composed of directors who qualify as “independent” under Nasdaq rules, may determine. On November 3, 2021, the Company filed a Registration Statement on Form S-8, to register under the Securities Act of 1933, as amended, the 350,000 shares of common stock reserved for issuance under the Plan.
(a) | On November 8, 2022, the Company and BPM entered into a termination agreement abandoning all elements of the distribution agreement dated January 15, 2000, between the parties. The Company issued BPM 25,000 shares of its common stock from its treasury shares held by the Company and warrants to purchase 25,000 shares at an exercise price of $7.50 per share as part of the termination agreement. | |
On November 26, 2021, the Company paid off two equipment leases in the amount of $116,000, which included a $10,000 purchase option on one of the leases.
In November 2021, 30,000 warrants issued in the IPO were exercised, with net proceeds to the Company of $225,000.
(b) | On November 15, 2022, the Company issued 4,888 shares of its common stock from its treasury shares held by the Company to two consultants for services provided. |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2021,2022, 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”It should be noted that current public health threats could adversely affect our ongoing or planned business operations. In particular, the novel coronavirus (COVID-19) has resulted in quarantines, restrictions on travel and wordsother business and economic disruptions. We cannot presently predict the scope and severity 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, and references to Pocono and Active Intelligence to operations of those companies prior to our acquisitionany potential business shutdowns or disruptions, but if we or any of the PCP segmentthird parties with whom we engage, including the partners and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on August 31, 2020.the timelines presently planned could be materially and adversely impacted. The measures being taken by service providers and government agencies to suppress the spread of COVID-19 infection may delay time to production of our planned abuse deterrent fentanyl transdermal system product and therefor delay the time of filing with FDA for approval.
Overview
AVERSA™ transdermal abuse deterrent technology.
Our primary business is the development of a portfolio of transdermal pharmaceutical products. Our lead product is our abuse deterrent fentanyl transdermal system which we are developing towill require approvals from the Food and Drug Administration (“FDA”) and substantial additional capital for development and FDA approvals. Our lead products under development would provide clinicians and patients with an extended-release transdermal fentanyl product for use in managing chronic pain requiring around the clock opioid therapy combined with properties designed to help combat the opioid crisis by deterring the abuse and misuse of fentanyl patches. We believe that our abuse deterrent technology can be broadly applied to various transdermal products and our strategy is to follow the development of our abuse deterrent fentanyl transdermal system with the development of additional transdermal prescription products for pharmaceuticals that have risks or a history of abuse. We received on January 28, 2022 an Issue Notification from the United States Patent and Trademark Office (USPTO) for its United States patent entitled, “Abuse and Misuse Deterrent Transdermal System,” that protects our Aversa™ technology platform.
Transdermal Pharmaceutical Products
Through October 31, 2018, our business was the development of a line of consumer and health products that are delivered through a transdermal or topical patch. Following our acquisition of 4P Therapeutics on August 1, 2018, our focus expanded to include prescription pharmaceuticals, and we are seeking to develop and seek FDA approval on a number of transdermal pharmaceutical products under development by 4P Therapeutics. As a result of the acquisition of 4P Therapeutics, we have pipeline of transdermal products.
In addition, we are developing a portfolio of transdermal pharmaceutical products to deliver commercially available drugs or biologics that are typically delivered by injection but with the potential to improve compliance and therapeutic outcomes.
Because of our financial position, we have put We are proceeding with our development efforts with respect to these products on hold, and our only business is the performance ofto performing contract services for a small number of customers. Because of both our financial position and the effects of the COVID-19 pandemic, our contract service business has also been scaled back. The description of our business in this annual report is based on our ability to raise significant financing or enter into a joint venture agreement with a third party that has the financial ability to fund the joint venture’s operations. We cannot assure you that we will be able to obtain necessary financing or enter into a joint venture agreement on reasonable, if any, terms. If we are not able to continue obtain financing or enter into a joint venture agreement, we may not be able to continue in business.
Through July 31, 2018, our business was the development of a line of consumer and health products that are delivered through a transdermal patch which we plan to sell internationally. Consumer products are products that are sold over the counter and do not require a prescription. Most of our planned consumer products require FDA approval for sale in the United States, and we have not sought to obtain, and we do not plan to seek to obtain, FDA approval to market these products in the United States at this time. Following our acquisition of selected assets from Pocono Coated Products, LLC (“Pocono”), our focus iscontract services are primarily nowfocused on providing contract manufacturing services and consulting services to 3rd party brands with no intention at this time to launch our own consumer products.
With our acquisition of 4P Therapeutics on August 1, 2018, our focus changed, and we are seeking to develop and seek FDA approval on a number of transdermal pharmaceutical products under development by 4P Therapeutics. As a result of the acquisition of 4P Therapeutics, we have pipeline of potential products.
4P Therapeutics has not generated any revenue from any of its products under development. Rather, prior to our acquisition, 4P Therapeutics generated revenue to provide cash for its operations through contract research and development and related services for a small number of clients in the life sciences field on an as-needed basis. We are, for the near term, continuing this activity, although we do not anticipate that it will generate significant revenues and, since our acquisition, it has generated a negativeminor gross margin.margins. We have no long-term contractual obligations, and either party can terminate at any time.
With the change in our focus, our capital requirements 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.
On March 25, 2020, we completed a private placement of 46,828 units at a price of $11 per unit. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $14 per share. The warrants expire April 30, 2023. We issued a total of 46,828 shares of common stock and warrants to purchase 46,828 shares of common stock. We received proceeds of $515,113.
On March 25, 2020, we paid off the convertible notes in the principal amount of $270,000 from the proceeds of the private placement. The total payments, including the prepayment penalty and accrued interest, was $345,656. The payment was made from the proceeds of the private placement. As a result of the payment of the notes, the derivative liability, which was $928,774 at July 31, 2020, was reduced to zero. As a result of a completed private placement, the warrants to purchase 50,000 shares at the lesser of (i) $20.90 or, (ii) if the Company completes its public offering of its common stock, 110% of the initial public offering price of the Common Stock in the public offering, became a warrant to purchase 95,000 warrants at $11 per share, subject to adjustment pursuant to the antidilution provisions of the warrant. The Company recorded a derivative liability for the warrants in the amount of $906,678 and reclassed the derivative liability to additional paid-in capital as of January 31, 2021.
In March 2020, a minority stockholder who had previously made loans to us in the total amount of $215,00, made an additional loan to us in the amount of $60,000, increasing the total loans from the stockholder to $275,000. On March 27, 2020, we issued 25,000 shares of common stock upon conversion of the notes.
Pursuant to a Stock Purchase Agreement (“SPA”), dated December 7, 2020, with the Company, BPM Inno Ltd., Kiryat, Israel, purchased 81,396 shares of common stock at a price of $8.60 per share, or $700,000, which provided payment for the RamBam license. The transaction was completed at a closing on February 26, 2021.
On August 31, 2020, the Company entered into a Purchase Agreement (“Agreement”), with Pocono Coated Products (“PCP”), pursuant to which PCP agreed to sell the Company all of the assets associated with its Transdermal, Topical, Cosmetic and Nutraceutical business (the “Assets”). PCP is the manufacturer of our transdermal products, and we bought that business from them. The purchase price for the Assets was (i) $6,000,000 paid in shares of the Company’s common stock at a value of the average price of the previous 90 days at the date of Closing (the “Shares”); (ii) a promissory note of the Company in the principal amount of $1,500,000, which is due upon the earlier of (a) twelve (12) months from issuance, or (b) immediately following a capital raise of no less than $4,000,000 and/or a public offering of no less than $4,000,000. The note was repaid in full in October 2021. Subsequent to the repayment of the note, the Shares were released from escrow.
On October 5, 2021, the Company, having been approved for the listing of its common stock on The Nasdaq Capital Market effective October 1, 2021, consummated a public offering (the “IPO”) of units (the “Units”), of common stock and warrants that were offered in the IPO on The Nasdaq Capital Market, which included 1,056,0001,231,200 (each a “Unit”), each Unit consisting of one share of common stock, par value $0.001 per share, and one warrant (each a “Warrant”) at a price of $6.25$5.36 per Unit. Each Warrant is immediately exercisable, will entitle the holder to purchase one share of common stock at an exercise price of $7.50$6.43 and will expire five (5) years from the date of issuance. The underwriters’ over-allotment option was exercised for 158,400184,800 warrants to purchase shares of common stock bringing to total net proceeds to the Company from the IPO to $5,836,230. The shares of common stock and Warrants are separately transferred immediately upon issuance. As of October 31, 2021, 275,0002022, 457,795 Warrants issued in the IPO have been exercised, with net proceeds to the Company of $2,062,500. In November 2021, an additional 30,000 warrants were exercised, with net proceeds to the Company of $225,000.$2,942,970.
On November 1, 2021, The Board of Directors adopted the 2021 Employee Stock Option Plan (the “Plan”). The Company has reserved 350,000408,333 shares to issue and sell upon the exercise of stock options issued under the Plan. On November 20,2021, the Board approved options to purchase 163,500 shares of the Company’s common stock issued to executive officers and directors of the Company at a price of $5.96 per share. On November 3, 2021, the Company filed a Registration Statement on Form S-8, to register under the Securities Act of 1933, as amended, the 350,000408,333 shares of common stock reserved for issuance under the Plan.Plan, and on October 12, 2022 a Post-Effective Amendment to the Form S-8 was filed with the SEC. On January 21, 2022, the Board approved options to purchase 190,751 shares of the Company’s common stock under the Plan issued to executive officers and directors of the Company at an exercise price of $4.16 ($4.58 per share for two of the officers as required by IRS rules). On August 1, 2022, the Board approved option grants previously approved by the Compensation Committee for an aggregate of_137,084 shares of common stock at exercise prices $4.09 or $4.50 per share depending on IRS rules as applicable to the recipient,, and on September 30, 2022, approved option issuances under the Plan for an aggregate of 35,00 shares of common stock at an exercise price of $3.59 per share for services provided by the independent directors, as previously approved by the Compensation Committee.
The Company received a favorable verdict on July 13, 2022 from the Circuit Court, Orange County, Florida, providing for rescission of the Company’s 2017 acquisition of Advanced Health Brands and recovery by the Company of the 1,400,000 shares(adjusted for a 1-for-4 reverse stock split effective June 23, 2019 and the 7-for-six forward stock split effective August 15, 2022) of common stock issued in the acquisition, effectively allowing the Company on July 25, 2022 to cancel 1.4M shares of common stock held by the defendants.
On October 31, 2022, the Company filed the Proxy Statement with the SEC for its Annual Meeting of Stockholders, to be held December 9, 2022, in Orlando, Florida. This Proxy Statement is available on our website at HTTPS://Nutriband.com/proxy.
Forward Split of our Common Stock.
On July 26, 2022, our Board of Directors approved the amendment to our Articles of Incorporation to effect a 7 for 6 forward stock split (the “Stock Split”) of our outstanding common stock We filed the amendment set forth in a Certificate of Change with the Secretary of State of Nevada on August 4, 2022. The 7:6 forward split was effective for trading purposes on the Nasdaq Capital Market on August 12, 2022. Each shareholder of record as of the August 15, 2022 record date received one (1) additional share of common stock for each six (6) shares held as of the record date. No fractional shares of common stock were issued in connection with the Stock Split. Instead, all shares were rounded up to the next whole share. In connection with the Stock Split, which did not require shareholder approval under the Nevada corporation law, the number of authorized shares of common stock of the Company was increased in the same ratio as the shares of outstanding common stock were increased in the Stock Split, from 250,000,000 authorized shares to 291,666,666 authorized shares.
Results of Operations
Three Months Ended October 31, 20212022 and 20202021
For the three months ended October 31, 2022, we generated revenue of $618,003 and our costs of revenue were $349,272 resulting in a gross margin of $268,731. For the three months ended October 31, 2021, we generated revenue of $283,037 and our costs of revenue were $173,694,$207,700, resulting in a gross margin of $109,343. For the three months ended October 31, 2020, we generated revenue of $391,797 and our costs of revenue were $228,772, resulting in a gross margin of $163,025.$75,337. Our revenue for October 31, 20212022, was derived from sales of $ 528,333 from our recent acquisitionTransdermal Patches segment and $89,770 from contract services from our 4P Therapeutics segment. The increase in revenue of transdermal patches.$320,646 from the Transdermal Patches segment is primarily due to an increase in demand which has continued in the subsequent quarter. The Transdermal Patches segment increased gross margin 14% during the period. Since we do not have the funds for development of our lead product, the 4P Therapeutics fixed costs are allocated to the contract services that we perform for clients. Our cost of revenue for our contract research and development services represents our labor cost plus a modest amount of material costs which we passed on to the client. The Company moved fromOur sales and cost of sales remained constant during the 4P facilities, and many ofperiod for our contract services in comparison to the prior costs relating to the facility were not incurred. We did not have any revenue from our South Korean customer but expect revenue will recommence during the fourth quarter.year.
For the three months ended October 31, 2021,2022, our selling, general and administrative expenses were $1,486,784$1,049,532 primarily legal, accounting and administrative salaries and non-cash expenses compared to $203,976$1,452,778 for the three months ended October 31, 2020.The increase2021.The decrease from 20202021 is primarily attributable to non-cash consulting expenses and amortization of warrants of $529,400,decreases in administrative salaries of $250,000 and the inclusion of expenses of $171,702 of Active Intelligence in 2021.other overhead costs including professional fees and travel.
During the three months ended October 31, 2021,2022, the Company commenced itsincurred research and development expenses of its Aversa product of $ 290,718, primarily of salaries and incurred $144,000 of salary liabilities that were paid withdevelopment costs from Kindeva as compared to $161,000 for the issuance of common stock.three months ended October 31, 2021. The Company did not incur expenses from Kindeva until the current fiscal year.
We incurred interest expense of $33,380, primarily from the amortization of debt discounts$ 3,966 for the three months ended October 31, 2021,2022, as compared to $1,618$33,380 for the three months ended October 31, 2020.2021. Interest expense for 2021 was primarily attributable to the amortization of debt discounts.
As a result of the foregoing, we sustained a net loss of $1,768,410$1,075,485 or $(0.27)$(0.14) per share (basic and diluted) for the three months ended October 31, 2021,2022, compared with a loss of $42,569,$1,578,821, or $(0.01)$(0.23) per share (basic and diluted) for the three months ended October 31, 2020. The net loss for 2021 includes a deemed dividend of $196,589 from the settlement of a warrant round down.2021.
Nine Months Ended October 31, 20212022 and 20202021
For the nine months ended October 31, 2022, we generated revenue of $1,552,074 and our costs of revenue were $931,061 resulting in a gross margin of $621,013. For the nine months ended October 31, 2021, we generated revenue of $930,264 and our costs of revenue were $529,300,$617,300, resulting in a gross margin of $400,964. For$312,964. Our revenue for the nine months ended October 31, 2020, we generated revenue of $595,611 and our costs of revenue were $420,648, resulting in a gross margin of $174,963. Our revenue for October 31, 20212022 was derived from three sources – (1) a continuationsales of research$1,327,127 from our Transdermal Patchessegment and development contracts of the type$226,947 from contract services from our 4P Therapeutics performed priorsegment. The increase in revenue of $600,839 from the Transdermal Patches segment is primarily due to our acquisition,an increase in demand which accounted for $205,976, (2) sales of our consumer transdermal product to or South Korean distributor, which accounted for $86,600 which our distributor purchased for its preliminary marketing efforts sincehas continued in the product has not obtained regulatory approval for retail sales in South Korea and (3) sales from our recent acquisition of transdermal patches, which accounted for $637,688.subsequent quarter. The Transdermal Patches segment increase margin 3% during the period. Since we do not have the funds for development of our lead product, the 4P TherapeuticsTherapeutics’ fixed costs are allocated to the contract services that we perform for clients. Our cost of revenue for our contract research and development services represents basically our labor cost plus a modest amount of material costs which we passed on to the client. The Company moved from the 4P facilities,Our sales and manycost of sales remained constant for our contract services compared to the prior costs relating to the facility were not incurred.year.
For the nine months ended October 31, 2021,2022, our selling, general and administrative expenses were $2,575,611$2,726,256 primarily legal, accounting and administrative salaries and non-cash expenses compared to $589,224$2,487,611 for the nine months ended October 31, 2020.The2021.The increase from 20202021 is primarily attributable to non-cash consulting expenses of $754,400increases in administrative salaries and the inclusion of expenses of $487,617 of Active Intelligence in 2021.
During the quarter ended October 31, 2021, the Company commenced researchother overhead costs including professional fees and development expenses on its Aversa product and incurred $144,000 of salary liabilities that were paid with the issuance of common stock.travel.
During the nine months ended October 31, 2020, we2022, the Company incurred gain on change in fair valueresearch and development expenses of derivativesits Aversa product of $22,096 in connection with our October 2019 financing in which we raised gross proceeds$ 686,401, primarily of $250,000salaries and net proceeds of approximately $230,000development costs from the sale of convertible notes and warrants. DuringKindeva as compared to $161,000 for the nine months ended October 31, 2021,2021. The Company did not incur expenses from Kindeva until the Company incurred a gain on extinguishment of debt of $43,214, consisting primarily of forgiveness of a PPP loan.current fiscal year.
We incurred interest expense of $115,268, primarily from the amortization of debt discounts$12,505 for the nine months ended October 31, 2021,2022, as compared to $206,836$115,268 for the nine months ended October 31, 2020.2021. Interest expense for 2021 was primarily attributable to the amortization of debt discounts.
As a result of the foregoing, we sustained a net loss of $2,604,290$ 2,804,149 or $(0.40)$(0.32) per share (basic and diluted) for the nine months ended October 31, 2021,2022, compared with a loss of $680,632,$2,407,701, or $(0.12)$(0.34) per share (basic and diluted) for the nine months ended October 31, 2020. The net loss for 2021 includes a deemed dividend of $196,589 from the settlement of a warrant round down.2021.
Liquidity and Capital Resources
As of October 31, 2021,2022, we had $5,485,344$2,816,318 in cash and cash equivalents and working capital of $4,939,237,$2,717,449, as compared with cash and cash equivalents of $151,993$4,891,868 and working capital deficiency of $2,254,418$4,686,112 as of January 31, 2021.2022. The Company received proceeds of approximately$8.5approximately $8.5 million from the completion of its public offering, exercise of warrants and the sale of common stock during the year ended January 31, 2022.
For the nine months ended October 31, 2021.2022, we used cash of $2,173,193 in our operations. The principal adjustments to our net loss of $2,804,149 were depreciation and amortization of $255,925, common stock issued from services of $931,100 and the issuance of employee stock options in the amount of $405,021.
For the nine months ended October 31, 2021,2022, we used cash in investing activities of $1,576,789 in our operations. The principal adjustments to our net loss$69,281 primarily for the purchase of $2,407,701 were amortization of debt discount of $97,477, depreciation and amortization of $235,380, and stock-based compensation of $754,400, offset by a gain on extinguishment of debt of $43,214.equipment.
For the nine months ended October 31, 2021,2022, we usedprovided cash in investingfinancing activities of $51,388$166,924 primarily forfrom the proceeds of $296,875 from the exercise of warrants, offset from the purchase of equipment. During the year ended October 31, 2020, cash received from acquisition amounted to $66,964.
For the nine months ended October 31, 2021, we had cash flowstreasury stock of $6,961,528 from financing activities, primarily $8.5 million from the completion of our public offering, exercise of warrants, and gross proceeds from the sale of common stock offset by a payment on long-term debt of $1.5 million.$118,766.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
Going Concern Assessment
Management assesses liquidity and going concern uncertainty in the Company’s condensed financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period.
As of October 31, 2021,2022, we had cash and cash equivalents of $2,816,318 and working capital of $2,717,449. For the nine months ended October 31, 2022, the Company believes the substantial doubt about its status as a going concern has been resolved.incurred an operating loss of $2,791,644 and use cash flow from operations of $2,173,193. The going concern conditions that caused substantial doubt no longer exist as the Company has positivegenerated operating losses since its inception and has relied on sales of securities and issuance of third-party and related-party debt to support cash flow during the last quarter and as of October 31, 2021, has positive working capital.from operations. In October 2021, the Company consummated a public offering and received net proceeds of $5,836,230.$5,836, 230. The Company also received $2,026,500 of proceedsto date $3,239,845proceeds from the exercise of warrants. Management retired most of its debtThe Company has used these proceeds to fund operations and other current obligations. will continue to use these proceeds to fund operations in the future.
Management has implemented other plansprepared estimates of operations for the next twelve months and believes that sufficient funds will be generated from operations to alleviatefund its operations for one year from the substantial doubt. These plans includedate of the filing of these condensed consolidated financial statements, which indicates improved operations and the Company’s ability to continue operations as a substantial increasegoing concern. The impact of COVID-19 on the Company’s business has been considered in projected sales commitments. These factors did not exist in prior years duringthese assumptions; however, it is too early to know the full impact of COVID-19 or its start-uptiming on a return to normal operations. The Company’s recent history of losses has continued but future positive cash flow projections due to its management’s plans which includes its acquisition in the latter part of 2020 will enable the Company to alleviate
Management believes the substantial doubt about the Company’s ability of the Company to continue as a going concern. Management’s plans have been currently implemented. The plans enable concern is alleviated by the Company to meet its obligations for at least one year from the date when the financial statements are issued.above assessment.
Use of Estimates
The 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 ongoing 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 other various 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
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.
Accounts receivable
Revenue Service Types
Trade accounts receivables are recorded at the net invoice value and are not interest bearing. The following is a descriptionCompany maintains allowances for doubtful accounts for estimated losses from the inability of our revenue service types, which include professional servicesits customers to make required payments. The Company determines its allowances by both specific identification of customer accounts where appropriate and salesthe application 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 regardinghistorical loss to non-applicable accounts. For the goods or services to be transferrednine months ended October 31, 2022 and identifies2021, the payment termsCompany recorded no bad debt expense for doubtful accounts 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.
Deferred Revenue
Deferred revenue is a liability related to a revenue producing activity for which revenue has not been recognized. The Company records deferred revenue when it receives consideration from a contract before achieving certain criteria that must be met for revenue to be recognized in accordance with GAAP. As of October 31, 2021 and January 31, 2021, the balance of deferred revenue was $239,582 and $86,846, respectively.account receivable.
Performance ObligationsInventories
A performance obligation is a promise in a contract to transfer a distinct good or service toInventories are valued at the customerlower of cost and reasonable value determined using the first-in, first-out (FIFO) method. Net realized value is the unit of accountestimated selling price in the new revenue standard.ordinary course of business, less applicable variable selling expenses. The contract transaction pricecost of finished goods and work in process is allocated to each distinct performance obligationcomprised of material costs, direct labor costs and recognized as revenue when, or as,other direct costs and related production overheads (based on normal operating capacity). As of October 31, 2022 and January 31, 2022, 100% of 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 areainventory consists 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.raw materials.
All revenue recognized in the statement of operations is considered to be revenue from contracts with customers.
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).
Intangible Assets
Intangible 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 hasacquisitions have 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 on January 31, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceeds their fair value. The Company does not amortize goodwill in accordance with ASC 350. In connection with the Company’s acquisition of 4P Therapeutics LLC in 2018, the Company recorded Goodwill of $1,719,235. On August 31, 2020, in connection with the Company’s acquisition of Pocono Coated Products LLC and Active Intelligence LLC, the Company recorded Goodwill of $5,810,640. During the year ended January 31, 2022, the Company recorded an impairment charge of $2,180,836 reducing the Active Intelligence LLC Goodwill to $3,629,813. As of October 31, 20212022 and January 31, 2021,2022, Goodwill amounted to $7,529,875.$5,349,039.
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 the fair market value of the long-lived asset and the related net book value.
New Financial Accounting StandardsEarnings per Share
The Company has implementedBasic earnings per share of common stock is computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. 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 period. Potential shares of common stock consist of shares issuable upon the exercise of outstanding options and common stock purchase warrants. As of October 31, 2022, and 2021, there were 1,645,506 and 1,572,825 common stock equivalents outstanding, 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 new pronouncements,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 the adoptiongrants of ASU 2018-13, ASU 2019-12, and ASU 2020-06, thatemployee stock options, are recognized as compensation expense in effect and that may impact its consolidatedthe 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). As of February 1, 2019, pursuant to ASC 2018-07, ASC 718 was applied to stock-based compensation for both employees and does not believe that there any new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements or results of operations.non-employees.
Research and Development Expenses
Research and development costs are expensed as incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures.
As of the end of period covered by this report, we carried out an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, we concluded that our disclosure controls and procedures are not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.
Management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel, and excessive reliance on third-party consultants for accounting, financial reporting and related activities. During the past fiscal year, we have added qualified accounting personnel, so the Company does not have to rely on third-party consultants. The Company has established additional monitoring controls over the financial statements. We have also improved our internal controls to provide for a detailed accounting review of all revenue items and accounts receivable and accounts payable transactions in connection with the entry and categorization of each transaction in the preparation of the Company’s financial statements.
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 controls over financial reporting.
No changes were made to our internal controls in the quarterly period covered by this report that have materially affected, or are reasonably likely materially to affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 10, 2018, we, our chief executive officer and our chief financial officer received a Wells notice from the enforcement division staff of the Miami Regional Office of the SEC in connection with an investigation into the accuracy of certain statements in our Form 10 registration statement filed June 2, 2016, as amended, and our Form 10-K annual report filed May 8, 2017. The staff’s inquiry was focused on our disclosure language in those filings relating to the FDA requirements for our consumer transdermal patch products in that our filings did not accurately reflect the FDA’s jurisdiction over our consumer products and did not disclose that we could not legally market these products in the United States. On September 7, 2018, we and the officers filed a Wells submission in response. After engaging in settlement discussions with the staff about the matters under investigation, we and the officers submitted an offer of settlement to resolve the investigation without admitting or denying any violations of the federal securities laws.
On December 26, 2018, the SEC announced that it has accepted the settlement offer and instituted settled administrative cease-and-desist proceedings against us and the named officers. The SEC’s administrative order, dated December 26, 2018, finds that we and the officers consented – without admitting or denying any findings by the SEC– to cease-and-desist orders against them for violations by us of Sections 12(g) and 13(a) of the Exchange Act 1934 and Rules 12b-20 and 13a-1 thereunder, which require issuers to file accurate registration statements and annual reports with the SEC; violations by the officers for causing our violations of the above issuer reporting provisions; and violations by the officers of Rule 13a-14 of the Exchange Act, which requires each principal executive and principal financial officer of issuers to attest that annual reports filed with the SEC do not contain any untrue statements of material fact. In addition to consenting to the cease-and-desist orders, the officers have each agreed to pay a $25,000 civil penalty to resolve the investigation. The administrative order does not impose a civil penalty or any other monetary relief against us.
On July 27, 2018, we commenced an action in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, against Advanced Health Brands, Inc., Raymond Kalmar, Paul Murphy, Michelle Polly-Murphy, Laura Fillman and John Baker,certain of its stockholders, together with a Motion for Temporary Injunction Without Notice and a Motion for Prejudgment Writ of Replevin arising from our decision to seek to rescind for misrepresentation the agreement by which we acquired advancedAdvanced Health Brands, Inc. for 1,250,000 shares of common stock valued at $2,500,000 and seek return of the shares. On August 2, 2018,Following a three-day trial, on July 20, 2022, the courtOrange County Circuit Court entered a Temporary Injunction Without NoticeFinal Judgment in favor of Nutriband for breach of contract, replevin and an Orderrescission to Show Cause againstrescind in the defendants. Defendants Kalmar, Murphy, Polly-Murphy,May 22, 2017 Share Exchange Agreement involving Nutriband, Advanced Health Brands Inc., and Baker filed a Motion to Dismiss our Verified Complaint, Motion to Dissolve Temporary Injunction Without Notice and Response to Order to Show Cause, and Motion to Compel Arbitration. On January 4, 2019, the court dismissed our complaint with prejudice, andTD Therapeutics Inc. The Court directed the defendants to assign to us within 30 days, the nine patents never duly transferred to us. On February 1, 2019, we appealed the court’s order. Pursuant to a settlement agreement with onereturn and cancellation of the defendants, that defendant returned1,400,000 Nutriband shares (adjusted for the 50,000 shares which had been1-for-4 reverse stock split effective June 23, 2019 and the 7-for-6 forward stock split effective August 15, 2022) previously issued to her, and the shares were cancelled as of January 31, 2019. On June 7, 2019, the individual defendants (other than the defendant whom we have a settlement agreement), filed a motion for sanctions and civil contempt against us, which generally claimed that we failed to comply with the Court’s January 4, 2019 order by refusing to issue the Ruling 144 letters that would allow the defendants to transfer their shares of common stock. On October 29, 2019, the Court denied the defendants’ motion. On March 20, 2020, the Florida district court of appeal reversed the lower court ruling in the Florida state court action that dismissed our complaint with prejudice, and gave us leave to file an amended complaint/Advanced Health Brand stockholders.
OnThereafter, by Settlement Agreement and Release dated August 22, 2018, four19,2022, all parties agreed that the above-referenced Final Judgment in favor of Nutriband is binding and enforceable, no appeal would be taken, related Ohio and New York lawsuits were dismissed and all of the defendants in the Florida action described in the previous paragraph filed a complaint against us in the Franklin County, Ohio Court of Common Pleas seeking a declaratory judgment permitting themoriginal Nutriband share certificates issued to sell the shares of common stock they received pursuant to the acquisition agreement. The parties have agreed to a stay pending the outcome of the Florida litigation.
On April 29, 2019, we 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 we allege that in 2017, the defendants fraudulently and deceitfully obtained 1,250,000 shares of common stock by orchestrating a months-long schemeJohn Baker were returned to defraud us. We are seeking the return of the 1,200,000 shares of common stock and monetary damages resulting from the defendants’ fraudulent conduct. The defendants filed a motion to dismiss on August 23, 2019, and we filed our response on September 13, 2019. On July 20, 2020, the Court denied the defendant’s motion to dismiss the complaint, and the parties have recently commenced the discovery phase of the litigation. A trial date is expected to be set for some time in early 2022.Nutriband.
ITEM 1A. RISK FACTORS
You should carefully consider the key risks described below together with all of the other information included in this prospectusreport and our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on April 28, 2022, before making an investment decision with regard to our securities. The risks set forth below and in our Form 10-K are not the only risks facing us. Additional risks and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or a significant part of your investment.
Because we are an early-stage company with minimal revenue and a history of losses and we expect to continue to incur substantial losses for the foreseeable future, we cannot assure you that we can or will be able to operate profitably.
We did not generate any revenue prior to the quarter ended October 31, 2018 and, since then, we have incurred losses as, 4P Therapeutics generatedreported only modest revenue from contract research and development services which are not related to our pharmaceutical transdermal patch business. Although we anticipate that, for the near term, we will continue to perform research and development services for third parties, we do not expect to generate significant revenue from performing contract research and development services for our clients and we have generated losses from operations from this business. During the year ended January 31, 2021, we experienced a significant decline in revenue from 4P Therapeutics’ largest customer. We generated negative cash flow from operations for the years ended January 31, 2021 and 2020. We are subject to the risks common to start-up, pre-revenue enterprises, including, among other factors, undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. Drug development companies typically incur substantial losses during the product development and FDA testing phase of the business and do not generate revenues until after the drug has received FDA approval, which cannot be assured, and until the company has started to sell the product. We can give no assurance that we can or will ever be successful in achieving profitability and the likelihood of our success must be considered in light of our early stage of operations. We cannot assure you that we will be able to operate profitably or generate positive cash flow. If we cannot achieve profitability, we may be forced to cease operations and you may suffer a total loss of your investment.
Because we do not have a product we can market in the United States, we cannot predict when or whether we will operate profitably.
We have not completed the development of our lead product, which is our abuse deterrent fentanyl transdermal system, and we do not have any product that we can market in the United States. Because of the numerous risks and uncertainties associated with product development, we cannot assure you that we will be able to develop and market any products or achieve or attain profitability. If we are able to obtain financing for our operations, we expect that we will incur substantial expenses as we continue with our product development and clinical trials. Further, if we are required by applicable regulatory authorities, including the FDA as well as the comparable regulatory agencies in other countries in which we may seek to market product, to perform studies in addition to those we currently anticipate, our expenses will increase beyond expectations and the timing of any potential product approval may be delayed. As a result, we expect to continue to incur substantial losses and negative cash flow for the foreseeable future.
A number of factors, including, but not limited to the following, may affect our ability to develop our business and operate profitably:
● | our ability to obtain necessary funding to develop our proposed products; |
● | the success of clinical trials for our products; |
● | our ability to obtain FDA approval for us to market any proposed product in our pipeline in the United States; |
● | any delays in regulatory review and approval of product in development; |
● | if we obtain FDA approval to market our product, our ability to establish manufacturing and distribution operations or entering into manufacturing and distribution agreements with qualified third parties; |
● | market acceptance of our products; |
● | our ability to establish an effective sales and marketing infrastructure; |
● | our ability to protect our intellectual property; |
● | competition from existing products or new products that may emerge; |
● | the ability to commercialize our products; |
● | potential product liability claims and adverse events; |
● | our ability to adequately support future growth; and |
● | our ability to attract and retain key personnel to manage our business effectively. |
We are dependent on obtaining additional financing to enable us to pay off debt and to resume our product development operations.
Our continued operations are substantially dependent on our ability to obtain additional financing to pay off substantial debt incurred in our August 31, 2020 acquisition of Pocono Coated Products, LLC and to provide us with the ability to resume product development operations and continue to finance our current operations and generate growth in our revenues.
Our business is impacted by the following additional key risks:
● | Our business could be adversely affected by the effects of health pandemics or epidemics, including the recent outbreak of COVID-19, which was declared by the World Health Organization as a global pandemic, and is resulting in travel and other restrictions to reduce the spread of the disease, including state and local orders across the country, which, among other things, direct individuals to shelter at their places of residence, direct businesses and governmental agencies to cease non-essential operations at physical locations, prohibit certain non-essential gatherings, and order cessation of non-essential travel. The effects of these orders, government-imposed quarantines and measures we would take, such as work-from-home policies, may negatively impact productivity, disrupt our business and could delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. Further, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain. |
● | The FDA regulatory process may take longer and be more expensive than we anticipate without any assurance that we will obtain FDA approval. |
● | If we are not able to obtain FDA approval for our lead product, we may not have the resources to develop any other product, and we may not be able to continue in business. |
● | We may not be able to launch any products for which we receive FDA marketing approval. |
● | We may not be able to establish a distribution network for the marketing and sale of any products for which we receive FDA approval. |
● | We may not be able to establish manufacturing facilities in compliance with FDA good manufacturing practices or to enter into manufacturing agreements for the manufacture of our products in an FDA approved manufacturing facility. |
● | It may be necessary to us to enter into a joint venture or other strategic relationship in order to develop, perform clinical testing for, manufacture or market any of our proposed products. We may not be able to enter into such a relationship, and any relationship may not be successful, and the other party may have business interests and priorities that are different from ours. |
● | We are party to a settlement agreement with the SEC resulting from statements in our SEC filings that did not accurately reflect the FDA’s jurisdiction over our consumer products and did not disclose that we could not legally market these products in the United States. The settlement included a cease-and-desist order against violating the provisions of the Securities Exchange Act which require us to file accurate registration statements and annual reports with the SEC. Our failure to comply with our obligations under the settlement agreement could result in enforcement proceedings against us or our officers. |
● | We may not be able to protect our rights in our intellectual property, and we may be subject to intellectual property litigation which would be expensive and disruptive of our operations even if we eventually prevail on the merits. |
● | Unanticipated side effects or other adverse events resulting from the use of our product could require a recall of our products and, even if no recall is required, our reputation could be impaired by side effects. |
● | We may not be able to evaluate potential acquisition candidates, with the result that we may not be able to benefit from the acquisition or integrate the acquired business with our business. We have recently incurred an impairment charge as a result of an acquisition when the intellectual property assets of the acquired company were not as represented. We cannot assure you that we will not incur similar or other problems with any future acquisitions. |
● | We may fail to comply with all applicable laws and regulations relating to our product. We may have to change or adapt our operations in the event of changes in national, regional and local government regulations, taxation, controls and political and economic developments that affect our products and the market for our products; |
● | We may be unable to accurately estimate anticipated expenses, capital requirements and needs for additional financing; |
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.
Underwriter | Underwriting Discounts | |||||||
ITEM 6. EXHIBITS.
Exhibit
| Description of Exhibits | |
31.1 | Section 302 Certificate of Chief Executive Officer. | |
31.2 | Section 302 Certification of Chief Financial Officer | |
32.1 | Section 906 Certificate of Chief Executive Officer and Principal Financial Officer. | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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.
NUTRIBAND INC. | ||
December | By: | /s/ Gareth Sheridan |
Gareth Sheridan, | ||
Chief Executive Officer | ||
(Principal Executive Officer) | ||
December | By: | /s/ Gerald Goodman |
Gerald Goodman, | ||
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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