| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES 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 payable to the former owner of 4P Therapeutics, of 6% on all
revenue generated by the Company from the abuse deterrent intellectual property that had been developed by 4P Therapeutics. The
former owner of 4P Therapeutics has been a director of the Company since April 2018, when the Company entered into an agreement
to acquire 4P Therapeutics. 4P Therapeutics
is engaged in the development of a series of transdermal pharmaceutical products that are in the preclinical stage of development.
Prior to the acquisition of 4P Therapeutics, the Company's business was the development and marketing of a range of transdermal
consumer patches. Most of these products are considered drugs in the United States and cannot be marketed in the United States
without approval by the Food and Drug Administration (the "FDA"). The Company is not presently taking any steps to
seek FDA approval of its consumer transdermal products and its consumer products are not being marketed in the United States. With
the acquisition of 4P Therapeutics, 4P Therapeutics' drug development business became the Company's principal business.
The Company's approach is to use generic drugs that are off patent and incorporate them into the Company's transdermal
drug delivery system. Although these medications have received FDA approval in oral or injectable form, the Company needs to conduct
a transdermal product development program which will include the preclinical and clinical trials that are necessary to receive
FDA approval before we can market any of our pharmaceutical products. Going
Concern The
Company's consolidated financial statements for the year ended January 31, 2019 have been prepared on a going concern basis
which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company did not
generate any revenue prior to the quarter ended October 31, 2018. For the year ended January 31, 2019, the Company generated revenue
of $245,285 on which it recorded cost of sales of $288,301 and a loss from operations of $3,331,240. The Company will require substantial
funding to execute its strategic business plan. Successful business operations and its transition to attaining profitability are
dependent upon obtaining significant additional financing and achieving a level of revenue to support its cost structure, developing
its products and obtaining FDA approval to market any product it develops and implementing a marketing program for such products.
These factors raise substantial doubt about ability of the Company to continue as a going concern for a period of at least one
year from the date of issuance of these financial statements. Significant
Accounting Policies 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. 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 various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates. Cash
and Cash Equivalents Cash
equivalents include short-term investments in money-market funds and certificate of deposits with an original maturity of three
months or less when purchased. Foreign Currency Translation The
functional currency of the Company's Irish subsidiary is the Euro. The assets and liabilities of the subsidiary are translated
into US dollars using the prevailing exchange rate as of the balance sheet date and income and expenses are translated into US
dollars using the average exchange rate during the reporting period. Translation adjustments are recorded in other comprehensive
income (loss). 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
Service Types The
following is a description of the Company's revenue service types, which include professional services and sale of goods:
● Professional
services include the contract of research and development related services with our clients in the life sciences field on an as-needed
basis. Deliverables primarily consist of detailed findings and conclusion reports provided to the client for each given research
project engaged.
● Sales
revenues are derived from the sale of our 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. Performance Obligations A performance obligation is
a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard.
The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the
performance obligation is satisfied. For the Company's different revenue service types, the performance obligation is satisfied
at different times. Our performance obligations include providing products and professional services in the area of research. We
recognize product revenue performance obligations in most cases when the product has shipped to the customer. When we perform professional
service work, we recognize revenue when we have the right to invoice the customer for the work completed, which typically occurs
on a monthly basis for work performed during that month. All
revenue recognized in the statement of operations is considered to be revenue from contracts with customers. Disaggregation of Revenues The
Company disaggregates its revenue from contracts with customers by service type and by geographical location. See the tables:
Revenue by service type Year
Ended Year
Ended
Sale of goods 49,000 -
Services 196,285 -
Total 245,285 -
Revenue by geographical location Year
Ended Year
Ended
United States 196,285 -
Non-United States 49,000 -
Total 245,285 - Upon
adoption, the new standards replaced most existing revenue recognition guidance in U.S. GAAP. The adoption of the new revenue recognition
standards did not have any impact on its consolidated financial statements since the Company did not recognize any revenue prior
to the third quarter of 2018, and all revenue is recognized pursuant to Topic 606 under the five-step model specified by the new
revenue standards. Accounts
receivable Trade
accounts receivable 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-specific accounts.
For the year ended January 31, 2019, the Company recorded no bad debt expense and no allowance for doubtful accounts related to
accounts receivable. Inventories Inventories
are valued at the lower of cost and realizable value determined using the first-in, first-out (FIFO) method. Net realizable 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 progress is comprised of material costs, direct labor costs and other direct costs and related production overheads
(based on normal operating capacity). 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 5 years as follows:
Lab Equipment 5 years
Furniture, fixtures and equipment 3 years Intangible
Assets Intangible
assets include 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 has also been assigned
to intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over
their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Intellectual property
and customer base are being amortized over their estimated useful lives of ten years. Goodwill Goodwill
represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities
at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written
down only in the period in which the recorded value of such assets exceed their fair value. The Company does not amortize goodwill
in accordance with ASC 350. Long-lived
Assets Management
reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment exists when the carrying amount of the long-lived asset is
not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If
an impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the
related net book value. In May
2017, the Company acquired the rights, title and interests in transdermal patch and formulation in connection with the acquisition
of Advanced Health Brands, Inc. in exchange for 5,000,000 of the Company's common stock valued at $2,500,000, based on the
market price of the Company's common stock at that date. Advanced Health Brands, Inc. was an early-stage transdermal development
company with an intellectual property portfolio of prescription medications to be delivered through transdermal technology. The
Company engaged an outside third-party to prepare a valuation in connection with the Company's determination of the fair
value of the assets acquired at the date of acquisition. Subsequent
to receiving the valuation, in January 2018, the Company performed further reviews on the patents acquired and the Company determined
the patents were provisional patents and the value determined by the third party was based on the assumption that the patents had
been issued. The cost to complete the filings with the FDA would be prohibitive, and the Company did not have the available funds
to complete the process. The Company determined the value of the patents should be written down to zero and recorded an impairment
loss of $2,500,000 for the year ended January 31, 2018. Stock-Based
Compensation ASC
718, "Compensation - Stock Compensation," prescribes accounting and reporting standards for all stock-based payment
transactions in which 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 grant date fair values. That expense is recognized over the period during which an employee is required to provide
services in exchange for the award, known as the requisite service period (usually the vesting period). For
the years ended January 31, 2019 and 2018, the Company accounts for stock-based compensation issued to non-employees and consultants
in accordance with the provisions of ASC 505-50, "Equity - Based Payments to Non-Employees." Measurement of share-based
payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services
received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier
of performance commitment date or performance completion date. Effective February 1, 2019, pursuant to ASU 2018-07, ASC 718 will
apply to stock-based compensation for both employees and non-employees. During
the year ended January 31, 2019, the Company incurred $1,763,950 of expenses from the issuance of 322,000 shares of common stock
for services. During the year ended January 31, 2018, the Company incurred $222,500 of expenses (of which $61,997 was expensed
during the year ended January 31, 2018 and $160,503 was included in prepaid expenses) from the issuance 215,000 shares of common
stock for services. The common stock issued as compensation was valued at the market price on the respective dates of grant. 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. Research
and Development Research
and developments costs 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. Concentration of Credit
Risk Financial instruments which
potentially subject the Company to concentrations of credit risk consist principally of cash. The
Company's cash and cash equivalents are concentrated primarily in banks. At times, such deposits could be in excess
of insured limits. Management believes that the financial institutions that hold the Company's financial instruments
are financially sound and, accordingly, minimal credit risk is believed to exist with respect to these financial instruments. As
of and for the year ended January 31, 2019 three customers accounted for 100% of our revenues and two customers accounted for 100%
of our accounts receivable. 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 outstanding common stock purchase warrants. For the years ended January 31, 2019 and 2018 there were 730,000 potential
shares of common stock that were not included in the calculation of diluted earnings per share as their effect would be anti-dilutive. Fair
Value Measurements FASB
ASC 820, "Fair Value Measurements and Disclosures" ("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 market 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 fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1 - Observable inputs such as quoted market prices in active markets
Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions As of January 31, 2019, there
were no financial assets or liabilities that required disclosure. Recent
Accounting Standards 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. This guidance is effective for the annual periods and interim periods beginning December
15, 2018, and we adopted this guidance as of February 1, 2019. The amendments also require certain quantitative and qualitative
disclosures about leasing arrangements. The update guidance requires a modified retrospective adoption. The
Company has implemented all new pronouncements that are in effect and that may impact its consolidated financial statements and
does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact
on its consolidated financial statements or results of operations. |
