Nutriband (NTRB) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements detail the company's financial position, performance, and cash flows Condensed Consolidated Balance Sheets Total assets grew to $9.87 million, driven by increased cash and a significant rise in related-party notes payable Key Balance Sheet Metrics | Metric | July 31, 2023 (Unaudited) | January 31, 2023 | | :-------------------------------- | :-------------------------- | :----------------- | | Cash and cash equivalents | $2,334,553 | $1,985,440 | | Total Current Assets | $3,273,573 | $2,693,745 | | Total Assets | $9,872,628 | $9,456,377 | | Total Current Liabilities | $874,127 | $748,613 | | Note payable-related party | $2,000,000 | $- | | Total Liabilities | $2,981,920 | $883,387 | | Total Stockholders' Equity | $6,890,708 | $8,572,990 | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenue increased for the three and six-month periods, though higher R&D expenses drove a larger net loss for the six-month period Key Operations Metrics | Metric | 3 Months Ended July 31, 2023 | 3 Months Ended July 31, 2022 | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $655,928 | $456,149 | $1,132,860 | $934,071 | | Cost of revenues | $356,256 | $304,353 | $610,904 | $581,789 | | Research and development | $445,122 | $277,869 | $845,552 | $395,683 | | Selling, general and administrative | $678,738 | $908,173 | $1,518,470 | $1,676,724 | | Loss from operations | $(824,188) | $(1,034,246) | $(1,842,066) | $(1,720,125) | | Net loss | $(829,173) | $(1,038,675) | $(1,844,402) | $(1,728,664) | | Net loss per share (basic and diluted) | $(0.11) | $(0.12) | $(0.24) | $(0.20) | Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $6.89 million from $8.57 million due to the net loss incurred during the six-month period Changes in Stockholders' Equity | Metric | February 1, 2023 | July 31, 2023 | | :-------------------------------- | :--------------- | :-------------- | | Total Stockholders' Equity | $8,572,990 | $6,890,708 | | Net loss for the six months | - | $(1,844,402) | | Warrants issued for services | - | $87,090 | | Options issued for services | - | $75,030 | Condensed Consolidated Statements of Cash Flows A significant cash inflow from financing activities offset cash used in operations, resulting in an overall increase in cash Summary of Cash Flows | Cash Flow Activity | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | | :----------------------------------- | :--------------------------- | :--------------------------- | | Net Cash Used In Operating Activities | $(1,744,999) | $(1,652,750) | | Net Cash Used in Investing Activities | $(2,624) | $(68,009) | | Net Cash Provided by Financing Activities | $2,096,736 | $173,449 | | Net change in cash | $349,113 | $(1,547,310) | | Cash and cash equivalents - End of period | $2,334,553 | $3,344,558 | Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's business, accounting policies, and specific financial statement line items 1. ORGANIZATION AND DESCRIPTION OF BUSINESS The company focuses on developing transdermal pharmaceutical products through strategic acquisitions like 4P Therapeutics and Pocono Pharmaceuticals - Nutriband Inc. acquired 4P Therapeutics in 2018, shifting its principal business to the development of transdermal pharmaceutical products, including abuse-deterrent systems[25][27] - In 2020, the company expanded into coated product manufacturing and activated kinesiology tape through acquisitions[28][29] - The company's lead product, AVERSA™ transdermal abuse deterrent technology, is in the preclinical stage and requires FDA approval[26][27] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Key accounting policies cover the going concern assessment, revenue recognition, and valuation of assets like goodwill and intangibles - The company's financial statements are unaudited and prepared in accordance with U.S. GAAP, with no significant changes to accounting policies during the six months ended July 31, 2023[31][33] - A 7-for-6 forward stock split was effective on August 12, 2022, increasing authorized common shares from 250,000,000 to 291,666,666[34] - Management believes the company can continue as a going concern for at least one year, supported by $2,334,553 in cash and a $5,000,000 credit line facility, despite historical operating losses[37][38][39] - Revenue is recognized based on five criteria under Topic 606, with performance obligations satisfied either upon product shipment or over time[43][46][48] Revenue by Type | Revenue Type | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | 3 Months Ended July 31, 2023 | 3 Months Ended July 31, 2022 | | :------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Sale of goods | $967,826 | $796,894 | $566,769 | $394,904 | | Services | $165,034 | $137,177 | $89,159 | $61,245 | | Total Revenue | $1,132,860 | $934,071 | $655,928 | $456,149 | - Goodwill amounted to $5,021,713 as of July 31, 2023, with prior impairment charges related to the Active Intelligence LLC acquisition[56] 3. PROPERTY AND EQUIPMENT Net property and equipment decreased to $806,423 due to accumulated depreciation, with a portion allocated to cost of goods sold Property and Equipment, Net | Asset Category | July 31, 2023 | January 31, 2023 | | :----------------------- | :------------ | :--------------- | | Lab equipment | $144,585 | $144,585 | | Machinery and equipment | $1,243,252 | $1,240,628 | | Furniture and fixtures | $19,643 | $19,643 | | Total Cost | $1,407,480 | $1,404,856 | | Less: Accumulated depreciation | $(601,057) | $(507,121) | | Net Property and Equipment | $806,423 | $897,735 | - Depreciation expenses for the six months ended July 31, 2023, were $93,936, with $72,445 allocated to cost of goods sold[73] 4. NOTES PAYABLE The company utilized a related-party line of credit and a secured borrowing liability, contributing to increased interest expenses - A $5,000,000 credit line facility with a related party was amended on July 17, 2023, with $2,000,000 advanced as of July 31, 2023[77] - A secured borrowing liability of $106,528 was recorded from the assignment of a bankruptcy claim, with a corresponding bad debt expense of $11,836[78] Interest Expense | Metric | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | | :------------- | :--------------------------- | :--------------------------- | | Interest expense | $12,401 | $8,539 | 5. INTANGIBLE ASSETS Net intangible assets decreased to $723,855 due to amortization, with future amortization expenses scheduled over several years Intangible Assets, Net | Asset Category | July 31, 2023 | January 31, 2023 | | :----------------------------- | :------------ | :--------------- | | Customer base | $314,100 | $314,100 | | Intellectual property and trademarks | $817,400 | $817,400 | | Total | $1,131,500 | $1,131,500 | | Less: Accumulated amortization | $(407,645) | $(351,070) | | Net Intangible Assets | $723,855 | $780,430 | - Amortization expenses for the six months ended July 31, 2023, were $56,575[80] Future Amortization Schedule | Year Ended January 31, | Amortization | | :--------------------- | :----------- | | 2024 | $56,534 | | 2025 | $113,109 | | 2026 | $113,109 | | 2027 | $113,109 | | 2028 | $113,109 | | 2029 and thereafter | $214,885 | | Total | $723,855 | 6. RELATED PARTY TRANSACTIONS The company maintains a significant credit line facility with TII Jet Services LDA, a shareholder - The company entered into an amended $5,000,000 Credit Line Note facility with TII Jet Services LDA, a shareholder of the Company, on July 17, 2023[77][90] 7. STOCKHOLDERS' EQUITY Stockholders' equity changes reflect a forward stock split, issuance of options and warrants, and a common stock cancellation - The company's authorized common stock increased to 291,666,666 shares following a 7-for-6 forward stock split effective August 12, 2022[87] - Options to purchase 30,000 shares were issued to an executive, valued at $75,030, and expensed during the six months ended July 31, 2023[90] - In July 2022, the company cancelled 1,400,000 shares of common stock following a favorable lawsuit settlement[91] 8. OPTIONS and WARRANTS This section summarizes changes in outstanding warrants and stock options, including new grants, expirations, and valuation details Warrant Activity | Warrants | January 31, 2022 | January 31, 2023 | July 31, 2023 | | :---------------------- | :--------------- | :--------------- | :------------ | | Outstanding Shares | 1,435,622 | 1,307,671 | 1,283,038 | | Weighted Average Price | $6.91 | $6.43 | $6.14 | | Remaining Life (Years) | 3.93 | 3.34 | 3.02 | | Granted (6 months ended July 31, 2023) | - | - | 30,000 | | Expired/Cancelled (6 months ended July 31, 2023) | - | - | (54,633) | Option Activity | Options | January 31, 2022 | January 31, 2023 | July 31, 2023 | | :---------------------- | :--------------- | :--------------- | :------------ | | Outstanding Shares | 190,751 | 470,335 | 500,335 | | Weighted Average Price | $4.26 | $4.13 | $4.12 | | Remaining Life (Years) | 2.97 | 2.53 | 2.06 | | Granted (6 months ended July 31, 2023) | - | - | 30,000 | | Intrinsic Value (July 31, 2023) | - | - | $19,475 | - The fair value of options issued for services during the six months ended July 31, 2023, amounted to $75,030, valued using the Black-Scholes model[97] 9. SEGMENT REPORTING The company operates in two segments, Sales of Goods and Services, with all revenue generated within the United States Segment Performance | Segment | 6 Months Ended July 31, 2023 Net Sales | 6 Months Ended July 31, 2022 Net Sales | 6 Months Ended July 31, 2023 Gross Profit | 6 Months Ended July 31, 2022 Gross Profit | | :--------------------- | :------------------------------------- | :------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Pocono Pharmaceuticals | $967,826 | $796,894 | $400,061 | $364,112 | | 4P Therapeutics | $165,034 | $137,177 | $121,895 | $(11,830) | | Total | $1,132,860 | $934,071 | $521,956 | $352,282 | - All net sales and property and equipment are located within the United States[102] 10. COMMITMENTS AND CONTINGENCIES The company has employment agreements with executives and a significant development agreement for its AVERSAL Fentanyl product - CEO and President annual salaries were mutually reduced from $250,000 to $150,000, and CFO's salary from $210,000 to $110,000, effective July 31, 2022[103][104] - A feasibility agreement with Kindeva Drug Delivery for AVERSAL Fentanyl development has an estimated cost of $2.3 million, with $1,510,000 incurred as of July 31, 2023[105][107] - The company terminated its Securities Facility Services Agreement for dual listing on the MERJ Upstream exchange, effective May 31, 2023[112] 11. SUBSEQUENT EVENTS The company is involved in a dispute over offering cancellation fees, with an uncertain outcome and no estimable loss - The company is in a dispute with Joseph A. Gunnar over fees related to an offering cancellation, with the outcome currently uncertain and no reasonable estimate of loss[114] - Management believes current legal actions will not materially adversely affect the company's business or financial position[115] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses the company's financial performance, liquidity, and capital resources, focusing on its transdermal pharmaceutical business Overview The company's primary focus is developing its AVERSA™ abuse-deterrent fentanyl system, which requires significant capital and FDA approval - The primary business is the development of transdermal pharmaceutical products, with the lead product being the AVERSA™ abuse-deterrent fentanyl transdermal system[123] - The company's focus expanded to prescription pharmaceuticals after the 4P Therapeutics acquisition in 2018 and now provides contract manufacturing services[124][125] - Approximately $13 million is required for research and development of the abuse-deterrent fentanyl transdermal system[128] - The company consummated a public offering in October 2021, receiving net proceeds of $5,836,230, and has received $2,942,970 from warrant exercises as of July 31, 2023[130] - A three-year $5,000,000 credit line facility was entered into on July 13, 2023, to fund the FDA approval process and commercial manufacturing of AVERSA™ Fentanyl[135][136] Results of Operations Revenue grew in recent periods, but higher R&D expenses for the Aversa Fentanyl product led to increased net losses Three Months Ended July 31, 2023 and 2022 Revenue increased to $655,928, and despite lower SG&A costs, a rise in R&D expenses resulted in a net loss of $829,173 Three-Month Operational Performance | Metric | 3 Months Ended July 31, 2023 | 3 Months Ended July 31, 2022 | Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Revenue | $655,928 | $456,149 | +43.8% | | Gross Margin | $299,672 | $151,796 | +97.4% | | Selling, General and Administrative | $678,738 | $908,173 | -25.3% | | Research and Development | $445,122 | $277,869 | +60.2% | | Net Loss | $(829,173) | $(1,038,675) | -20.2% | | Net Loss Per Share (Basic & Diluted) | $(0.11) | $(0.12) | -8.3% | Six Months Ended July 31, 2023 and 2022 Revenue increased to $1,132,860, but R&D expenses more than doubled, leading to a higher net loss of $1,844,402 Six-Month Operational Performance | Metric | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | Change (YoY) | | :----------------------------------- | :--------------------------- | :--------------------------- | :----------- | | Revenue | $1,132,860 | $934,071 | +21.3% | | Gross Margin | $521,956 | $352,282 | +48.2% | | Selling, General and Administrative | $1,518,470 | $1,676,624 | -9.4% | | Research and Development | $845,552 | $395,683 | +113.7% | | Net Loss | $(1,844,402) | $(1,728,664) | +6.7% | | Net Loss Per Share (Basic & Diluted) | $(0.24) | $(0.20) | +20.0% | Liquidity and Capital Resources The company's cash position and working capital improved due to a $2 million credit line drawdown and a factoring arrangement Key Liquidity Metrics | Metric | July 31, 2023 | January 31, 2023 | | :----------------------- | :------------ | :--------------- | | Cash and cash equivalents | $2,334,553 | $1,985,440 | | Working capital | $2,399,446 | $1,945,132 | - The company used $1,744,999 in cash from operations and $2,624 in investing activities for the six months ended July 31, 2023[146][148] - Cash provided by financing activities totaled $2,096,736, mainly from a $2,000,000 credit line drawdown and $106,528 from a factoring arrangement[148] Off Balance Sheet Arrangements The company has no off-balance sheet arrangements that are likely to materially affect its financial condition or liquidity - The company has no off-balance sheet arrangements[149] Critical Accounting Policies Critical accounting policies include the going concern assessment, use of estimates, revenue recognition, and asset valuation methods - Management believes the company can continue as a going concern for at least one year, supported by current cash and a $5 million credit line[151][152][153] - The company's accounting policies are consistent with those detailed in Note 2 of the financial statements[154][155][156][158][159][160][161][162][163][164][166][167][168] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There are no quantitative and qualitative disclosures about market risk applicable to the company - Quantitative and qualitative disclosures about market risk are not applicable to the company[169] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls were deemed ineffective due to material weaknesses, and management has initiated remediation efforts - Disclosure controls and procedures were evaluated as not effective as of July 31, 2023[171] - Material weaknesses identified include absence of segregation of duties and a lack of qualified accounting personnel[172] - Improvements include adding qualified accounting personnel and establishing additional monitoring controls[172] - No material changes were made to internal controls over financial reporting during the quarter[174] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS This section states that there are no legal proceedings to report - There are no legal proceedings to report[177] ITEM 1A. RISK FACTORS The company faces significant risks related to its early-stage status, history of losses, and uncertainty of FDA approval - The company is an early-stage enterprise with minimal revenue and a history of losses, expecting to incur further losses[179] - There is no assurance of obtaining FDA approval for its lead product, which is critical for future profitability[180][181] - The business is susceptible to adverse effects from health pandemics, such as COVID-19, which could disrupt operations and delay clinical programs[181] - Other key risks include challenges in establishing distribution networks and FDA-compliant manufacturing facilities[181][182] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibits include Section 302 and 906 certifications from the CEO and CFO, as well as various Inline XBRL documents[183] SIGNATURES This section contains the required signatures of the company's executive officers certifying the report - The report is signed by Gareth Sheridan, Chief Executive Officer, and Gerald Goodman, Chief Financial Officer, on September 8, 2023[187]