NUTRIBAND INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JULY
31, 2018 AND 2017
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1.
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DESCRIPTION OF BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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The
consolidated balance sheet as of July 31, 2018 and the consolidated statements of operations and cash flows for the periods presented
have been prepared by Nutriband, Inc. and Subsidiary (the "Company" or "Nutriband") and are unaudited. The
consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods, and consequently,
do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States
of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present
fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented
have been made. The information for the consolidated balance sheet as of January 31, 2018 was derived from audited financial statements
of the Company.
Organization
Nutriband
Inc. (the “Company” or “Nutriband”) was incorporated in the State of Nevada in January 2016. In January
2016, the Company acquired Nutriband Ltd. (“Nutriband Ltd”), a company registered in Dublin, Ireland, to enter the
health and wellness market with new applications of transdermal patches. Nutriband Ltd. moved manufacturing and operations to the
United States during 2016. Since then, Nutriband has developed a full line of consumer and health products which it primarily sells
internationally. Through development and acquisition strategy, the Company has furthermore developed a pipeline for transdermal
prescription medications. For the Company’s planned operations in the U.S., it will be subject to the rules of the Food and
Drug Administration (“FDA”); the Company plans to seek FDA clearance, where required, for its transdermal patches and
other products marketed in the U.S. According to the advice of our FDA counsel, Nutriband products are regulated as drugs by the
FDA and must go through the relevant development pipeline as such before receiving market approval. Nutriband products have not
been sold and are currently not available for sale within the United States, as the Company had sought further legal advice on
their classification.
Significant
Accounting Policies
The
Company’s significant accounting policies are found below. These policies should be read in conjunction with Note 1 found
in the Company’s Annual Report on Form 10-K for the year ended January 31, 2018.
Principles
of Consolidation
The
consolidated financial statements of the Company include the Company and its wholly-owned subsidiary. All material intercompany
balances and transactions have been eliminated.
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.
Evaluation
of Long-lived Assets
Patents
represent an important component of the Company’s total assets. The Company amortizes its patents on a straight-line basis
over the estimated useful lives of the 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. As of January 31, 2018, the Company recorded
an impairment charge of $2,500,000 and reduced the book value of the patent to be $-0-.
Recently
Adopted Accounting Standards
In May
2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09””),
which amends the existing 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. Subsequently, the FASB issued
several other updates related to revenue recognition (collectively with ASU 201-09, the “new revenue standards”). The
Company adopted the guidance under the new revenue standards using the modified retrospective method effective February 1, 2018.
The Company does not expect the adoption of the new revenue standards to have a material impact on its consolidated financial statements.
Accounting
Standards Issued But Not Yet Adopted
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. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. Early adoption
is permitted. The update guidance requires a modified retrospective adoption. We are currently in the process of evaluating this
new standard update
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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.
Reclassifications
Certain
items have been reclassified to conform to present year presentation.
Inventory as of July 31, 2018 and January 31, 2018
are as follows:
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July 31,
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January 31,
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2018
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2018
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Finished goods
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$
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4,133
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$
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4,133
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Work in progress
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50,473
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-
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Raw materials
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-
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-
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$
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54,606
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$
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4,133
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Due
to related parties as of July 31, 2018 and January 31, 2018, consists of loans from officers and related parties, that are interest
free and due on demand. As of July 31, 2018, and January 31, 2018, short-term debt due to related parties amounted to $-0- and
$14,230, respectively. The loans were paid in full May 2018.
Notes
payable as of July 31, 2018 and January 31, 2018, consists of a loan from South County Dublin Council that is interest free with
monthly payments of $75. The loan was due October 2017. As of July 31, 2018, and January 31, 2018, the total balance of long-term
debt (current portion) amounted to $-0- and $1,820, respectively. The loan was paid in full July 2018.
On September
12, 2017, the Company received an interest-free loan from TII Jet Services LDA in the amount of $15,000. The Company received an
additional advance of $25,000 during April 2018. The loan is interest free and due upon demand. As of July 31, 2018, and January
31, 2018, the balance due was $40,000 and $15,000, respectively, and amount is included in notes payable.
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4.
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RELATED PARTY TRANSACTIONS
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a)
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As of July 31, 2018, and January 31, 2018, Ann Sheridan, mother of the Chief Executive Officer
and a Director of Nutriband Limited (Ireland), advanced the Company $-0- and $10,230, respectively, for operating capital. The
advance is interest free and due on demand. The advance was repaid in full May 2018.
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b)
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During the year ended January 31, 2018, the Chief Financial Officer advanced $8,250 to the Company,
all of which was repaid as of January 31, 2018. Additionally, the Company had amounts owed to the CFO for payments made on behalf
of the Company of $30,800 and $4,000 as of April 30, 2018 and January 31, 2018, respectively. The amounts were repaid in full May
2018.
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The Company issued 322,000 shares valued at $1,763,950
during the six months ended July 31, 2018 for services provided to the Company.
On May 2, 2018, the Company received proceeds of $1
million from Barandnic Holdings Ltd. In connection with the sale of 250,000 shares of the Company’s common stock. In connection
with the sale, the purchaser received a 30-day warrant to purchase 250,000 shares at an exercise price of $4.00 per share. On May
27, 2018, Barandnic Holdings Ltd. exercised 125,000 common stock warrants and the Company received proceeds of $500,000. On June
2, 2018, the balance of the warrants expired.
On July 31, 2018, the Company issued 250,000 shares
of common stock valued at $1,850,000 as a down payment in connection with the acquisition of 4P Therapeutics, LLC. In addition
to these shares, the Company also made a payment of $400,000 in August to complete the acquisition.
The following table summarizes
the changes in warrants outstanding and the related price of the shares of the Company’s common stock issued to non-employees
of the Company.
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Exercise
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Remaining
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Intrinsic
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Shares
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Price
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Life
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Value
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Outstanding, January 31, 2018
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730,000
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$
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1.58
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1.35 years
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$
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-
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Granted
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250,000
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4.00
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-
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-
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Expired/Cancelled
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(125,000
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4.00
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-
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-
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Exercised
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(125,000
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4.00
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-
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-
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Outstanding-period ending July 31, 2018
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730,000
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$
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1.58
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0.85 years
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$
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4,247,000
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Exercisable - period ending July 31, 2018
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730,000
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$
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1.58
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0.85 years
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$
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4,247,000
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Basic
earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during
the period. Diluted earnings per common share are computed by dividing net earnings by the weighted average number of
common shares and potential common shares outstanding during the period. Potential common shares consist of outstanding common
stock purchase warrants. As of July 31, 2018, there were 730,000 common stock equivalents outstanding, that were not included in
the calculation of dilutive earnings per share as their effect would be anti-dilutive.
On April 5, 2018, the Company
entered into an acquisition agreement to acquire a 100% interest in 4P Therapeutics Inc. in exchange for $400,000 and 250,000 shares
of common stock of the Company. The shares were issued in July 2018 and payment made in August 2018 to complete the acquisition.
4P Therapeutics Inc. will become the pharmaceutical and development arm of Nutriband with specific focus on Transdermal and Topical
Technologies, prescription drugs and clinical development.
On June 13, 2018, the Company
signed a letter of intent to acquire 100% of Carmel Biosciences, a pharmaceutical company that addresses critical needs in new
drug and liquid reformulation for cardiovascular and metabolic therapies. The Company plans to complete the acquisition, valued
at approximately $3.3 million, through payment of the issuance of 450,000 shares of the Company’s common stock. In December
2007, Carmel Biosciences received FDA approval for PREXXARTAN, the first and only approved oral liquid dosage form of the angiotensin
receptor block (ARB) valsartan in the United States. The Company is still reviewing and conducting its due diligence on the acquisition
and there is no current estimated time of completion.
The Company’s Board of Directors
voted on July 27, 2018 to rescind the May 22, 2017 Share Exchange Agreement between Nutriband Inc. and Advanced Health Brands,
Inc. due to Advanced Health Brands, Inc.’s failure to deliver consideration in exchange for shares in Nutriband. We
engaged counsel to obtain a legal judgment to recover the stock, to rescind the transaction, or to otherwise cancel the stock we
issued in the transaction. On July 27, 2018, our counsel filed in the Circuit Court of the Ninth Judicial Circuit in and
for Orange County, Florida, a Verified Complaint against Advanced Health Brands, Inc., 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. On August 2, 2018, the court entered a Temporary Injunction Without Notice and an Order to Show Cause against
Defendants. Defendants Kalmar, Murphy, Polly-Murphy, and Baker have filed a Motion to Dismiss Nutriband’s Verified Complaint,
Motion to Dissolve Temporary Injunction Without Notice and Response to Order to Show Cause, and Motion to Compel Arbitration. The
parties presented oral arguments to the Court concerning their respective motions and pleadings on August 22, 2018 and again on
August 24, 2018, but the Court has yet to rule on any motion or issue presented. On August 22, 2018, Kalmar, Murphy, Polly-Murphy,
and Baker filed a Complaint against Nutriband in the Franklin County, Ohio Court of Common Pleas seeking a declaratory judgment
permitting them to sell their Nutriband shares. We are actively working on engaging Ohio counsel to defend against this lawsuit.
The parties are currently scheduled to continue their respective oral arguments before the Florida court on December 7, 2018.
On August 10, 2018, the Company received
a Wells notice from the Enforcement Division staff of the U.S. Securities and Exchange Commission, Miami Regional Office. The Enforcement
Division staff is conducting an investigation into the Company’s disclosures about the FDA requirements for its transdermal
patch products made in the Company’s Form 10 Registration Statement and amendments (filed June 2, 2016) and Form 10-K Report
(filed May 8, 2017). In the Wells notice, the enforcement division staff informed the Company that it intended to recommend that
the Commission authorize a civil injunctive action alleging that the Company, its CEO, and CFO (“Officers”) violated
certain provisions of the federal securities laws, including Sections 10(b) and 13(a) of the Securities Exchange Act of 1934, with
respect to the Company’s FDA disclosures in its public filings. On September 7, 2018, the Company and Officers filed a Wells
Submission with the Enforcement Division staff explaining why they did not violate the federal securities laws and why the Commission
should not file a civil injunctive action and not seek civil monetary penalties and other forms of equitable relief. The Enforcement
Division staff is reviewing the Wells Submission at this time. It is the Company’s belief that the statutory and rules violations
alleged by the Commission’s Enforcement Division staff in the Wells notice are without merit.