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 July 31, 2019

 

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 5,423,956 as of September 11, 2019.

 

 

 

 

 

 

NUTRIBAND INC.

 

INDEX

 

    Page No.
Part I: Financial Information 1
     
Item 1 Financial Statements 1
  Consolidated Balance Sheets as of July 31, 2019 (unaudited) and January 31, 2019 1
  Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended July 31, 2019 and 2018 2
  Unaudited Consolidated Statements of Stockholders Equity for the three and six months ended July 31, 2019 and 2018 3
  Unaudited Consolidated Statements of Cash Flows for the six months ended July 31, 2019 and 2018 5
  Notes to Unaudited Consolidated Financial Statements 6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3 Quantitative and Qualitative Disclosures about Market Risk 20
Item 4 Controls and Procedures 21
     
Part II: Other Information 21
Item 5 Other Information 22
Item 6 Exhibits 22

 

i

 

 

FORWARD LOOKING STATEMENTS

 

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended January 31, 2018, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

References to “we,” “us,” “our” and words of like import refer to Nutriband Inc. and its subsidiaries unless the context indicates otherwise. Unless the context indicates otherwise, references to 4P Therapeutics relate to the operations of 4P Therapeutics LLC prior to our acquisition of 4P Therapeutics on August 1, 2018.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

NUTRIBAND INC. AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEETS

  

    July 31,     January 31,  
    2019     2019  
    (Unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents   $ 13,833     $ 474,653  
Accounts receivable     70,542       13,088  
Prepaid expenses     68,500       102,725  
Total Current Assets     152,875       590,466  
                 
PROPERTY & EQUIPMENT-net     128,588       146,147  
                 
OTHER ASSETS:                
Goodwill     1,719,235       1,719,235  
Right of use asset-net     19,218       -  
Intangible assets-net     333,235       351,770  
                 
TOTAL ASSETS   $ 2,353,151     $ 2,807,618  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expenses   $ 610,357     $ 291,781  
Customer deposits     -       71,225  
Operating lease liability     19,652       -  
Note payable     90,000       40,000  
                 
Total Current Liabilities     720,009       403,006  
                 
Commitments and Contingencies     -       -  
                 
STOCKHOLDERS' EQUITY:                
Preferred stock, $.001 par value, 10,000,000 shares authorized, -0- outstanding     -       -  
Common stock, $.001 par value, 25,000,000 shares authorized; 5,423,956  shares issued and outstanding at July 31, 2019 and January 31, 2019     5,424       5,424  
Additional paid-in-capital     8,832,590       8,579,890  
Accumulated other comprehensive loss     (304 )     (52 )
Accumulated deficit     (7,204,568 )     (6,180,650 )
Total Stockholders' Equity     1,633,142       2,404,612  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 2,353,151     $ 2,807,618  

 

See notes to unaudited consolidated financial statements

 

1

 

 

NUTRIBAND INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

    Three Months Ended     Six Months Ended  
    July 31,     July 31,  
    2019     2018     2019     2018  
                         
Revenue   $ 74,913     $ -     $ 268,503     $ -  
                                 
Costs and expenses:                                
Cost of revenues     117,959       -       316,753       -  
Selling, general and administrative expenses     406,566       1,878,772       974,523       2,326,870  
Total Costs and Expenses     524,525       1,878,772       1,291,276       2,326,870  
                                 
Loss from operations     (449,612 )     (1,878,772 )     (1,022,773 )     (2,326,870 )
                                 
Other income (expense)                                
Interest expense     (953 )     -       (1,145 )     -  
                               
Loss from operations before provision for income taxes     (450,565 )     (1,878,772 )     (1,023,918 )     (2,326,870 )
                                 
Provision for income taxes     -       -       -       -  
                                 
Net loss   $ (450,565 )   $ (1,878,772 )   $ (1,023,918 )   $ (2,326,870 )
                                 
                                 
Net loss per share of common stock-basic and diluted   $ (0.08 )   $ (0.36 )   $ (0.19 )   $ (0.44 )
                               
Weighted average shares of common stock outstanding - basic and diluted     5,423,956       5,310,033       5,423,956       5,265,406  
                                 
Other Comprehensive Income (Loss):                                
                                 
Net loss   $ (573,353 )   $ (1,878,772 )   $ (1,023,918 )   $ (2,326,870 )
                                 
Foreign currency translation adjustment     -       252       (252 )     398  
                                 
Total Comprehensive Income (Loss)   $ (573,353 )   $ (1,878,520 )   $ (1,024,170 )   $ (2,326,472 )

 

See notes to unaudited consolidated financial statements

 

2

 

 

NUTRIBAND INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

Six Months Ended July 31, 2018       Accumulated        
          Common Stock     Additional     Other        
          Number of           Paid In     Comprehensive     Accumulated  
    Total     shares     Amount     Capital     Income(Loss)     Deficit  
Balance, February 1, 2018   $ 121,508       5,219,275     $ 5,219     $ 2,966,145     $ (446 )   $ (2,849,410 )
                                                 
Issuance of common stock for services     1,763,950       80,500       80       1,763,870       -       -  
                                                 
Sale of common stock for cash     1,000,000       62,500       63       999,937       -       -  
                                                 
Common stock issued upon the exercise of warrants     500,000       31,250       31       499,969       -       -  
                                                 
Common stock issued for acquisition     1,850,000       62,500       63       1,849,937       -       -  
                                                 
Foreign currency translation adjustment     398       -       -       -       398       -  
                                                 
Net loss for the six months ended July 31, 2018     (2,326,870 )     -       -       -       -       (2,326,870 )
                                                 
Balance, July 31, 2018   $ 2,908,986       5,456,025     $ 5,456     $ 8,079,858     $ (48 )   $ (5,176,280 )
                                                 
Six Months Ended July 31, 2019                  
            Accumulated        
          Common Stock     Additional     Other        
          Number of           Paid In     Comprehensive     Accumulated  
    Total     shares     Amount     Capital     Income(Loss)     Deficit  
Balance, February 1, 2019   $ 2,404,612       5,423,956     $ 5,424     $ 8,579,890     $ (52 )   $ (6,180,650 )
                                                 
Issuance of warrants for services     252,700       -       -       252,700       -       -  
                                                 
Net loss for the six months ended July 31, 2019     (1,023,918 )     -       -       -       -       (1,023,918 )
                                                 
Foreign currency translation adjustment     (252 )     -       -       -       (252 )     -  
                                                 
Balance, July 31, 2019   $ 1,633,142       5,423,956     $ 5,424     $ 8,832,590     $ (304 )   $ (7,204,568 )

  

See notes to unaudited consolidated financial statements

 

3

 

 

NUTRIBAND INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

Three Months Ended July 31, 2018     Accumulated              
          Common Stock     Additional     Other           Common   
          Number of           Paid In     Comprehensive     Accumulated     stock  
    Total     shares     Amount     Capital     Income(Loss)     Deficit     to be issued  
Balance, April 30, 2018   $ (48,944 )     5,219,275     $ 5,219     $ 2,966,145     $ (300 )   $ (3,297,508 )   $ 277,500  
                                                         
Issuance of common stock for services     1,486,450       80,500       80       1,763,870       -       -       (277,500 )
                                                         
Sale of common stock for cash     1,000,000       62,500       63       999,937       -       -       -  
                                                         
Common stock issued upon the exercise of warrants     500,000       31,250       31       499,969       -       -       -  
                                                         
Common stock issued for acquisition     1,850,000       62,500       63       1,849,937       -       -       -  
                                                         
Foreign currency translation adjustment     252       -       -       -       252       -       -  
                                                         
Net loss for the three months ended July 31, 2018     (1,878,772 )     -       -       -       -       (1,878,772 )     -  
                                                         
Balance, July 31, 2018   $ 2,908,986       5,456,025     $ 5,456     $ 8,079,858     $ (48 )   $ (5,176,280 )   $ -  

 

 

Three Months Ended July 31, 2019                           Accumulated        
          Common Stock     Additional     Other        
          Number of           Paid In     Comprehensive     Accumulated  
    Total     shares     Amount     Capital     Income(Loss)     Deficit  
Balance, April 30, 2019   $ 2,083,707       5,423,956     $ 5,424     $ 8,832,590     $ (304 )   $ (6,754,003 )
                                                 
Net loss for the three months ended July 31, 2019     (450,565 )     -       -       -       -       (450,565 )
                                                 
Foreign currency translation adjustment     -       -       -       -       -       -  
                                                 
Balance, July 31, 2019   $ 1,633,142       5,423,956     $ 5,424     $ 8,832,590     $ (304 )   $ (7,204,568 )

 

See notes to unaudited consolidated financial statements

 

4

 

 

NUTRIBAND INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    Six Months Ended  
    July 30,  
    2019     2018  
Cash flows from operating activities:            
Net loss   $ (1,023,918 )   $ (2,326,870 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Expenses paid on behalf of the Company by related party     -       24,300  
Depreciation and amortization     36,094       347  
Amortization of right of use asset     9,609       -  
Stock-based compensation     252,700       1,763,950  
Changes in operating assets and liabilities:                
Inventories     -       (50,473 )
Accounts receivable     (57,454 )     263  
Prepaid expenses     34,225       95,000  
Deferred revenue     -       49,000  
Deposit on sales     (71,225 )     -  
Operating lease liability     (9,175 )     -  
Accounts payable and accrued expenses     318,576       61,541  
Net Cash Used In Operating Activities     (510,568 )     (382,942 )
                 
Cash flows from investing activities:                
Purchase of equipment     -       (4,163 )
Net Cash Used in Investing Activities     -       (4,163 )
                 
Cash flows from financing activities:                
Payment of bank overdraft     -       (762 )
Proceeds from sale of common stock     -       1,000,000  
Proceeds from exercise of warrants     -       500,000  
Proceeds from notes payable     50,000       25,000  
Payment of notes payable     -       (1,820 )
Proceeds from related parties     -       2,500  
Payment of related party payables     -       (41,038 )
Net Cash Provided by Financing Activities     50,000       1,483,880  
                 
Effect of exchange rate on cash     (252 )     406  
                 
Net change in cash     (460,820 )     1,097,181  
                 
Cash and cash equivalents - Beginning of period     474,653       -  
                 
Cash and cash equivalents - End of period   $ 13,833     $ 1,097,181  
                 
Supplementary information:                
                 
Cash paid for:                
Interest   $ -     $ -  
                 
Income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities                
                 
                 
Common stock to be issued for services   $ -     $ 1,763,950  
                 
Adoption of ASC 842 Operating lease asset and liability   $ 28,827     $ -  
                 
Common stock issued for deposit on acquisition   $ -     $ 1,850,000  

 

See notes to unaudited consolidated financial statements

 

5

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Organization

 

Nutriband Inc. (the “Company”) is a Nevada corporation, incorporated on January 4, 2016. In January 2016, the Company acquired Nutriband Ltd., an Irish company which was formed by the Company’s chief executive officer in 2012 to enter the health and wellness market by marketing transdermal patches. References to the Company relate to the Company and its subsidiaries unless the context indicates otherwise.

 

On August 1, 2018, the Company acquired 4P Therapeutics LLC (“4P Therapeutics”) for $2,250,000, consisting of 62,500 shares of common stock, valued at $1,850,000, and $400,000, and a royalty payable to the former owner of 4P Therapeutics, of 6% on all revenue generated by the Company from the abuse deterrent intellectual property that had been developed by 4P Therapeutics. The former owner of 4P Therapeutics has been a director of the Company since April 2018, when the Company entered into the agreement to acquire 4P Therapeutics.

 

4P Therapeutics is engaged in the development of a series of transdermal pharmaceutical products that are in the preclinical stage of development. Prior to the acquisition of 4P Therapeutics, the Company’s business was the development and marketing of a range of transdermal consumer patches. Most of these products are considered drugs in the United States and cannot be marketed in the United States without approval by the Food and Drug Administration (the “FDA”). The Company is not presently taking any steps to seek FDA approval of its consumer transdermal products and its consumer products are not being marketed in the United States.

 

With the acquisition of 4P Therapeutics, 4P Therapeutics’ drug development business became the Company’s principal business. The Company’s approach is to use generic drugs that are off patent and incorporate them into the Company’s transdermal drug delivery system. Although these medications have received FDA approval in oral or injectable form, the Company needs to conduct a transdermal product development program which will include the preclinical and clinical trials that are necessary to receive FDA approval before we can market any of our pharmaceutical transdermal products.

 

Reverse Stock Split and Reduction in Authorized Common Stock

 

On June 25, 2019, the Company effected one-for-four reverse split, pursuant to which each share of common stock became and was converted into 0.25 share of common stock, and the Company decreased its authorized common stock from 100,000,000 shares to 25,000,000 shares. The reverse split became effective in the marketplace on July 24, 2019. All share and per share information in these financial statements retroactively reflect the reverse split.

 

Going Concern

 

The Company’s consolidated financial statements for the six months ended July 31, 2019 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities in the normal course of business. The Company did not generate any revenue prior to the quarter ended October 31, 2018. For the six months ended July 31, 2019, the Company generated revenue of $268,503 on which it recorded cost of revenues of $316,753 and a loss from operations of $1,022,773. The Company requires substantial funding to execute its strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining significant additional financing, generating revenue primarily from its professional services to cover its overhead, developing its products, and obtaining FDA approval to market any product it develops and implementing a marketing program for such products. The Company will not be able to generate any revenue from its proposed transdermal pharmaceutical products without FDA approval. These factors raise substantial doubt about ability of the Company to continue as a going concern.

 

6

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated balance sheet as of July 31, 2019 and the consolidated statements of operations, stockholders’ equity, and cash flows for the periods presented have been prepared by the Company and are unaudited. The consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods pursuant to Rule 8-03 of Regulation S-X, and consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of January 31, 2019 was derived from audited financial statements of the Company. The Company’s significant accounting policies are found below. These policies should be read in conjunction with Note 1 in the Company’s audited financial statements for the year ended January 31, 2019.

 

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.

 

Revenue Recognition

 

The Company recognized revenue in accordance with Topic 606 “Revenue from Contracts with Customers. Topic 606 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to a customer. The Company adopted the guidance under the new revenue standards using the modified retrospective method effective February 1, 2018 and determined no cumulative effect adjusted to retained earnings was necessary upon adoption. Topic 606 requires the Company to recognize revenues when control of the promised goods or services and receipt of payment is probable. The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

 

Upon adoption, Topic 606 replaced most existing revenue recognition guidance in U.S. GAAP. The adoption of Topic the new revenue recognition standards did not have any impact on its consolidated financial statements since the Company did not recognize any revenue prior to the third quarter of 2018, and all revenue is recognized pursuant to Topic 606.

 

Revenue Service Types

 

The following is a description of the Company’s revenue service types, which include professional services and sale of goods:

 

● Professional services include contract research and development related services with clients in the life sciences field on an as-needed basis. Deliverables primarily consist of detailed findings and conclusion reports provided to the client for each given research project engaged.

 

● Sales revenues are derived from the sale of products. To date, sales related to consumer products sold to the Company’s South Korean distributor. Upon receipt of a purchase order, the Company has the order filled and shipped.

 

7

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Contracts with Customers

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the Company’s different revenue types, the performance obligation is satisfied at different times. The Company‘s performance obligations include providing products and professional services in the area of research. The Company recognizes product revenue performance obligations in most cases when the product has shipped to the customer. When the Company performs professional service work, it recognizes revenue when it has the right to invoice the customer for the work completed, which typically occurs on a monthly basis for the work performed during that month.

 

All revenue recognized in the statement of operations is revenue from contracts with customers.

 

Disaggregation of Revenues

 

The Company disaggregates its revenue from contracts with customers by service type and by geographical location. The following tables set forth revenue by service type and by geographical location.

 

Revenue by service type:

 

    Three months ended
July 31, 		    Six months ended
July 31, 		 
    2019     2018     2019     2018  
Sale of goods   $ -     $ -     $ 142,450     $ -  
Services     74,913       -       126,053       -  
Total   $ 74,913     $ -     $ 268,503     $ -  

 

Revenue by geographic location:

 

    Three months ended
July 31, 		    Six months ended
July 31, 		 
    2019     2018     2019     2018  
United States   $ 74,913     $ -     $ 126,053     $ -  
Non-United States     -       -       142,450       -  
Total   $ 74,913     $ -     $ 268,503     $ -  

 

Property, Plant and Equipment

 

The Company depreciates its plant and equipment on a straight-line basis over the estimated useful life of the assets. Property, plant and equipment is stated at historical cost. Expenditures for minor repairs, maintenance and replacement parts which do not increase the useful lives of the assets are charged to expense as incurred. All major additions and improvements are capitalized. Depreciation is computed using the straight-line method. The lives over which the fixed assets are depreciated range from 3 to 5 years as follows:

 

Lab equipment     5 years  
Furniture, fixtures and equipment     3 years  

 

8

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Intangibles Assets

 

Intangibles assets include trademarks, intellectual property and customer base acquired through business combinations. The Company accounts for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” The Company capitalizes certain costs related to patent technology. A substantial component of the purchase price related to the Company’s acquisition in 2018 has also been assigned to intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Trademarks, intellectual property and customer base are being amortized over their estimated useful lives of ten years.

 

Goodwill

 

Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. The Company does not amortize goodwill in accordance with ASC 350.

 

Long-lived Assets

 

Management reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  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.

 

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 July 31, 2019 and 2018, there were 57,500 and 182,500 common stock equivalents outstanding, respectively, that were not included in the calculation of dilutive earnings per share as their effect would be anti-dilutive.

 

Stock-Based Compensation

 

ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services, and, since February 1, 2019, non-employees, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

For the six months ended July 31, 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. As of February 1, 2019, pursuant to ASU 2018-07, ASC 718 was applied to stock-based compensation for both employees and non-employees.

 

9

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.

 

The Company adopted ASU 2016-02 as amended effective February 1, 2019 using the modified retrospective approach. In connection with the adoption, the Company elected to utilize the Comparative Under 840 Option whereby the Company will continue to present prior period financial statements and disclosures under ASC 840. In addition, the Company elected the transition package of three practical expedients permitted under the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. The Company completed the necessary changes to its accounting policies, processes, disclosure and internal control over financial reporting.

 

Adoption of the new standard resulted in the recording of right-to-use assets in the amount of $28,827 and lease liabilities related to operating leases in the amount of $28,827 on the Company’s consolidated balance sheet as of February 1, 2019. See Note 10, Leases, for Topic 842 disclosures in connection with the adoption of ASU 2016-02.

 

Recent Accounting Standards

 

The Company has implemented all new pronouncements, including the adoption of ASC 842 and 718, that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements or results of operations.

 

3. PROPERTY AND EQUIPMENT

 

    July 31,     January 31,  
    2019     2018  
Lab equipment   $ 144,585     $ 144,585  
Furniture, fixtures and equipment     19,643       19,643  
      164,228       164,228  
Less: Accumulated depreciation     (35,640 )     (18,081 )
Net Property and Equipment   $ 128,588     $ 146,147  

 

Depreciation expense amounted to $17,559 and $347 for the six months ended July 31, 2019 and 2018, respectively.

 

4. DEBT

 

On September 12, 2017, the Company borrowed $15,000 on an interest-free basis from a minority stockholder. In April 2018, the Company borrowed an additional $25,000 from the minority stockholder. In July 2019, the Company borrowed an additional $50,000. The loans are interest free and due upon demand. The balance due on such loans was $90,000 on July 31, 2019, and $40,000 on January 31, 2019, which is included in notes payable.

 

10

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

5. ACQUISITION OF BUSINESS

 

On August 1, 2018, the Company acquired 100% of the membership interests of 4P Therapeutics, pursuant to an agreement dated April 5, 2018, for $2,250,000, consisting of 62,500 shares of common stock, valued at $1,850,000, and $400,000, and a royalty payable to the former owner of 4P Therapeutics, of 6% on all revenue generated by us from the abuse deterrent intellectual property that had been developed by 4P Therapeutics. The primary purpose of the acquisition is to acquire the intellectual property of 4P Therapeutics and complete the development and seek FDA approval on a number of transdermal pharmaceutical products under development by 4P Therapeutics which are in the preclinical stage. As a result of the acquisition of 4P Therapeutics, the Company has a pipeline of potential products. Acquisition costs, which were minimal, have been expensed as incurred in accordance with ASC 350.

 

Details of the net assets acquired are as follows:

 

    Fair Value Recognized  
    On Acquisition  
Equipment   $ 160,065  
Customer base     136,500  
Intellectual property     191,900  
Trademark     42,300  
Goodwill     1,719,235  
Net assets acquired   $ 2,250,000  
Satisfied by:        
Common stock issued   $ (1,850,000 )
Cash outflows on acquisition     (400,000 )

 

The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and 4P Therapeutics as if the acquisition occurred as of the beginning of six-month period ended July 31, 2018. The unaudited pro forma condensed financial information is not intended to represent or be indicative of the consolidated results of operations of the Company that would have been reported had the acquisition occurred at the beginning of the period presented and should not be taken as being representation of the future consolidated results of operations of the Company.

 

    Six months ended
July 31, 2018 		 
    As Reported     Pro Forma  
Revenue   $ -     $ 331,864  
Net loss   $ (2,326,870 )   $ (2,421,391 )
Loss per share of common stock (basic and diluted)   $ (0.44 )   $ (0.46 )

 

6. INTANGIBLE ASSETS AND GOODWILL

 

At July 31, 2019 and January 31, 2019, intangible assets consisted of intellectual property, customer base and trademarks, net of amortization, as follows:

 

    July 31,     January 31,  
    2019     2019  
Customer base   $ 136,500     $ 136,500  
Intellectual property     234,200       234,200  
Goodwill     1,719,235       1,719,235  
                 
Total     2,089,935       2,089,935  
                 
Less: Accumulated amortization     (37,465 )     (18,930 )
                 
Net Intangible Assets   $ 2,052,470     $ 2,071,005  

 

11

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

6. INTANGIBLE ASSETS AND GOODWILL, continued

 

The value of the intangible assets, consisting of intellectual property and customer base has been recorded at their fair value by the Company after completing a valuation and are being amortized over a period of ten years. Amortization expense for the six months ended July 31, 2019 and 2018 was $18,535 and $-0- respectively.

 

No value has been given to the potential royalty payable to the former owner since the royalty is contingent upon the Company generating revenue from any source and there is no marketable product and there are material uncertainties, including the need for FDA approval, as to whether or when any revenue will be generated from the intellectual property subject to the royalty. If any royalties are paid to the former owner of 4P Therapeutics, the royalties will be expensed as incurred and treated as a cost of revenue.

 

Intangible assets consist of:        
         
Intellectual property   $ 234,200  
Accumulated amortization     (23,815 )
Book value at July 31, 2019   $ 210,385  
         
Customer base   $ 136,500  
Accumulated amortization     (13,650 )
Book value at July 31, 2019   $ 122,850  
Total Intangible Assets, Net   $ 333,235  
         

 

  Trademarks and
Intellectual 		    Customer        
Estimated Amortization:   Property     Base     Total  
Year Ended January 31,                  
2020   $ 11,710     $ 6,825     $ 18,535  
2021     23,420       13,650       37,070  
2022     23,420       13,650       37,070  
2023     23,420       13,650       37,070  
2024 and thereafter     128,415       75,075       203,490  
    $ 210,385     $ 122,850     $ 333,235  

  

7. RELATED PARTY TRANSACTIONS

 

a) 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. See Note 4 in connection with the terms of the acquisition of 4P Therapeutics from the former owner. The former owner was not a director of the Company when the acquisition agreement was signed.

 

b) During the six months ended July 31, 2018, the Company issued:

 

(i) 68,000 shares of common stock, valued at $1,419,300, issued to executive officers and their affiliates;
(ii) 7,500 shares of common stock, valued at $222,000, issued to the Company’s independent directors;
(iii) 2,500 shares of common stock, valued at $74,000, issued to the Company’s advisory board member; and
(iv) 2,500 shares of common stock, valued at $48,600, issued to a non-affiliated party for services.

 

c) On February 19, 2019, the Company granted an executive officer an option to purchased 25,000 shares of the Company’s common stock at an exercise price equal to 75% of the market price on the date the Company receives notice of exercise. The fair value of the warrant on the date of grant using the Black Scholes model was $252,700 and was expensed during the six months ended July 31, 2019. The warrant expired unexercised on May 19, 2019.

 

12

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

8. COMMON STOCK

 

During the six months ended July 31, 2018, the Company issued:

 

(i) 68,000 shares of common stock, valued at $1,419,300, issued to executive officers and their affiliates;
(ii) 7,500 shares of common stock, valued at $222,000, issued to the Company’s independent directors;
(iii) 2,500 shares of common stock, valued at $74,000, issued to the Company’s advisory board member; and
(iv) 2,500 shares of common stock, valued at $48,600, issued to a non-affiliated party for services.

 

On May 2, 2018, the Company sold to an unrelated party for $1.0 million, 62,500 shares stock and 30-day warrants to purchase 62,500 shares of common stock at $16.00 per share. On May 27, 2018, the unrelated party exercised warrants to purchase 31,250 shares of common stock for proceeds of $500,000 and on June 2, 2018, warrants to purchase 31,250 shares of common stock expired unexercised.

 

On July 31, 2018, the Company issued 62,500 shares of common stock valued at $1,850,000 representing a portion of the purchase price for the equity of 4P Therapeutics. See Notes 4 and 6.

 

In November 2018, one of the defendants in the legal proceedings with Advanced Health Brands, Inc., returned 50,000 shares of common stock that had been issued to her, and these shares were cancelled as of January 31, 2019.

 

On May 24, 2019, the Board of Directors created a series of preferred stock consisting of 2,500,000 shares designated as the Series A Convertible Preferred Stock (“Series A Preferred Stock”). On June 20, 2019, the Series A preferred Stock was terminated and the 2,500,000 shares were restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series, until such stock is once more designated as part of a particular series by the Board of Directors.

 

9. WARRANTS AND OPTIONS

 

The following table summarizes the changes in warrants outstanding and the related price of the shares of the Company’s common stock issued to non-employees of the Company.

 

          Exercise     Remaining     Intrinsic  
    Shares     Price     Life     Value  
Outstanding, January 31, 2019     182,500     $ 6.32        0.35 years      $ 4,101,000  
                                 
Granted     -       -       -       -  
                                 
Expired/Cancelled     (125,000 )     2.80       -       -  
                                 
Exercised     -       -       -       -  
                                 
Outstanding-period ending July 31, 2019     57,500     $ 14.00        0.50 years      $ 1,466,250  
                                 
Exercisable - period ending July 31, 2019     57,500     $ 14.00        0.50 years      $ 1,466,250  

 

The following table summarizes additional information relating to the warrants outstanding at July 31, 2019: 

 

Range of     Number     Remaining Contractual     Exercise Price for
Shares 		    Number     Exercise Price for
Shares 		 
Exercise Prices     Outstanding     Life(Years)     Outstanding     Exercisable     Exercisable  
                                             
$ 14.00       57,500       0.50     $ 14.00       57,500     $ 14.00  

 

13

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

9. WARRANTS AND OPTIONS, continued

 

The following table summarizes the changes in options outstanding and the related price of the shares of the Company’s common stock issued to non-employees of the Company.

 

          Exercise     Remaining     Intrinsic  
    Shares     Price     Life     Value  
Outstanding, January 31, 2019     -     $ -       -     $ -  
                                 
Granted     25,000       25.64        0.05 years        232,750  
                                 
Expired/Cancelled     (25,000 )     25.64       -       -  
                                 
Exercised     -       -       -       -  
                                 
Outstanding-period ending July 31, 2019     -     $ -       -     $ -  
                                 
Exercisable - period ending July 31, 2019     -     $ -       -     $ -  

 

10. LEASES

 

The Company has operating leases for its facilities used for research and development, sales and administration. These leases have remaining lease terms of less than one year. Certain of these leases contain options to extend the term of the lease and certain of these leases contain options to terminate the lease within a specified period of time. The options to extend or terminate a lease are included in the lease term when it is reasonably likely that the Company will elect that option. The Company is not a party to any material sublease arrangements.

 

The components of lease expense, which are included in cost of revenues and general and administrative expense, based on the underlying uses of the right of use asset, were as follows:

 

    Six Months Ended  
    July 31, 2019  
Amortization of right-of-use asset   $ 9,609  
Interest on lease liability     1,145  
Operating lease costs     -  
Total Lease Cost   $ 10,754  

  

Supplementary cash flow information related to leases are as follows:

 

    Six Months Ended  
    July 31, 2019  
Cash paid for amounts included in the measurement of lease liabilities:        
Operating cash flows from operating leases   $ 9,609  
Right-of-use assets obtained in exchange for lease obligations:        
Operating leases   $ 28,827  

 

14

 

 

NUTRIBAND INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

as of and for the Six Months Ended July 31, 2019 And 2018

 

10. LEASES, continued

 

Supplementary balance sheet information related to leases are as follows:

 

Operating Leases:      
Operating lease right-of -use assets   $ 19,218  
Operating lease liabilities     19,652  
         
Weighted-Average Remaining Lease Term:        
Operating leases     1.00  
         
Weighted-Average Discount Rate:        
Operating leases     9.24 %

 

Our discount rate is based on our incremental borrowing rate.

 

Maturities of lease liabilities were as follows as of July 31, 2019:

 

  Operating  
Year Ending January 31,   Leases  
2020-remaining   $ 10,320  
2021-remaining     10,320  
Total undiscounted cash flows     20,640  
Less: imputed interest     (988 )
Present value of lease liabilities   $ 19,652  

 

11. CONTINGENCIES

 

On July 27, 2018, the Company 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, 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 Brans, 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 have 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 in the Advanced Health Brands, Inc. litigation 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. In November 2018, one of the defendants returned the 50,000 shares that had been issued to her, and these shares were cancelled as of January 31, 2019.

 

On August 22, 2018, four 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 them 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 scheme 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.

 

12. SUBSEQUENT EVENTS

 

On August 14, 2019, the Company borrowed an additional $50,000 from a minority stockholder, bringing the total loans from the minority stockholder to $140,000. See Note 4.

 

15

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We are primarily engaged in the development of a portfolio of transdermal pharmaceutical products. Our lead product is our abuse deterrent fentanyl transdermal system which we are developing to 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. In November 2018, we raised $500,000 from the sale of our common stock, and we have used the proceeds from that sale for working capital, expenses in connection with our proposed public offering and preliminary preclinical development efforts for our abuse deterrent fentanyl transdermal system. We believe that our abuse deterrent technology can also be utilized in transdermal patches to deter the abuse of other drugs and we are exploring follow-on applications. In addition, we are also exploring the development of generic transdermal patches and the application of our transdermal technology for the transdermal delivery of commercially available drugs or biologics that are typically delivered by injection.

 

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 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 product in the United States at this time. Presently our efforts with respect to our consumer transdermal products is limited to our distribution agreement with one distributor which is planning to market our consumer products in South Korea upon receipt of regulatory approval. Through July 31, 2019, we generated modest revenue from the sale of our consumer products to our South Korean distributor, which is conducting preliminary marketing activities in South Korea pending obtaining the necessary regulatory approvals necessary to market the products to consumers in South Korea. We did not generate any revenue from this distributor in the quarter ended July 31, 2019. Since our South Korean distributor has not yet obtained the necessary regulatory approval to market our consumer products in South Korea, we do not anticipate generating any significant revenue from this distributor during the balance of the year ending January 31, 2020. We cannot assure you that our South Korean distributor will obtain necessary regulatory approval in South Korea or in any other country in which it has distribution rights or that, if it does obtain the necessary approval, that we will generate any significant revenue from the distributor. Our agreement with this distributor had an initial term which initially expired on April 30, 2019 and was extended to April 30, 2020. The agreement provides for an automatic renewal for an additional three years and for five-year terms thereafter if certain minimum purchases are made.

 

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 a 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 or gross margin. Currently, there are no long-term contractual obligations for us, and either party can terminate at any time. During the six months ended July 31, 2019, we experienced a significant decline in revenue from 4P Therapeutics’ largest customer, as a result of which our revenue from 4P Therapeutics was $126,053. Our revenue from our South Korean distributor for the six months ended July 31, 2019 was $143,450, all of which was generated in the three months ended April 30, 2019. Our cost of revenue for the six months ended July 31, 2019 was $316,753. Our cost of revenue includes fixed expenses, such as the compensation for Dr. Alan Smith, who is our chief operating officer and president of 4P Therapeutics, and the rent for 4P Therapeutics’ facilities. As a result, if we cannot generate sufficient revenue to cover the fixed expenses of 4P Therapeutics, we will continue to generate a negative gross margin from these operations.

 

With the change in our focus, our capital requirement have increased substantially. The process of developing pharmaceutical products and submitting them for FDA approval is both time consuming and expensive, with no assurance of obtaining approval from the FDA to market our product in the United States. We have budgeted $5.0 million for research and development of our abuse deterrent fentanyl transdermal system, including clinical manufacturing and clinical trials that need to be completed in order to obtain FDA approval. However, the total cost could be substantially in excess of that amount. We do not presently have the funds to enable us to develop our lead product, and we are seeking funding from a proposed public offering for this purpose. We have filed a registration statement with respect to a proposed public offering. Even if we complete the offering, the net proceeds of the offering will not be sufficient for us to complete the development and clinical testing necessary for FDA approval for our lead product. In the event that we are not able to complete the offering, we may be unable to raise the funds necessary to develop our lead product. 

 

16

 

 

In the event that we are not able to complete our proposed public offering, we cannot assure you that we will be able to raise the funds to finance our operations, either through a private placement or a joint venture agreement or strategic relationship, and, if we cannot raise funds as required, we may not be able to fund the development of our product pipeline. Any money we raise in either the proposed public offering or private placement will most likely be at a discount to the then current market price and the discount could be significant, which would result in significant dilution to our stockholders with no assurance any proceeds we raise will be sufficient for us to complete the development of our lead product.

 

Results of Operations

 

Three and Six Months Ended July 31, 2019 and 2018

 

We did not generate revenues during the three months ended July 31, 2018. For the three months ended July 31, 2019, we generated revenue of $74,913 and our costs of revenues were $117,959 resulting in negative gross profit of $43,046. Our revenue was derived from the continuation of research and development contracts of the type that 4P Therapeutics performed prior to our acquisition. There were no sales of transdermal products during the second quarter. Our cost of revenue for our research and development contract in both the three and six month periods includes fixed expenses, such as the compensation for Dr. Alan Smith, who is our chief operating officer and president of 4P Therapeutics, and the rent for 4P Therapeutics’ facilities. As a result, if we cannot generate sufficient revenue to cover the fixed expenses of 4P Therapeutics, we will continue to generate a negative gross margin from these operations.

 

For the three months ended July 31, 2019, our selling, general and administrative expenses were $406,566, primarily legal, accounting and payroll expense, compared to $1,876,772 in the three months ended July 31, 2018. The decrease from 2018 is primarily due to a decrease in payroll related expenses offset by an increase in legal during the quarter. We had no stock-based compensation for the three months ended July 31, 2019 as compared stock-based compensation of $1,486,450 for the three months ended July 31, 2018.

 

We incurred interest expense of $953 for the three months ended July 31, 2019. We had no interest expense in the three months ended July 31, 2018.

 

As a result of the foregoing, we sustained a net loss of $450,565, or $(0.08) per share (basic and diluted), for the three months ended July 31, 2019, as compared with a loss of $1,876,772, or $(0.36) per share (basic and diluted), for the three months ended July 31, 2018.

 

We did not generate any revenues during the six months ended July 31, 2018. For the six months ended July 31, 2019, we generated revenue of $268,503 and our costs of revenues were $316,753, resulting in negative gross profit of $48,250. Our revenue was derived from two sources – a continuation of research and development contracts of the type that 4P Therapeutics performed prior to our acquisition, which accounted for $126,053, and sales of our consumer transdermal product to our South Korean distributor, which accounted for $142,450, which were generated during the quarter ended April 30, 2019. The sales related to purchases by our South Korean distributor for its preliminary marketing efforts since the product has not obtained regulatory approval for retail sales. We anticipate that all of our revenue for the quarter ended October 31, 2019 will be generated from research and development contracts. Our cost of revenue was $225,285 for our research and development contracts and $91,468 for the consumer patches. Since we do not have the funds for the development of our lead product, the 4P Therapeutics fixed costs are allocated to the contract services that we perform for clients.

 

For the six months ended July 31, 2019 our selling, general and administrative expenses were $974,523, primarily legal, accounting and payroll expense, compared to $2,326,870 in the six months ended July 31, 2018. The decrease from 2018 is primarily due to a decrease in payroll related expenses offset by an increase in legal fees during the six months. Stock-based compensation was $252,700 for the six months ended July 31, 2019 and $1,763,950 for the six months ended July 31, 2018.

 

We incurred interest expense of $1,145 for the six months ended July 31, 2019. We had no interest expense in the six months ended July 31, 2018.

 

As a result of the foregoing, we sustained a net loss of $1,023,918, or $(0.19) per share (basic and diluted) for the six months ended July 31, 2019, compared with a loss of $2,326,870, or $(0.44) per share (basic and diluted) for the six months ended July 31, 2018.

 

Liquidity and Capital Resources

 

As of July 31, 2019, we had $13,833 in cash and cash equivalents and a working capital deficiency of $567,134, as compared with cash and cash equivalents of $474,653 and working capital of $187,460 at January 31, 2019.

 

17

 

 

For the six months ended July 31, 2019, we used cash of $510,568 in our operations. The principal adjustments to our net loss of $1,023,918 were stock-based compensation of $252,700, an increase in accounts payable and accrued expenses of $318,576, a decrease in prepaid expenses of $34,225, depreciation and amortization of $36,094 offset by an increase in accounts receivable of $57,454 and a decrease in customer deposits of $71,225.

 

For the six months ended July 31, 2018, we used $382,942 in our operations. The principal adjustments to our net loss of $2,326,870, were stock-based compensation of $1,763,950, an increase is accounts payable and accrued expenses of $61,541, a decrease in prepaid expenses of $95,000 and expenses paid by a related party of $24,300. During the six months ended July 31, 2018, our only business was our consumer patches.

 

For the six months ended July 31, 2019, we had no cash flow from investing activities. For the six months ended July 31, 2018, we used $4,163 in investing activities, representing the purchase of equipment

 

Our cash flow from financing activities in the six months ended July 31, 2019 consisted of $50,000 from the issuance of notes. For the six months ended July 31, 2018, we had cash flow from financing activities of $1,483,880, consisting of $1,000,000 from the sale of common stock, $500,000 from the exercise of warrants, $25,000 from the issuance of notes, $2,500 from an advance from related parties, offset by $41,038 in payment of related party payables and $1,820 in payment of notes payable.

  

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

 

Our consolidated financial statements for the six months ended July 31, 2019 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities in the normal course of business. We did not generate any revenue prior to the quarter ended October 31, 2018. For the six months ended July 31, 2019, we generated revenue of $268,503 on which we recorded a negative gross profit of $48,250 and a loss from operations of $1,022,773. During the six months ended July 31, 2019, our 4P Therapeutics subsidiary generated revenues of $126,053 and cost of revenues of $225,285 resulting from a significant decrease in sales from the division’s major customer with the result that the revenue was insufficient to cover the fixed costs that are included in cost of revenue. Further, the revenue from the sales of consumer products reflects sales to our South Korean distributor, for its preliminary marketing efforts, and until it has obtained regulatory clearance to sell the products at retail, we do not anticipate generating significant revenues from our South Korean distributor, which is our only distributor. We require substantial funding to execute our strategic business plan. Successful business operations and our transition to attaining profitability are dependent upon obtaining significant additional financing, generating revenue primarily from our professional services to cover our overhead, developing our products, and obtaining FDA approval to market any product we develop and implementing a marketing program for such products. We will not be able to generate any revenue from our proposed transdermal pharmaceutical products without FDA approval. These factors raise substantial doubt about our ability to continue as a going concern. 

 

18

 

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us 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, we evaluate our 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. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to a customer. We adopted the guidance under the new revenue standards using the modified retrospective method effective February 1, 2018. Topic 606 requires us to recognize revenues when control of the promised goods or services and receipt of payment is probable. The Company recognizes revenue based on the five criteria for revenue recognition established under Topic 606: 1) identify the contract, 2) identify separate performance obligations, 3) determine the transaction price, 4) allocate the transaction price among the performance obligations, and 5) recognize revenue as the performance obligations are satisfied.

 

Revenue Service Types

 

The following is a description of our revenue service types, which include professional services and sales of goods:

 

● 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 generated from the sale of our products. Upon the receipt 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.

 

Intangible Assets

 

Intangible assets include intellectual property and other customer base acquired through business combinations. We account for Other Intangible Assets under the guidance of ASC 350, “Intangibles-Goodwill and Other.” We capitalize certain costs related to patent technology, as a substantial portion of the purchase price related to our acquisition has been assigned to the intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Intellectual property and customer base are being amortized over their useful lives of ten years.

 

19

 

 

Goodwill

 

Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is reviewed for impairment annually, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceed their fair value. In accordance with ASC 350, we do not amortize goodwill.

 

Long-lived Assets

 

Management reviews long-lived assets for potential impairment whenever significant events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of the long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the estimated undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists, the resulting write-down would be the difference between fair market value of the long-lived asset and the related net book value.

 

Stock-Based Compensation

 

ASC 718, “Compensation — Stock Compensation,” prescribes accounting and reporting standards for all stock-based payment transactions in which employee services, and, since February 1, 2019, non-employee services, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options and other equity instruments such as employee stock ownership plans and stock appreciation rights. Stock-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

For the six months ended July 31, 2018, we account for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, “Equity — Based Payments to Non-Employees.” Measurement of stock-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.

 

Leases

 

In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance.

 

We adopted ASU 2016-02 as amended effective February 1, 2019 using the modified retrospective approach. In connection with the adoption, we elected to utilize the Comparative Under 840 Option whereby we will continue to present prior period financial statements and disclosures under ASC 840. In addition, we elected the transition package of three practical expedients permitted under the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. We completed the necessary changes to our accounting policies, processes, disclosure and internal control over financial reporting.

 

20

 

 

Adoption of the new standard resulted in the recording of right-to-use assets in the amount of $28,827 and lease liabilities related to operating leases in the amount of $28,827 on our consolidated balance sheet as of February 1, 2019.

 

Foreign Currency Translation

 

The functional currency of our 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 (loss).

Business Combinations

 

Business combinations are accounted for using the acquisition method in accordance with ASC Topic 805, Business Combinations (“ASC 805”). Under the acquisition method of accounting, we allocate the purchase price of a business acquisition based on the fair value of the identifiable tangible and intangible assets. The difference between the total cost of the acquisition and the sum of the fair values of the acquired tangible and identifiable intangible assets less liabilities is recorded as goodwill or bargain purchase gain. Under ASC 805, acquisition related transaction costs (such as advisory, legal, valuation, and other professional fees) are expensed as incurred.

 

New Financial Accounting Standards

 

Management does not believe that any other recently issued, but not yet effective, accounting standard if currently adopted would have a material effect on the consolidated financial statements included herewith.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of 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 for reasons discussed in our annual report on Form 10-K for the year ended January 31, 2019, 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.

  

As reported in our Form 10-K, 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, excessive reliance on third party consultants for accounting, financial reporting and related activities, and the lack of any separation of duties. Because of our financial condition it is unlikely that we will be able to implement effective internal controls over financial reporting in the near future. 

 

Until we generate significantly greater revenues and employ accounting personnel, it is doubtful that we will be able implement any system which provides us with any degree of internal controls over financial reporting. Due to the nature of this material weakness in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could not be prevented or detected. 

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

  

Changes in Internal Control over Financial Reporting

 

No changes were made to 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.

 

21

 

 

PART II—OTHER INFORMATION 

 

ITEM 5. OTHER INFORMATION.

 

On April 23, 2019, we entered into employment agreements with Gareth Sheridan and Sergei Melnik pursuant to which we agree to employ Mr. Sheridan as chief executive officer and Mr. Melnik as chief financial officer. The agreements also provide that we will include each of them as our nominee for director. The agreements have a term ending on January 31, 2024, and continue on a year-to-year basis thereafter unless terminated by either party on not less than 30 days’ notice given prior to the expiration of the initial term or any one-year extension, Pursuant to the employment agreements, Mr. Sheridan is currently receiving compensation at the annual rate of $42,000, and Mr. Melnik is not currently receiving any compensation. Commencing with the month in which we have raised at least $2,500,000 from the public or private financing of our equity securities, they will each receive salary at the annual rate of $170,000.

 

ITEM 6. EXHIBITS.

 

Exhibits

 

Exhibit Number   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   XBRL Instance Document
101.SCH   XBRL Taxonomy Schema Document
101.CAL   XBRL Taxonomy Calculation Linkbase Document
101.DEF   XBRL Taxonomy Definition Linkbase Document
101.LAB   XBRL Taxonomy Label Linkbase Document
101.PRE   XBRL Taxonomy Presentation Linkbase Document

 

22

 

 

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.
September 12, 2019    
  By: /s/ Gareth Sheridan
    Gareth Sheridan, Chief Executive Officer
    (Principal Executive Officer)
     
September 12, 2019    
  By: /s/ Serguei Melnik
    Serguei Melnik, Chief Financial Officer
    (Principal Financial Officer)

 

 

 23