NutriBand Inc. - Quarter Report: 2018 July (Form 10-Q)

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, 2018

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)

(407) 377-6695

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if changed since last report)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

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 21,824,100 as of September 7, 2018.

NUTRIBAND INC.

INDEX

PART I. FINANCIAL INFORMATION

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.

The results of operations for the three and six months ended July 31, 2018 and 2017 are not necessarily indicative of the results for the entire fiscal year or for any other period.

NUTRIBAND INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

See notes to unaudited consolidated financial statements

NUTRIBAND INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

See notes to unaudited consolidated financial statements

NUTRIBAND INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See notes to unaudited consolidated financial statements

NUTRIBAND INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX MONTHS ENDED JULY 31, 2018 AND 2017

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.

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:

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.

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.

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.

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and other financial information included elsewhere in this report.

Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

GENERAL

Overview

The Company was incorporated in the State of Nevada on January 4, 2016. We plan 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 Inc. has developed a full line of consumer and health products which it plans to sell internationally. Through its acquisition and internal development strategy, the Company is developing a pipeline for transdermal prescription medications. In our planned operations in the U.S., the Company will be subject to the rules and regulations of the Food and Drug Administration (“FDA”); we plan to seek FDA clearance, where required, for our transdermal patches and other products that we market 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.

To date Nutriband’s sole distribution contract it is fulfilling with these products has been signed with Best Choice Inc. of South Korea.

The classification of Nutriband’s products within the United States as drugs may significantly delay and potentially limit projected sales targets of the Company with regards to its product line, unless required regulatory approvals are obtained, as the United States is the largest worldwide market for such products.

The Company’s Board of Directors on July 27, 2018, voted to rescind the acquisition agreement with Advanced Health Brands, Inc. entered in to on May 22, 2017, and has initiated litigation to rescind the acquisition and recover the shares of common stock issued by the Company in this transaction.

RESULTS OF OPERATIONS

Six Months Ended July 31, 2018 Compared to Six Months Ended July 31, 2017

Revenues

Our revenue was $-0- and we incurred a net loss of $2,326,870 for the six months ended July 31, 2018, compared with revenue of $-0- and a net loss of $128,579 in the comparable period in 2017.

General and Administrative Expenses

For the six months ended July 31, 2018 our selling, general and administrative expenses were $562,920 primarily due to legal, accounting payroll expense, compared to $128,579 in 2017. The increase from 2017 is primarily due to an increase in legal fees and payroll expenses during the quarter. Our Non-cash compensation expense for the six months ended July 31, 2018 was $1,763,950, compared to $-0- in 2017. The amount of such compensation expense relates to common stock issued to executives and directors of the Company for services provided and is not indicative of future expenses to be incurred in the current fiscal year.

Three Months Ended July 31, 2018 Compared to Three Months Ended July 31, 2017

Revenues

Our revenue was $-0- and we incurred a net loss of $ 1,878,772 for the three months ended July 31, 2018, compared with revenue of $-0- and a net loss of $92,962 in the comparable period in 2017.

General and Administrative Expenses

For the three months ended July 31, 2018 our selling, general and administrative expenses were $392,322 primarily due to legal, accounting payroll expense, compared to $92,962 in 2017. The increase from 2017 is primarily due to an increase in legal fees and payroll expenses during the quarter. Our Non-cash compensation expense for the three months ended July 31, 2018 was $1,486,450, compared to $-0- in 2017. The amount of such compensation expense relates to common stock issued to executives and directors of the Company for services provided and is not indicative of future expenses to be incurred in the current fiscal year.

LIQUIDITY AND CAPITAL REQUIREMENTS

Overview

As of July 31, 2018, the Company had $1,097,181 in cash. At that date, we had a working capital surplus of $1,055,170, compared with a working capital surplus of $121,508 as of January 31, 2018. Although we have recently completed an equity financing of $1 million and also received proceeds of $500,000 from the exercise of purchase stock warrants during May 2018, there can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources. The Company recently completed the acquisition of 4P Therapeutics, Inc. and expects the cash flow from the acquisition and a recently executed distribution agreement with Best Choice to fund operations over the next 12 months.

Estimated 2018 and 2019 Capital Requirements

We estimate that we will require up to $2,000,000 of capital for the next twelve months of operations. We estimate that our expenses will be comprised primarily of general expenses including particularly marketing and research and development costs, overhead, legal and accounting fees. 

Off Balance Sheet Arrangements

We currently 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

The discussion and analysis of our plan of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect our reported results of operations and the amount of reported assets and liabilities.

Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements.

It is the opinion of the Company that inflation has not had a material effect on its operations.

New Financial Accounting Standards

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

Not applicable.

a. Disclosure controls and procedures.

As of the end of period covered by this report, the Company carried out an evaluation, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Principal Financial Officer concluded that for reasons discussed in our annual report on Form 10-K, the Company’s disclosure controls and procedures are not effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

b. Changes in internal controls over financial reporting.

No changes were made to the Company’s internal controls in the quarterly period covered by this report that have materially affected, or are reasonably likely materially to affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION 

ITEM 1. LEGAL PROCEEDINGS

 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. 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

The following table sets forth the sales of unregistered securities not previously reported by the Company in the quarterly period ended July 31, 2018.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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.