NutriBand Inc. 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common stock has been traded on the OTCQB market under the symbol NTRB since November 30, 2017. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transaction. As of April 1, 2021 we had approximately 83 holders of record of our common stock. The transfer agent for the common stock is American Stock Transfer & Trust Company, LLC, 6201 15th Ave, Brooklyn, NY 11219, telephone (800) 937-5449. We do not have any equity plans, except to the extent that our employment agreements with Mr. Gallagher and Dr. Patarick may be deemed equity incentive plans since they give us the right to pay their compensation in shares of common stock. ITEM 6. SELECTED FINANCIAL DATA The following information as of January 31, 2021 and 2020, and for years then ended, has been derived from our audited consolidated financial statements which appear elsewhere in this prospectus. Statement of Operations Information: January 31, 2021 2020 Revenue $ 943,702 $ 370,647 Cost of revenue 582,378 549,107 Selling, general and administrative expenses 2,957,269 1,790,980 Derivative expense - 767,650 Net (loss) (2,932,828 ) (2,721,627 ) Net (loss) per share of common stock (basic and diluted) $ (0.51 ) $ (0.50 ) Weighted average shares of common stock outstanding (basic and diluted) 5,770,944 5,423,956 Balance Sheet Information: January 31, 2021 2020 Current assets $ 314,188 $ 43,181 Working capital deficiency (2,254,418 ) (1,979,141 ) Accumulated deficit (11,835,105 ) (8,902,277 ) Stockholders’ equity 7,111,946 175,433 - 27 - ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report. It should be noted that current public health threats could adversely affect our ongoing or planned business operations. In particular, the novel coronavirus (COVID-19) has resulted in quarantines, restrictions on travel and other business and economic disruptions. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the partners and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted. The measures being taken by service providers and government agencies to suppress the spread of COVID-19 infection may delay time to production of our planned abuse deterrent fentanyl transdermal system product and therefor delay the time of filing with FDA for approval. Overview Our primary business is 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. We believe that our abuse deterrent technology can be broadly applied to various transdermal products and our strategy is to follow the development of our abuse deterrent fentanyl transdermal system with the development of additional transdermal prescription products for pharmaceuticals that have risks or a history of abuse. In addition, we are developing a portfolio of transdermal pharmaceutical products to deliver commercially available drugs or biologics that are typically delivered by injection but with the potential to improve compliance and therapeutic outcomes. Because of our financial position, we have put our development efforts with respect to these products on hold, and our only business is the performance of contract services for a small number of customers. Because of both our financial position and the effects of the COVID-19 pandemic, our contract service business has also been scaled back. The description of our business in this annual report is based on our ability to raise significant financing or enter into a joint venture agreement with a third party that has the financial ability to fund the joint venture’s operations. We cannot assure you that we will be able to obtain necessary financing or enter into a joint venture agreement on reasonable, if any, terms. If we are not able to continue obtain financing or enter into a joint venture agreement, we may not be able to continue in business. 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 products in the United States at this time. Following our acquisition of Pocono, our focus is primarily now on providing contract manufacturing services and consulting services to 3 rd party brands with no intention at this time to launch our own consumer products. 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 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 and, since our acquisition, it has generated a negative gross margin. We have no long-term contractual obligations, and either party can terminate at any time. - 28 - With the change in our focus, our capital requirements 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. On March 25, 2020, we issued in a private placement 46,828 units at a price of $11 per unit. Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $14 per share. The warrants expire April 30, 2023. We issued a total of 46,828 shares of common stock and warrants to purchase 46,828 shares of common stock. We received proceeds of $515,113. On March 25, 2020, w e paid off the convertible notes in the principal amount of $270,000 from the proceeds of the private placement. The total payments, including the prepayment penalty and accrued interest, was $345,656. The payment was made from the proceeds of the private placement. As a result of the payment of the notes, the derivative liability, which was $928,774 at January 31, 2020, was reduced to zero. As a result of a completed private placement, the warrants to purchase 50,000 shares at the lesser of (i) $20.90 or, (ii) if the Company completes its public offering of its common stock, 110% of the initial public offering price of the Common Stock in the public offering, became a warrant to purchase 95,000 warrants at $11 per share, subject to adjustment pursuant to the antidilution provisions of the warrant. The Company recorded a derivative liability for the warrants in the amount of $906,678 and reclassed the derivative liability to additional paid-in capital as of January 31, 2021. In March 2020, a minority stockholder who had previously made loans to us in the total amount of $215,00, made an additional loan to us in the amount of $60,000, increasing the total loans from the stockholder to $275,000. On March 27, 2020, we issued 25,000 shares of common stock upon conversion of the notes. Pursuant to a Stock Purchase Agreement (“SPA”), dated December 7, 2020, with the Company, BPM Inno Ltd., Kiryat, Israel, purchased 81,396 shares of common stock at a price of $8.60 per share, or $700,000. The transaction was completed at a closing on February 26, 2021. Results of Operations Years Ended January 31, 2021 and 2020 For the year ended January 31, 2021, we generated revenue of $943,702 and our costs of revenue were $582,378, resulting in a gross margin of $361.324. For the year ended January 31, 2020, we generated revenue of $370,647 and our costs of revenue were $549,107, resulting in negative gross margin of $178,460. Our revenue for January 31, 2021 was derived from three sources – (1) a continuation of research and development contracts of the type 4P Therapeutics performed prior to our acquisition, which accounted for $206,183, (2) sales of our consumer transdermal product to or South Korean distributor, which accounted for $583,324 which our distributor purchased for its preliminary marketing efforts since the product has not obtained regulatory approval for retail sales in South Korea and (3) sales from our recent acquisition of transdermal patches, which accounted for $154,195. Since we do not have the funds for development of our lead product, the 4P Therapeutics fixed costs are allocated to the contract services that we perform for clients. Our cost of revenue for our contract research and development services represents basically our labor cost plus a modest amount of material costs which we passed on to the client. The Company moved from the 4P facilities, and many of the prior costs relating to the facility were not incurred. For the year ended January 31, 2021, our selling, general and administrative expenses were $2,957,269 primarily legal, accounting and non-cash compensation expense compared to $1,790,980 for the year ended January 31, 2020.The increase from 2020 is primarily attributable to non-cash compensation to officers and directors of $1,954,875 in 2021 offset by a decrease in professional fees. For the year ended January 31, 2020, $252,700 was stock-based compensation comprised of a warrant granted to Dr. Jeff Patrick, our scientific officer, which expired unexercised, and $120,000 representing the value of shares of common stock issued to our president, Sean Gallagher, and to an entity controlled by Dr. Patrick as compensation for services during the year ended January 31, 2021 pursuant to employment agreements with Mr. Gallagher and Dr. Patrick. The agreements provide for annual compensation of $60,000 to each of them, which may be paid in stock or cash, and the shares were issued for services rendered in the years ended January 31, 2020 and 2019. During the year ended January 31, 2021, we incurred gain on change in fair value of derivatives of $22,096 in connection with our October 2019 financing in which we raised gross proceeds of $250,000 and net proceeds of approximately $230,000 from the sale of convertible notes and warrants. During the year ended January 31, 2020, we incurred derivative expense $767,650 and a gain on change of fair value of derivatives of $88,876 in connection with the October 2019 financing. - 29 - We incurred interest expense of $280,686, primarily from the amortization of debt discounts for the year ended January 31, 2021 as compared to $73,413 for the year ended January 31, 2020. As a result of the foregoing, we sustained a net loss of $2,932,828 or $(0.51) per share (basic and diluted) for the year ended January 31, 2021, compared with a loss of $2,721,627, or $(0.50) per share (basic and diluted) for the year ended January 31, 2020. Liquidity and Capital Resources As of January 31, 2021, we had $151,993 in cash and cash equivalents and a working capital deficiency of $2,254,418, as compared with cash and cash equivalents of $10,181 and working capital deficiency of $1,979,141 as of January 31, 2020. In March 2020, the Company repaid the convertible debt that the Company received in October 2019. The total payments, including a prepayment fee of $69,131 and accrued interest, was $345,565. In May 2020, the Company completed a private placement and received proceeds of $515,108. The increase in our working capital deficiency is primarily due to the issuance of a $1,500,000 note due in August 2021 in connection with the Company’s recent acquisition. For the year ended January 31, 2021, we used cash of $297,065 in our operations. The principal adjustments to our net loss of $2,932,828 were amortization of debt discount of $272,130, depreciation and amortization of $160,108, and loss on extinguishment of debt and early prepayment fee on convertible debentures of $81,631 offset by a gain on change in fair value of derivative of $22,096 stock-based compensation expense of $2,004,875. For the year ended January 31, 2021, we had cash flows of $371,873 from financing activities, primarily $515,108 from gross proceeds from the sale of Units consisting of shares of common stock and warrants to purchase common stock offset by the repayment of convertible debt, including an early prepayment fee, of $339,131. 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 As of January 31, 2021, the Company believes the substantial doubt about going concern has been resolved. The going concern conditions that caused substantial doubt consisted of current year net loss, negative working capital, negative cash flow, and accumulated deficit. Management has implemented plans to alleviate the substantial doubt. These plans include a substantial increase in sales commitments, a decrease in planned overhead expenses, equity funding that has been received and the net revenue and positive cash flow from its recent acquisition. These factors did not exist in prior years during its start-up operations. The Company’s recent history of losses has changed from prior periods due to its current management’s plans including its acquisition in the latter part of 2020 to alleviate the substantial doubt about the Company’s ability to continue as a going concern. Management’s plans have been currently implemented. The plans enable the Company to meet its obligations for at least one year from the date when the financial statements are issued. 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. - 30 - 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. Deferred Revenue Deferred revenue is a liability related to a revenue producing activity for which revenue has not been recognized. The Company records deferred revenue when it receives consideration from a contract before achieving certain criteria that must be met for revenue to be recognized in accordance with GAAP. As of January 31, 2021 and 2020, the balance of deferred revenue was $86,846 and $—0-. 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. 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). Intangible Assets Intangible 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 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. - 31 - 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 on January 31, and more frequently as circumstances warrant, and written down only in the period in which the recorded value of such assets exceeds their fair value. The Company does not amortize goodwill in accordance with ASC 350. On August 31, 2020, in connection with the Company’s acquisition of Pocono Coated Products LLC and Active Intelligence LLC, the Company recorded Goodwill of $5,810,640. As of January 31, 2021, Goodwill amounted to $7,529,875. 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. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements start on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 32 -