NutriBand Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS 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, 2021 and 2020 are not necessarily indicative of the results for the entire fiscal year or for any other period. 1 NUTRIBAND INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS July 31, January 31, 2021 2021 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 304,258 $ 151,993 Accounts receivable 13,765 109,347 Inventory 72,600 52,848 Prepaid expenses 216,127 - Total Current Assets 606,750 314,188 PROPERTY & EQUIPMENT-net 1,035,109 1,076,626 OTHER ASSETS: Goodwill 7,529,875 7,529,875 Intangible assets-net 991,821 1,006,730 TOTAL ASSETS $ 10,163,555 $ 9,927,419 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 975,596 $ 940,612 Deferred revenue 64,704 86,846 Notes payable-related party, net 1,475,631 1,402,523 Finance lease liabilities-current portion 25,506 24,740 Notes payable-current portion 114,119 113,885 Total Current Liabilities 2,655,556 2,568,606 LONG-TERM LIABILITIES: Note payable-net of current portion 108,077 150,063 Finance lease liabilities-net of currnt portion 83,856 96,804 Total Liabilities 2,847,489 2,815,473 Commitments and Contingencies - - STOCKHOLDERS’ EQUITY: Preferred stock, $ .001 par value, 10,000,000 shares authorized, - 0 - outstanding - - Common stock, $ .001 par value, 250,000,000 shares authorized; 6,356,270 and 6,256,770 shares issued and outstanding at July 31, 2021 and January 31, 2021, respectively 6,356 6,257 Additional paid-in-capital 19,980,999 18,871,098 Subscription payable - 70,000 Accumulated other comprehensive loss ( 304 ) ( 304 ) Accumulated deficit ( 12,670,985 ) ( 11,835,105 ) Total Stockholders’ Equity 7,316,066 7,111,946 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 10,163,555 $ 9,927,419 See notes to unaudited condensed consolidated financial statements 2 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the For the Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020 Revenue $ 213,739 $ 84,450 $ 647,227 $ 203,814 Costs and expenses: Cost of revenues 186,762 116,937 355,606 191,876 Selling, general and administrative expenses 509,219 193,331 1,088,827 385,248 Total Costs and Expenses 695,981 310,268 1,444,433 577,124 Loss from operations ( 482,242 ) ( 225,818 ) ( 797,206 ) ( 373,310 ) Other income (expense) Gain (loss) on extinguishment of debt 3,338 43,214 ( 12,500 ) Early prepayment fee on convertible debentures - - ( 69,131 ) Gain on change of fair value of derivative - - 22,096 Interest expense ( 41,019 ) ( 51 ) ( 81,888 ) ( 205,218 ) Total other income (expense) ( 37,681 ) ( 51 ) ( 38,674 ) ( 264,753 ) Loss before provision for income taxes ( 519,923 ) ( 225,869 ) ( 835,880 ) ( 638,063 ) Provision for income taxes - - - - Net loss $ ( 519,923 ) $ ( 225,869 ) $ ( 835,880 ) $ ( 638,063 ) Net loss per share of common stock-basic and diluted $ ( 0.08 ) $ ( 0.04 ) $ ( 0.13 ) $ ( 0.12 ) Weighted average shares of common stock outstanding - basic and diluted 6,356,269 5,513,782 6,343,076 5,496,274 Other Comprehensive Income (Loss): Net loss $ ( 519,923 ) $ ( 225,869 ) $ ( 835,880 ) $ ( 638,063 ) Foreign currency translation adjustment - - - - Total Comprehensive Income (Loss) $ ( 519,923 ) $ ( 225,869 ) $ ( 835,880 ) $ ( 638,063 ) See notes to unaudited condensed consolidated financial statements 3 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Six Months Ended July 31, 2021 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Subscription Total shares Amount Capital Income (Loss) Deficit Payable Balance, February 1, 2021 $ 7,111,946 6,256,772 $ 6,257 $ 18,871,098 $ ( 304 ) $ ( 11,835,105 ) $ 70,000 Common stock issued for proceeds and payment for license 640,000 81,396 81 699,919 - - ( 60,000 ) Common stock issued for services 400,000 18,102 18 409,982 - - ( 10,000 ) Net loss for the six months ended July 31, 2021 ( 835,880 ) - - - - ( 835,880 ) - Balance, July 31, 2021 $ 7,316,066 6,356,270 $ 6,356 $ 19,980,999 $ ( 304 ) $ ( 12,670,985 ) $ - Six Months Ended July 31, 2020 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Subscription Total shares Amount Capital Income (Loss) Deficit Payable Balance, February 1, 2020 $ 175,433 5,441,100 $ 5,441 $ 9,072,573 $ ( 304 ) $ ( 8,902,277 ) $ - Common stock issued for services 50,000 5,000 5 49,995 - - - Common stock issued for cash 515,108 46,828 47 515,061 - - - Conversion of debt for common stock 287,500 25,000 25 287,475 - - - Reclassification of warrants from liability to equity 906,678 - - 906,678 - - - Net loss for the six months ended July 31, 2020 ( 638,063 ) - - - - ( 638,063 ) - Balance, July 31, 2020 $ 1,296,656 5,517,928 $ 5,518 $ 10,831,782 $ ( 304 ) $ ( 9,540,340 ) $ - 4 Three Months Ended July 31, 2021 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Subscription Total shares Amount Capital Income (Loss) Deficit Payable Balance, April 30, 2021 $ 7,835,989 6,356,270 $ 6,356 $ 19,980,999 $ ( 304 ) $ ( 12,151,062 ) $ - Net loss for the three months ended July 31, 2021 ( 519,923 ) - - - - ( 519,923 ) - Balance, July 31, 2021 $ 7,316,066 6,356,270 $ 6,356 $ 19,980,999 $ ( 304 ) $ ( 12,670,985 ) $ - Three Months Ended July 31, 2020 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Subscription Total shares Amount Capital Income (Loss) Deficit Payable Balance, April 30, 2020 $ 1,472,525 5,512,928 $ 5,513 $ 10,781,787 $ ( 304 ) $ ( 9,314,471 ) $ - Issuance of common stock for services 50,000 5,000 5 49,995 - - - Net loss for the three months ended July 31, 2020 ( 225,869 ) - - - - ( 225,869 ) - Balance, July 31, 2020 $ 1,296,656 5,517,928 $ 5,518 $ 10,831,782 $ ( 304 ) $ ( 9,540,340 ) $ - See notes to unaudited condensed consolidated financial statements 5 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended July 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 835,880 ) $ ( 638,063 ) Adjustments to reconcile net loss to net cash used in operating activities: Expenses paid on behalf of the Company by related party - 3,628 Depreciation and amortization 155,822 36,094 Amortization of debt discount 73,108 202,500 Gain on change in fair value of derivative - ( 22,096 ) Early prepayment fee on convertible debentures - 69,131 Amortization of right of use asset - 9,610 (Gain) loss on extinguisment of debt ( 43,214 ) 12,500 Stock-based compensation 225,000 38,000 Changes in operating assets and liabilities: Accounts receivable 95,582 ( 1,811 ) Prepaid expenses ( 41,127 ) ( 4,358 ) Inventories ( 19,752 ) - Deposit on sales ( 22,142 ) 29,725 Operating lease liability - ( 10,050 ) Accounts payable and accrued expenses 44,659 ( 38,462 ) Net Cash Used In Operating Activities ( 367,944 ) ( 313,652 ) Cash flows from investing activities: Purchase of equipment ( 49,396 ) - Cash flows from financing activities: Proceeds from sale of common stock 583,000 515,108 Proceeds from notes payable - 194,870 Payment on convertible debt - ( 339,131 ) Payment on note payable ( 1,213 ) - Payment on finance leases ( 12,182 ) - Proceeds from related parties - 5,500 Payment of related party payables - ( 33,628 ) Net Cash Provided by Financing Activities 569,605 342,719 Effect of exchange rate on cash - - Net change in cash 152,265 29,067 Cash and cash equivalents - Beginning of period 151,993 10,181 Cash and cash equivalents - End of period $ 304,258 $ 39,248 Supplementary information: Cash paid for: Interest $ 4,060 $ - Income taxes $ - $ - Supplemental disclosure of non-cash investing and financing activities: Common stock issued for settlement of notes payable $ - $ 287,500 Common stock issued for prepaid consulting $ 400,000 $ 12,500 Non-cash payment for license agreement $ 57,000 $ - Derivative liability warrant reclassed to equity $ - $ 906,678 Common issued for subscription payable $ 70,000 $ - See notes to unaudited condensed consolidated financial statements 6 NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Six Months Ended July 31, 2021 and 2020 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 250,000 shares of common stock, valued at $1,850,000, and $400,000, and a royalty of 6% on all revenue generated by the Company from the abuse deterrent intellectual property that had been developed by 4P Therapeutics payable to the former owner of 4P Therapeutics. 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. 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 products. On August 25, 2020, the Company formed Pocono Pharmaceuticals Inc. (“Pocono Pharmaceuticals”), a wholly owned subsidiary of the Company. On August 31, 2020, the Company acquired certain assets and liabilities associated with the Transdermal, Topical, Cosmetic, and Nutraceutical business of Pocono Coated Products LLC (“PCP”). The net assets were contributed to Pocono Pharmaceuticals. Included in the transaction the Company also acquired 100 % of the membership interests of Active Intelligence LLC (“Active Intelligence”). See Note 2 for further details of the acquisition. Pocono Pharmaceuticals is a coated products manufacturing entity organized to take advantage of unique process capabilities and experience. Pocono helps their customer with product design and development along with manufacturing to bring new products to market with minimal capital investment. Pocono Pharmaceutical’s competitive edge is a low-cost manufacturing base: a result of its unique processes and state of the art material technology. Active Intelligence manufactures activated kinesiology tape. The tape has transdermal and topical properties. This tape is used as the same as traditional kinesiology tape. In December 2019, COVID-19 emerged and has subsequently spread world-wide. The World Health Organization has declared COVID-19 a pandemic resulting in federal, state and local governments and private entities mediating various restrictions, including travel restrictions, restrictions on public gatherings, stay at home orders and advisories and quarantining people who may have been exposed to the virus. The effect of these orders, government imposed quarantines and measures the Company would take, such as work-at-home policies, may negatively impact productivity, disrupt our business and could delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and disruptions in our operations could negatively impact our business, operating results and financial condition. Further, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns, or other restrictions on the conduct of business could occur, related to COVID-19 or other infectious diseases could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which could disrupt our supply chain. 7 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements The consolidated balance sheet as of July 31, 2021, and the consolidated statements of operations, stockholders’ equity, and cash flows for the periods presented have been prepared by the Company and are unaudited. 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 results for the six months ended July 31, 2021, are not necessarily indicative of the results to be expected for the full year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in Nutriband’s Annual Report on Form 10-K for the year ended January 31, 2021. Certain information and footnote disclosures required under generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted from these consolidated financial statements pursuant to the rules and regulations, including the interim reporting requirements of the U.S. Securities and Exchange Commission (“SEC”). The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and the disclosures of contingent amounts in our consolidated financial statements and accompanying footnotes. Actual results could differ from estimates. The Company’s significant accounting policies are summarized in Note 1 in the Company’s Annual Report on Form 10-K for the year ended January 31, 2021. There were no significant changes to these accounting policies during the six months July 31, 2021. Going Concern As of July 31, 2021, the Company believes the substantial doubt about its status as a going concern has been resolved. The going concern conditions that caused substantial doubt consisted of current quarter 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 additional funding expected to be received, and the net revenue from its recent acquisitions. These factors did not exist in prior years during its start-up operations. The Company’s recent history of losses has continued but future positive cash flow projections due to revenue commitments and decreases in overhead as well as expected equity funding will enable the Company 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. 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, and the operations of Pocono and Active Intelligence are included in the Company’s financial statements from the date of acquisition of September 1, 2020. The wholly owned subsidiaries are as follows: Nutriband Ltd. 4P Therapeutics LLC Pocono Pharmaceuticals Inc. 8 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 other various 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. The Company’s significant policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended January 31, 2021. There were no significant changes to the accounting policies during the six months ended July 31, 2021, and the Company does not expect that the adoption of other accounting pronouncements will have a material impact on its financial statements. 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. 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. Revenue Types The following is a description of the Company’s revenue types, which include professional services and sale of goods: ● Service revenues include the contract of research and development related services with the Company’s 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. ● Product revenues are derived from the sale of the Company’s consumer transdermal and coated products. Upon the reception 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 conformity with GAAP. 9 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. 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 we perform professional service work, we recognize revenue when we have the right to invoice the customer for the work completed, which typically occurs over time on a monthly basis for the work performed during that month. All revenue recognized in the income statement is considered to be revenue from contracts with customers. Disaggregation of Revenues The Company disaggregates its revenue from contracts with customers by type and by geographical location. See the tables: Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020 Revenue by type Sale of goods $ 213,739 $ 59,450 $ 541,251 $ 120,770 Services - 25,000 105,976 83,044 Total $ 213,739 $ 84,450 $ 647,227 $ 203,814 Three Months Ended Six Months Ended July 31, July 31, 2021 2020 2021 2020 Revenue by geographic location: United States $ 213,739 $ 25,000 $ 560,627 $ 83,044 Foreign - 59,450 86,600 120,770 $ 213,739 $ 84,450 $ 647,227 $ 203,814 Account receivable Trade accounts receivables are recorded at the net invoice value and are not interest bearing. The Company maintains allowances for doubtful accounts for estimated losses from the inability of its customers to make required payments. The Company determines its allowances by both specific identification of customer accounts where appropriate and the application of historical loss to non-applicable accounts. For the six months ended July 31, 2021 and 2020, the Company recorded no bad debt expense for doubtful accounts related to account receivable. Inventories Inventories are valued at the lower of cost and reasonable value determined using the first-in, first-out (FIFO) method. Net reasonable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. The cost of finished goods and work in process is comprised of material costs, direct labor costs and other direct costs and related production overheads (based on normal operating capacity). As of July 31, 2021, 100 % of the inventory consists of raw materials. 10 Property, Plant and Equipment Property and equipment represent an important component of the Company’s assets. 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 20 years as follows: Lab Equipment 5 - 10 years Furniture and fixtures 3 years Machinery and equipment 10 - 20 years 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 acquisitions have 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 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 July 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 the fair market value of the long-lived asset and the related 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, 2021, and 2020, there were 141,830 common stock equivalents outstanding, that were not included in the calculation of dilutive earnings per share as their effect would be anti-dilutive. 11 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). As of February 1, 2019, pursuant to ASC 2018-07, ASC 718 was applied to stock-based compensation for both employees and non-employees. Fair Value Measurements FASB ASC 820, “Fair Value Measurements and Disclosure” (“ASC 820”), defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value. The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows: Level 1 - Observable inputs such as quoted market prices in active markets. Level 2 - Inputs other than quoted prices in active markets that are either directly or indirectly observable. Level 3 - Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. The carrying value of the Company’s financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses, and accrued expenses approximate their fair value due to the short maturities of these financial instruments. Derivative Liabilities Fair value estimates are made at a specific point in time, based on relevant market information about the financial statement. These estimates are subjective in nature and involve uncertainties and matter of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” and all derivative instruments are reflected as either assets or liabilities at fair value on the balance sheet. The Company uses estimates at fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, when available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The value presented may not represent future fair values and may not be reliable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As of July 31, 2021, and January 31, 2021, the Company had no derivative liabilities. 12 Recent Accounting Standards The Company has implemented all new pronouncements, including the adoption of ASU 2018-13 and ASU 2019-12, 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. ACQUISITION OF BUSINESS On August 31, 2020, the Company entered into a Purchase Agreement (“Agreement”), with Pocono Coated Products (“PCP”), pursuant to which PCP agreed to sell the Company certain of the assets and liabilities associated with its Transdermal, Topical, Cosmetic, and Nutraceutical business, including: (1) all the equipment, intellectual property and trade secrets, cash balances, receivables, bank accounts and inventory, free and clear of all liens, except for certain lease obligations, and (2), a 100 % membership interest in Active Intelligence, LLC (collectively the “Assets”). The net assets acquired were contributed to Pocono Pharmaceuticals Inc, a newly formed wholly owned subsidiary of the Company. The purchase price for the Assets was (i) $ 6,085,180 paid with the issuance of 608,519 shares in the Company’s common stock of Nutriband at a value of the average price of the previous 90 days at the date of Closing (the “Shares”), and (ii) a promissory note of the Company, net of debt discount, in the principal amount, of $ 1,332,893 (the Note”) which is due upon the earlier of (a) twelve (12) months from issuance, or (b) immediately following a capital raise of not less than $ 4,000,000 and/or a public offering of no less than $ 4,000,000 . Michael Myer, the CEO of PCP, has been elected to the Board of Directors of the Company for period of one year at the annual meeting of shareholders of the Company held in October 2020. The Agreement provides that it is effective August 31, 2020, on which date the parties also entered into an escrow agreement (the “Escrow Agreement”), with legal counsel serving as the escrow agent, providing for holding of the Note, certificate for the shares, and title to the Assets (held in a special purpose subsidiary) as collateral security for completion of all closing conditions under the Agreement. On that date, the parties also entered into a security agreement granting PCP a security interest in all proceeds of the Assets held as collateral under the Escrow Agreement. The purpose of the Company entering into the transaction is to enhance the transdermal products operations of the Company. The fair value of consideration given was allocated to the net tangible assets acquired. Under U.S. GAAP, both the PCP segment and Active Intelligence were considered to be businesses and, as such, the transaction was accounted for under the acquisition method of accounting. Details of the net assets acquired are as follows: Fair value Recognized on Acquisition Common stock issued $ 6,085,180 Note payable issued 1,332,893 $ 7,418,073 Cash $ 66,994 Accounts receivable 1,761 Inventory 42,613 Equipment and fixtures 1,056,935 Customer base 177,600 Intellectual property and trademarks 583,200 Goodwill 5,810,640 Accounts payable and accrued expenses ( 26,104 ) Deferred revenue ( 26,851 ) Debt ( 268,715 ) Net assets acquired $ 7,418,073 13 The following unaudited pro forma condensed financial information presents the combined results of operations of the Company and the two businesses acquired from PCP, Pocono and Active Intelligence, as if the acquisition occurred as part of the beginning of cash period presented. 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, 2020 As Reported Proforma Net revenue $ 203,814 $ 629,873 Net loss ( 638,063 ) ( 702,975 ) Loss per common share - basic and diluted ( 0.12 ) ( 0.12 ) 4. PROPERTY AND EQUIPMENT July 31, January 31, 2021 2021 Lab equipment $ 144,585 $ 144,585 Machinery and equipment 1,097,532 1,056,935 Furniture and fixtures 28,442 19,643 1,270,559 1,221,163 Less: Accumulated depreciation ( 235,450 ) ( 144,537 ) Net Property and Equipment $ 1,035,109 $ 1,076,626 Depreciation expense amounted to $ 90,913 and 17,558 for the six months ended July 31, 2021 and 2020, respectively. 5. NOTES PAYABLE/CONVERTIBLE DEBT Notes Payable On March 21, 2020, the Coronavirus Aid Relief and Economic Security Act (“CARES ACT” was enacted. The CARES ACT established the Paycheck Protection Program (“PPP”) which funds small businesses through federally guaranteed loans. Under the PPP, companies are eligible for forgiveness of principal and interest if the proceeds are used for eligible payroll costs, rent and utility costs. On June 17, 2020, the Company’s subsidiary, 4P Therapeutics, was advanced $34,870 under the PPP, all of which was forgiven as of April 30, 2021. The Company recorded a gain on the extinguishment of debt of $34,870 during the six months ended July 31, 2021. In July 2020, a minority shareholder made an additional loan to the Company in the amount of $ 100,000 . The loan is interest-free and due upon demand. The loan was outstanding as July 31, 2021, and January 31, 2021. Active Intelligence, the Company’s newly acquired subsidiary, entered into an agreement with the Carolina Small Business Development Fund for a line of credit of $ 160,000 due October 16, 2029, with interest of 5 % per year. The amount assumed in Note 3 was $ 139,184 . The loan requires monthly payments of principal and interest of $ 1,697 . During the six months ended July 31, 2021, principal and interest payments of $ 8,344 were forgiven under the Cares Act. The amount, $ 8,344 , has been recorded as a gain on the forgiveness of debt. As of July 31, 2021, the amount due was $ 122,196 , of which $ 14,119 is current. 14 Finance Leases Pocono has two finance leases secured by equipment. The leases mature in 2025 and 2026. The incremental borrowing rate is 5.0 %. As of July 31, 2021, the minimum lease payments are as follow: Years Ending January 31, 2022 $ 12,557 January 31, 2023 26,295 January 31, 2024 27,948 January 31, 2025 26,361 January 31, 2026 16,202 Total $ 109,362 Related Party Payable On August 31, 2020, in connection with the Company’s acquisition of Pocono Products LLC, the Company issued to Pocono Coated Products LLC a promissory note, net of debt discount, in the amount of $1,332,893 with interest accruing at an annual rate of 0.17%, due on August 28, 2021, or immediately following the earlier of a capital raise of no less than $4,000,000 and/or a public offering of no less than $4,000,000. Pocono Coated Products LLC, a related party, is a shareholder of the Company. During the six months ended July 31, 2021, the Company recorded amortization of debt discount of $ 71,308 . As of July 31, 2021, the amount due was $ 1,475,631 . The due date for the note has been extended to September 30, 2021. Convertible Debt On October 30, 2019, the Company entered into a securities purchase agreement with two investors pursuant to which the Company issued to the investors (i) 6% one-year convertible promissory notes in the principal amount of $270,000 and (ii) three-year warrant to purchase 50,000 shares of common stock at an exercise price equal to the lesser of (i) $20.90 or (ii) if the Company completes a public offering, 110% of the initial public offering price of the common stock in the public offering. The loans contained an original issue discount of $20,000 resulting in gross proceeds from this financing of $250,000. The notes are convertible at a conversion price equal to the lesser of (i) the per share price of our common stock offered in a public offering or (ii) the variable conversion price, which is defined as 70% of the lowest trading price of the common stock during the 20 trading days preceding the date of conversion. The conversion price and the percentage of the trading price is subject to downward adjustment in the event the Company fails to comply with the obligations under the notes. The Company has the right to prepay the notes during the 180 days following the issuance of the notes at a premium of 115% of the outstanding principal and interest during the 60 days following the date of issuance of the note, which percentage increases to 125% during the remainder of the 180-day period. The Company is required to pay the notes one business day after the closing of the first to occur of (a) the next public offering of the Company’s securities or (b) the next private placement of the Company’s equity or debt securities in which the Borrower received net proceeds of at least $1.0 million, (c) issuance of securities pursuant to an equity line of credit or (d) a financing with a bank or other institutional lender. The embedded conversion option qualified for derivative accounting and bifurcation under ASC 815-15 Derivative and Hedging. The initial fair of the conversion feature was $ 128,870 and the fair value of the warrants in connection with the notes were valued at $ 888,789 and were recorded based on their relative fair values. A debt discount to the note payables of $ 270,000 and an initial derivative expense of $ 767,650 was recorded. The debt discount will be amortized over the life of the note. Amortization of the debt discount for the six months ended July 31, 2020, was $ 202,500 . 15 On March 25, 2020, the Company prepaid the convertible notes in the principal amount of $ 270,000 from the proceeds of a private placement. The total payments, including a prepayment fee of $ 69,131 and accrued interest, was $ 345,565 . As a result of the payment of the notes, the derivative liability, which was $ 928,774 as of January 31, 2020, was reduced to zero. The warrants are no longer a derivative liability based on the notes being paid in full. Interest expense for the six months ended July 31, 2021was $ 81,888 including the amortization of the debt discount of $ 73,108 and interest expense of $ 8,780 . Interest expense for the six months ended July 31, 2020, was $ 205,218 including the amortization of debt discount of $ 202,500 and interest expense of $ 2,718 . 6. INTANGIBLE ASSETS As of July 31, 2021, and January 31, 2021, intangible assets consisted of intellectual property, customer base and trademarks, net of amortization, as follows: July 31, January 31, 2021 2021 Customer base $ 314,100 $ 314,100 License agreement 50,000 - Intellectual property 817,400 817,400 Total 1,181,500 1,131,500 Less: Accumulated amortization ( 189,679 ) ( 124,770 ) Net Intangible Assets $ 991,821 $ 1,006,730 In February 2021, the Company acquired an IP license for $ 50,000 , see Note 10- “Rambam Agreement” for further discussion regarding the license agreement. The value of the intangible assets, consisting of intellectual property, license agreement and customer base has been recorded at their fair value by the Company and are being amortized over a period of three to ten years . Amortization expense for the six months ended July 31, 2021, and 2020 was $ 64,909 and $ 18,534 , respectively. Estimated Amortization: Total Year Ended January 31, Remainder of 2022 $ 64,870 2023 129,776 2924 129,776 2025 113,109 2026 and thereafter 554,290 $ 991,821 7. RELATED PARTY TRANSACTIONS a) The Company had related party notes with its former Chief Financial Officer and Chief Operating Officer. See footnote 5 for further discussion. b) In connection with the acquisition of Pocono, the Company recorded various transactions and operations through Pocono Coated Products LLC, a related entity. During the six months ended July 31, 2021, the Company was advanced $ 7,862 in finance payments. As of July 31, 2021, the Company owed Pocono $2,634. The Company also issued a note in the amount of $1,500,000 to Pocono Coated Products LLC. See footnote 5 for further discussion. 16 8. STOCKHOLDERS’ EQUITY Preferred Stock On January 15, 2016, the board of directors of the Company approved a certificate of amendment to the articles of incorporation and changed the authorized capital stock of the Company to include and authorize 10,000,000 shares of Preferred Stock, par value $ 0.001 per share. 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. Common Stock On June 25, 2019, the Company effected a one-for four reverse stock splits, pursuant to which each share of common stock became converted into 0.25 shares of common stock, and the Company decreased its authorized common stock from 100,000,000 to 25,000,000 shares. On January 27, 2020, the Company amended its articles of incorporation to increase its authorized common shares from 25,000,000 shares to 250,000,000 shares. Activity during the Six Months Ended July 31, 2020 On March 22, 2020, the Company 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. The Company issued a total of 46,828 shares of common stock and warrants to purchase 46,828 shares of common stock. The Company received proceeds of $ 515,108 . In March 2020, a minority shareholder who had previously made loans of $215,000, made an additional loan to the Company in the amount of $60,000, increasing the loans to shareholder to $275,000. On March 27, 2020, the Company issued 25,000 shares of common stock upon reaching a settlement with the noteholder to convert the notes in the principal amount of $275,000. The transaction resulted in a loss on extinguishment of $12,500. On June 30,2020, the Company issued 5,000 shares to a consultant for services rendered to the Company. The fair value of the common stock at the date of issuance was $ 50,000 , of which $ 38,000 is included in selling and general administrative expenses and $ 12,000 is included in prepaid expenses. Activity during the Six Months Ended July 31, 2021 (1) On February 25, 2021, in connection with the Company’s License Agreement with Rambam, pursuant to a Stock Purchase Agreement with BPM Inno Ltd (“BPM”), the Company issued 81,396 shares of common stock to BPM and received proceeds of $ 700,000 to be applied to product development expenses under the License Agreement. The Company entered into the Stock Purchase Agreement with BPM in December 2020 and received a payment of $ 60,000 which is included in Stockholders’ Equity as Subscription Payable in the Company’s consolidated balance sheet as of January 31, 2021. In February 2021, BPM advanced a payment for the Company to Rambam in the amount of $ 57,000 for the license fee. The balance of the funds of $ 583,000 was received in February 2021. See footnote 10 for further discussion. (2) On February 25,2021, the Company issued 5,602 shares of common stock, valued at $ 60,000 , for consulting services pursuant to a consultant agreement commencing December 1, 2020. The Company has reflected $ 10,000 representing 934 shares as Subscription Payable in the Stockholders’ Equity in the Company’s consolidated balance sheet as of January 31, 2021. On February 15, 2021, the Company issued 12,500 shares of common stock, valued at $ 350,000 , for consulting fees in connection with the Rambam License Agreement discussed in Note 10. 17 9. WARRANTS 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. Shares Exercise Price Remaining Life Intrinsic Value Outstanding, January 31, 2021 141,828 $ 11.99 2.16 years $ 285,000 Granted - - - - Expired/Cancelled - - - - Exercised - - - - Outstanding-period ending July 31, 2021 141,828 $ 11.99 1.41 years $ - Exercisable - period ending July 31, 2021 141,828 $ 11.99 1.41 years $ - The following table summarizes additional information relating to the warrants outstanding as of July 31, 2021: Range of Exercise Prices Number Outstanding Remaining Contractual Life (Years) Exercise Price for Shares Outstanding Number Exercisable Exercise Price for Shares Exercisable Intrinsic Value $ 11.00 95,000 1.25 $ 11.00 95,000 $ 11.00 $ - $ 14.00 46,828 1.75 $ 14.00 46,828 $ 14.00 $ - 10. COMMITMENTS AND CONTIGENCIES Legal Proceedings 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 Brands, 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 filed a Motion to Dismiss the Company’s 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 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. Pursuant to a settlement agreement with one of the defendants, that defendant returned the 50,000 shares which had been issued to her, and the shares were cancelled as of January 31, 2019. On June 7, 2019, the individual defendants (other than the defendant whom the Company has a settlement agreement), filed a motion for sanctions and civil contempt against us, which generally claimed that we failed to comply with the Court’s January 4, 2019, order by refusing to issue the Ruling 144 letters that would allow the defendants to transfer their shares of common stock. On October 29, 2019, the Court denied the Defendants motion. On March 20, 2020, the Florida district court of appeal reversed the lower court ruling in the Florida state court action that dismissed our complaint, with prejudice, and gave us leave to file an amended complaint. On July 7, 2020, Defendants filed Notice for Trial, requesting the court to set a trial date. The Company and defendants have served their first set of interrogatories on each other and have filed answers and responses to each other’s first set of interrogatories. 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. 18 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 the Company. The Company is seeking the return of the shares of common stock and monetary damages resulting from the defendants’ fraudulent conduct. The defendants filed a motion to dismiss the complaint on August 23, 2019, and on September 13, 2019, the Company filed its response. On July 20, 2020, the Court denied the defendant’s motion to dismiss the complaint, and the parties have recently commenced the discovery phase of the litigation. The Court has scheduled a trial date in November 2021. Employment Agreements The Company entered into a three-year employment agreement with Gareth Sheridan, our CEO, effective April 25, 2019. The agreement also provides that the executive will continue as a director. The agreement provides for an initial term, commencing on the effective date of the agreement and ending on January 31, 2024, and continuing 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. For his services to the Company during the term of the agreement, Mr. Sheridan receives an annual salary $ 42,000 per annum, commencing on the effective date of the agreement and increasing to $ 170,000 per annum in the month in which the Company shall have received not less than $ 2,500,000 from one or more public or private financings of the Company’s equity securities subsequent to the date of the agreement. During the year ended January 31, 2021, the salary was increased to $ 60,000 per annum. Rambam Agreement On December 9, 2020, the Company entered into a License Agreement (the “License Agreement”) with Rambam Med-Tech Ltd. (“Rambam”), Haifa, Israel, to develop the RAMBAM Closed System Transfer Device (“CTSD”) and such other products as the parties agree to develop/commercialize. The Company will license from Rambam the full technology, IP, and title to CTSD in the field, with an Initial license fee of $ 50,000 and running royalties on net sales. The $ 50,000 license fee was paid by a third party at the direction of the Company in February 2021, at which time the agreement became effective. The Company had entered into a prior agreement, dated November 13, 2020, with BPM Inno Ltd., Kiryat, Israel (“BPM”), that, in consideration of BPM’s introduction of Rambam to the Company, provided for BPM to have the rights as the exclusive of agent of the Company with Rambam and any other parties similarly introduced by BPM, and for a commission payable to BPM by the Company of 4.5% of revenues received by the Company resulting from the introduction of Rambam (and any other companies as to which the exclusive agency of BPM was in effect), and for BPM’s payment of a royalty to Rambam. If the Company fails to commercialize the medical products subject to the License Agreement with Rambam within 36 months, under the November 13, 2020 agreement, BPM and the Company would share 50/50 in the revenues generated from sales of the licensed products from Rambam. This agreement further provides that it will be effective for a period of 10 years, with either party having the right to terminate on notice given 30 days prior to the desired termination, and also provided for certain territorial distribution rights of BPM as are set forth in the March 10, 2021 Distribution Agreement between the Company and BPM. BPM Distribution and Stock Purchase Agreements (a) On March 10, 2021, the Company finalized the Distribution Agreement with BPM, providing for distribution of the medical products developed and produced under the License Agreement. Under the Distribution Agreement, BPM has the right to distribute the medical products in Israel and has a right of first refusal in relation to all other countries/states, other than United States, Korea, China, Vietnam, Canada and Ecuador, which are termed excluded countries. (b) The Company and BPM entered into a Stock Purchase Agreement (“SPA”), dated December 7, 2020, providing for the purchase by BPM of 81,396 shares of common stock at a price of $8.60 per share, or $700,000. In December 2020, the Company received an initial payment of $60,000 under the SPA, which is included in Stockholders’ Equity in the Company’s consolidated balance sheet as of January 31, 2021. On February 25, 2021, in connection with the Company’s License Agreement with Rambam, pursuant to the SPA, the Company issued 81,395 shares of common stock to BPM and received the balance of the proceeds of $700,000 to be applied to product development expenses under the License Agreement. 19 11. SUBSEQUENT EVENTS On August 31, 2020, the Company entered into a Purchase Agreement (“Agreement”), with Pocono Coated Products (“PCP”), pursuant to which PCP agreed to sell the Company all of the assets associated with its Transdermal, Topical, Cosmetic and Nutraceutical business (the “Assets”). PCP is the manufacturer of our transdermal products, and we bought that business from them. The purchase price for the Assets was (i) $6,000,000 paid in shares of the Company’s common stock at a value of the average price of the previous 90 days at the date of Closing (the “Shares”); (ii) a promissory note of the Company in the principal amount of $1,500,000, which is due upon the earlier of (a) twelve (12) months from issuance, or (b) immediately following a capital raise of no less than $4,000,000 and/or a public offering of no less than $4,000,000. On August 31, 2021 we entered into an amendment to the Agreement with the parties to the Agreement that provides for an extension of the August 31, 2021 due date of the $ 1,500,000 note issued in the transaction to September 30, 2021, and extends the time limit set forth in Section 5.3(a) of the Agreement for completion of the Listing and for payment of the Note in full until September 30, 2021. 20