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 months ended April 30, 2023, and 2022 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 April 30, January 31, 2023 2023 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,278,075 $ 1,985,440 Accounts receivable 164,641 113,045 Inventory 181,497 229,335 Prepaid expenses 369,279 365,925 Total Current Assets 1,993,492 2,693,745 PROPERTY & EQUIPMENT-net 853,445 897,735 OTHER ASSETS: Goodwill 5,021,713 5,021,713 Operating lease right of use asset 54,909 62,754 Intangible assets-net 752,143 780,430 TOTAL ASSETS $ 8,675,702 $ 9,456,377 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 543,753 $ 534,679 Deferred revenue 188,697 162,903 Operating lease liability-current portion 32,012 31,291 Notes payable-current portion 19,931 19,740 Total Current Liabilities 784,393 748,613 LONG-TERM LIABILITIES: Note payable-net of current portion 95,429 100,497 Note payable-related party 50,000 — Operating lease liability-net of current portion 25,999 34,277 Total Liabilities 955,821 883,387 Commitments and Contingencies - - STOCKHOLDERS’ EQUITY: Preferred stock, $ .001 par value, 10,000,000 shares authorized, - 0 - outstanding - - Common stock, $ .001 par value, 291,666,666 shares authorized; 7,843,150 shares issued at April 30, 2023 and January 31, 2023 and 7,833,150 shares outstanding as of April 30,2023 and January 31, 2023, respectively 7,833 7,833 Additional paid-in-capital 31,254,927 31,092,807 Accumulated other comprehensive loss ( 304 ) ( 304 ) Treasury stock, 10,000 and 10,000 shares at cost, respectively ( 32,641 ) ( 32,641 ) Accumulated deficit ( 23,509,934 ) ( 22,494,705 ) Total Stockholders’ Equity 7,719,881 8,572,990 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 8,675,702 $ 9,456,377 See notes to unaudited consolidated financial statements 2 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Three Months Ended April 30, 2023 2022 Revenue $ 476,932 $ 477,922 Costs and expenses: Cost of revenues 254,648 277,436 Research and development 400,430 117,814 Selling, general and administrative 839,732 768,551 Total Costs and Expenses 1,494,810 1,163,801 Loss from operations ( 1,017,878 ) ( 685,879 ) Other income (expense): Interest income 5,815 - Interest expense ( 3,166 ) ( 4,110 ) Total other income (expense) 2,649 ( 4,110 ) Loss before provision for income taxes ( 1,015,229 ) ( 689,989 ) Provision for income taxes - - Net loss $ ( 1,015,229 ) $ ( 689,989 ) Net loss per share of common stock-basic and diluted $ ( 0.13 ) $ ( 0.08 ) Weighted average shares of common stock outstanding - basic and diluted 7,833,150 9,183,249 Other Comprehensive Loss: Net loss $ ( 1,015,229 ) $ ( 689,989 ) Foreign currency translation adjustment - - Total Comprehensive Loss $ ( 1,015,229 ) $ ( 689,989 ) See notes to unaudited consolidated financial statements. 3 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Three Months Ended April 30, 2023 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Treasury Total shares Amount Capital Loss Deficit Stock Balance, February 1, 2023 $ 8,572,990 7,833,150 $ 7,833 $ 31,092,807 $ ( 304 ) $ ( 22,494,705 ) $ ( 32,641 ) Warrants issued for services 87,090 - - 87,090 - - - Options issued for services 75,030 - - 75,030 - - - Net loss for the three months ended April 30, 2023 ( 1,015,229 ) - - - - ( 1,015,229 ) - Balance, April 30, 2023 $ 7,719,881 7,833,150 $ 7,833 $ 31,254,927 $ ( 304 ) $ ( 23,509,934 ) $ ( 32,641 ) Three Months Ended April 30, 2022 Accumulated Common Stock Additional Other Number of Paid In Comprehensive Accumulated Treasury Total shares Amount Capital Income(Loss) Deficit Stock Balance, February 1, 2022 $ 11,859,285 9,150,440 $ 9,150 $ 29,966,137 $ ( 304 ) $ ( 18,011,231 ) $ ( 104,467 ) Treasury stock repurchased $ ( 89,196 ) ( 26,836 ) ( 27 ) 27 - ( 89,196 ) Net loss for the three months ended April 30, 2022 ( 689,989 ) - - - - ( 689,989 ) - Balance, April 30, 2022 $ 11,080,100 9,123,604 $ 9,123 $ 29,966,164 $ ( 304 ) $ ( 18,701,220 ) $ ( 193,663 ) See notes to unaudited consolidated financial statements. 4 NUTRIBAND INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended April 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 1,015,229 ) $ ( 689,989 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 75,201 77,475 Amortization of right of use asset 7,845 14,985 Stock-based compensation-warrants 87,090 - Stock-based compensation-options 75,030 - Changes in operating assets and liabilities: Accounts receivable ( 51,596 ) ( 27,718 ) Prepaid expenses ( 3,354 ) ( 28,744 ) Inventories 47,838 4,115 Deferred revenue 25,794 23,719 Operating lease liability ( 7,557 ) ( 14,001 ) Accounts payable and accrued expenses 9,074 ( 104,099 ) Net Cash Used In Operating Activities ( 749,864 ) ( 744,257 ) Cash flows from investing activities: Purchase of equipment ( 2,624 ) ( 43,803 ) Net Cash Used in Investing Activities ( 2,624 ) ( 43,803 ) Cash flows from financing activities: Proceeds from line of credit 50,000 - Payment on note payable ( 4,877 ) ( 3,968 ) Purchase of treasury stock - ( 89,196 ) Net Cash Provided by (used in) Financing Activities 45,123 ( 93,164 ) Effect of exchange rate on cash - - Net change in cash ( 707,365 ) ( 881,224 ) Cash and cash equivalents - Beginning of period 1,985,440 4,891,868 Cash and cash equivalents - End of period $ 1,278,075 $ 4,010,644 Supplementary information: Cash paid for: Interest $ 1,725 $ 4,110 Income taxes $ - $ - Supplemental disclosure of non-cash investing and financing activities: Adoption of ASC 842 Operating lease asset and liability $ - $ 94,134 Promissory note on equipment purchase $ - $ 22,483 See notes to unaudited consolidated financial statements. 5 NUTRIBAND INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements as of and for the Three Months Ended April 30, 2023 and 2022 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. The former owner resigned as a director in January 2022. 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 entered a feasibility agreement as an initial step to seek FDA approval of its consumer transdermal products and its consumer products which 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, Pocono Pharmaceuticals also acquired 100 % of the membership interests of Active Intelligence LLC (“Active Intelligence”). Pocono Pharmaceuticals is a coated products manufacturing entity organized to take advantage of unique process capabilities and experience. Pocono helps their customers 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 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 proscribing 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 and suppliers and customers it works with might have to 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, 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Financial Statements The consolidated balance sheet as of April 30, 2023, and the consolidated statements of operations and comprehensive loss, 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 three months ended April 30, 2023, 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, 2023. 6 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 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 in Note 2 in the Company’s Annual Report on Form 10-K for the year ended January 31, 2023. There were no significant changes to these accounting policies during the three months ending April 30, 2023. Forward Stock Split On July 26, 2022, our Board of Directors approved the amendment to our Articles of Incorporation to affect a 7 for 6 forward stock split (the “Stock Split”) of our outstanding common stock. The Company filed the amendment set forth in a Certificate of Change with the Secretary of State of Nevada on August 4, 2022. The 7:6 forward stock split was effective for trading purposes on the Nasdaq Capital Market on August 12, 2022. Each shareholder of record as of the August 15, 2022, record date received one (1) additional share for each six (6) shares held as of the record date. No fractional shares of common stock were issued in connection with the Stock Split. Instead, all shares were rounded up to the next whole share. In connection with the Stock Split, which did not require shareholder approval under the Nevada corporation law, the number of shares of common stock of the Company was increased in the same ratio as the shares of outstanding common stock were increased in the Stock Split, from 250,000,000 authorized shares to 291,666,666 authorized shares. All share and per share information in these financial statements retroactively reflect the forward stock split. Going Concern Assessment Management assesses liquidity and going concern uncertainty in the Company’s condensed financial statements to determine whether there is sufficient cash on hand and working capital, including available borrowings on loans, to operate for a period of at least one year from the date the consolidated financial statements are issued or available to be issued, which is referred to as the “look-forward period”, as defined in GAAP. As part of this assessment, based on conditions that are known and reasonably knowable to management, management will consider various scenarios, forecasts, projections, estimates and will make certain key assumptions, including timing and nature of projected cash expenditures or programs, its ability to delay or curtail expenditures or programs and its ability to raise additional capital, if necessary, among other factors. Based on this assessment, as necessary or applicable, management makes certain assumptions around implementing curtailments or delays in the nature and timing of programs and expenditures to the extent it deems probable those implementations can be achieved and management has the proper authority to execute them within the look-forward period. As of April 30, 2023, the Company had cash and cash equivalents of $ 1,278,075 and working capital of $ 1,209,099 . For the three months ended April 30, 2023, the Company incurred an operating loss of $ 1,015,229 and used cash flow from operations of $ 749,864 . The Company has generated operating losses since its inception and has relied on sales of securities and issuance of third-party and related-party debt to support cash flow from operations. In October 2021, the Company consummated a public offering and received net proceeds of $ 5,836,230 . The Company also received to date $ 3,239,845 proceeds from the exercise of warrants. The Company has used these proceeds to fund operations and will continue to use the funds as needed. In March 2023, the Company entered a three-year $ 2,000,000 Credit Line Note facility which will permit the Company to draw down on the credit line to fund the Company’s research and development of its Aversa product. Management has prepared estimates of operations for the next twelve months and believes that sufficient funds will be generated from operations to fund its operations for one year from the date of the filing of these condensed consolidated financial statements, which indicates improved operations and the Company’s ability to continue operations as a going concern. The impact of COVID-19 on the Company’s business has been considered in these assumptions; however, it is too early to know the full impact of COVID-19 or its timing on a return to normal operations. Management believes the substantial doubt about the ability of the Company to continue as a going concern is alleviated by the above assessment. 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, under Pocono Pharmaceuticals Inc. The wholly owned subsidiaries are as follows: Nutriband Ltd. 4P Therapeutics LLC Pocono Pharmaceuticals Inc. 7 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. 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 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. Contract Liabilities 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. 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. 8 Disaggregation of Revenues The Company disaggregates its revenue from contracts with customers by type and by geographical location. See the tables: Three Months Ended April 30, 2023 2022 Revenue by type Sale of goods $ 401,057 $ 401,990 Services 75,875 75,932 Total $ 476,932 $ 477,922 Three Months Ended April 30, 2023 2022 Revenue by geographic location: United States $ 476,932 $ 477,922 Foreign - - $ 476,932 $ 477,922 Accounts 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 the required payments. The Company determines its allowances by both the specific identification of customer accounts where appropriate and the application of historical loss to non-applicable accounts. For the three months ended April 30, 2023, and 2022, 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. The net realized 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 April 30, 2023, total inventory was $ 181,497 , consisting of work-in-process of $ 41,432 and raw materials of $ 140,064 . As of January 31, 2023, total inventory was $ 229,335 , consisting of work-in-process of $ 11,021 and raw materials of $ 218,334 . 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 has also been assigned to intellectual property and other intangibles. Under the guidance, other intangible assets with definite lives are amortized over their estimated useful lives. Intangible assets with indefinite lives are tested annually for impairment. Trademarks, intellectual property, and customer base are being amortized over their estimated useful lives of ten years . Goodwill Goodwill represents the difference between the total purchase price and the fair value of assets (tangible and intangible) and liabilities at the date of acquisition. Goodwill is reviewed for impairment annually 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. In connection with the Company’s acquisition of 4P Therapeutics LLC in 2018, the Company recorded Goodwill of $ 1,719,235 . 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 . During the years ended January 31, 2023, and 2022, the Company recorded an impairment charge of $ 327,326 and $ 2,180,836 , respectively, reducing the Active Intelligence LLC Goodwill to $ 3,302,478 . As of April 30, 2023, and January 31, 2023, Goodwill amounted to $ 5,021,713 and $ 5,021,713 , respectively. 9 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 April 30, 2023, and 2022, there were 1,783,373 and 1,626,373 common stock equivalents outstanding, that were not included in the calculation of dilutive earnings per share as their effect would be anti-dilutive. Stock-Based Compensation ASC 718, “Compensation - Stock Compensation,” prescribes accounting and reporting standards for all share-based payment transactions in which employee services, and, since February 1, 2019, non-employees, are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period). As of February 1, 2019, pursuant to ASC 2018-07, ASC 718 was applied to stock-based compensation for both employees and non-employees. Business Combinations The Company recognizes the assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the accounting literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. Leases In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842), to provide a new comprehensive model for lease accounting under this guidance, lessees and lessors should apply a “right-of-use” model in accounting for all leases (including subleases) and eliminate the concept of operating leases and off-balance-sheet leases. Recognition, measurement, and presentation of expenses will depend on classification as a finance or operating lease. Similar modifications have been made to lessor accounting in-line with revenue recognition guidance. The Company applies guidance for right-of-use accounting for all leases and records the operating lease liabilities on its balance sheet. The Company completed the necessary changes to its accounting policies, processes, disclosure, and internal control over financial reporting. Research and Development Expenses Research and development costs are expensed as incurred. Income Taxes Taxes are calculated in accordance with taxation principles currently effective in the United States and Ireland. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. 10 The Company records net deferred tax assets to the extent they believe these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event the Company was to determine that it would be able to realize its deferred income tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes. 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 accounts receivable, prepaid expenses, accounts payable and accrued expenses, and deferred revenue approximate their fair value due to the short maturities of these financial instruments. Recent Accounting Standards The Company has reviewed all other FASB-issued ASU accounting pronouncements and interpretations thereof that have effective dates during the period reported and in future periods. The Company has carefully considered the new pronouncements that alter previous GAAP and does not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management and certain standards are under consideration. 3. PROPERTY AND EQUIPMENT April 30, January 31, 2023 2023 Lab equipment $ 144,585 $ 144,585 Machinery and equipment 1,243,252 1,240,628 Furniture and fixtures 19,643 19,643 1,407,480 1,404,856 Less: Accumulated depreciation ( 554,035 ) ( 507,121 ) Net Property and Equipment $ 853,445 $ 897,735 Depreciation expenses amounted to $ 46,914 and $ 45,021 for the three months ended April 30, 2023, and 2022, respectively. During the three months ended April 30, 2023, and 2022, depreciation expenses of $ 36,179 and $ 27,693 , respectively, have been allocated to cost of goods sold. 11 4. NOTES PAYABLE Notes Payable 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 was $ 139,184 . The loan requires monthly payments of principal and interest of $ 1,697 . During the three months ended April 30, 2023, the Company made $ 4,877 of principal payments. As of April 30, 2023, the amount due was $ 96,837 , of which $ 15,535 is current. On April 3, 2022, the Company entered into a retail installment agreement for the purchase of an automobile. The contract price was $32,274, of which $22,795 was financed. The agreement is for five years bearing interest at 2.95% per annum with payments of $495 per month. The loan is secured by automobile. As of April 30, 2023, the amount due was $18,523 of which $4,396 is current. Line of Credit On March 19, 2023, the Company entered into a Credit Line Note agreement with TII Jet Services LDA, a shareholder of the Company, for a credit facility of $ 2 million. Outstanding advances under the Note bears interest at 7 % per annum. The promissory note is due and payable in full on March 19, 2026. Interest is payable annually on December 31 of each year during the term of the note. In March 2023, the Company was advanced $ 50,000 on the Note. The Company recorded interest expense of $ 504 for the three months ended April 30, 2023. Interest expense for the three months ended April 30, 2023, and 2022, was $ 3,166 and $ 4,110 , respectively. 5. INTANGIBLE ASSETS As of April 30, 2023, and January 31, 2023, intangible assets consisted of intellectual property and trademarks, customer base, and license agreement, net of amortization, as follows: April 30, January 31, 2023 2023 Customer base $ 314,100 $ 314,100 Intellectual property and trademarks 817,400 817,400 Total 1,131,500 1,131,500 Less: Accumulated amortization ( 379,357 ) ( 351,070 ) Net Intangible Assets $ 752,143 $ 780,430 Amortization expense for the three months ended April 30, 2023, and 2022 was $ 28,287 and $ 32,454 , respectively. Year Ended January 31, 2024 $ 84,822 2025 113,109 2026 113,109 2027 113,109 2028 113,109 2029 and thereafter 214,885 $ 752,143 6. RELATED PARTY TRANSACTIONS a) On February 1, 2023, options to purchase 30,000 shares of the Company’s common stock were issued to an executive of the Company at a price of $ 3.975 per share. The options vest immediately and expire in three years . The fair value of the options issued for services amounted to $ 75,030 and was expensed during the three months ended April 30, 2023. b) On March 19, 2023, the Company entered into a Credit Line Note agreement with TII Jet Services LDA, a shareholder of the Company, for a credit facility of $ 2 million. See Note 4 for further information. TII Jet Services LDA is owned 100 % by a shareholder of the Company. 7. 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. 12 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 split, 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 authorized shares to 250,000,000 authorized shares. On July 26, 2022, the Company effected a 7-for-6 forward stock split pursuant to which each shareholder of record as of the August 12, 2022, record date received one (1) additional share for each six (6) shares held as of the record date. On August 4, 2022, the Company amended its Articles of Incorporation to increase its authorized common shares from 250,000,000 authorized shares to 291,666,666 authorized shares. Activity during the Three Months Ended April 30, 2023 (a) As of April 30, 2023, the Company holds 10,000 of its shares comprising $ 32,641 of treasury stock. There was no activity during the three months ended April 30, 2023. Activity during the Three Months Ended April 30, 2022 (a) In March 2022, the Company purchased 26,836 shares of its common stock for $ 89,196 and recorded the purchase as Treasury Stock. As of April 30, 2022, the Company holds 58,547 of its shares comprising the $ 193,633 of treasury stock. 8. OPTIONS and WARRANTS 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 during the three months ended April 30, 2023. On March 7, 2023, the Company issued 30,000 warrants to purchase the Company’s common shares to Barandic Holdings Ltd. for services provided. The warrants are exercisable at a price of $ 4.00 per share and expire five years from the date of issuance. Exercise Remaining Intrinsic Shares Price Life Value Outstanding, January 31, 2022 1,435,622 $ 6.91 3.93 years $ - Granted 25,000 7.50 5.00 years - Expired/Cancelled ( 97,534 ) 5.36 - - Exercised ( 55,417 ) 5.36 - - Outstanding, January 31, 2023 1,307,671 6.43 3.34 years - Granted 30,000 4.00 5.00 years - Expired/Cancelled ( 54,633 ) 12.00 - - Exercised - - - - Outstanding- April 30, 2023 1,283,038 $ 6.14 3.27 years $ - Exercisable - April 30, 2023 1,283,038 $ 6.14 3.27 years $ - 13 The following table summarizes additional information relating to the warrants outstanding as of April 30, 2023: Weighted Average Weighted Average Weighted Average Range of Remaining Contractual Exercise Price for Exercise Price for Exercise Prices Number Outstanding Life (Years) Shares Outstanding Number Exercisable Shares Exercisable Intrinsic Value $ 4.00 30,000 4.85 $ 4.00 30,000 $ 4.00 $ - $ 6.43 1,082,205 3.44 $ 6.43 1,082,205 $ 6.43 $ - $ 4.20 145,833 1.48 $ 4.20 145,833 $ 4.20 $ - $ 7.50 25,000 4.53 $ 7.50 25,000 $ 7.50 $ - Options The following table summarizes the changes in options outstanding and the related price of the shares of the Company’s common stock issued to employees of the Company. See Note 7 for the issuance of related party options. On November 1, 2021, the Board of Directors adopted the 2021 Employee Stock Option Plan (the “Plan”). The Company has reserved 408,333 shares to issue and sell upon the exercise of stock options. In accordance with the Plan, on February 1, 2022, the Company reserved an additional 233,333 shares and on February 1, 2023, the Company reserved an additional 233,333 shares. The options vest immediately and expire in three years. Under the Plan, options may be granted which are intended to qualify as Incentive Stock Options (“ISO’s”) under Section 422 of the Internal Revenue Code of 1986 (the “Code”) or which are not (“non-ISO’s”) intended to qualify as Incentive Stock Options thereunder. The Plan also provides for restricted stock awards representing shares of common stock that are issued subject to such restrictions on transfer and other incidents of ownership and such forfeiture conditions as the Board of Directors, or the committee administering the Plan composed of directors who qualify as “independent” under Nasdaq rules, may determine. On November 3, 2021, the Company filed a Registration Statement on Form S-8, to register under the Securities Act of 1933, as amended the 408,333 shares of common stock reserved for issuance under the Plan. As of April 30, 2023, 374,664 shares remain in the Plan. During the three months ended April 30, 2023, 30,000 options to purchase shares of the Company’s common stock were issued to an executive officer at a price of $ 3.975 per share. The options vest immediately and expire three years from the date of issuance. The fair value of the options issued for services amounted to $ 75,030 and was recorded during the three months ended April 30, 2023. The Company used the Black-Scholes valuation model to record the fair value. The valuation model used a dividend rate of 0 %; expected term of 1.5 years; volatility rate of 143.54 %; and a risk-free rate of 4.5 %. During the year ended January 31, 2023, 279,584 options to purchase shares of the Company’s common stock were issued to executive officers and directors of the Company at prices of $ 3.59 to $ 4.50 per share. The options vest immediately and expire three years from the date of issuance. The fair value of the options issued for services amounted to $ 732,130 and was recorded during the year ended January 31, 2023. The Company used the Black-Scholes valuation model to record the fair value. The valuation model used a dividend rate of 0 %; expected term of 1.5 years; volatility rate of 152.10 - 174.45 %; and a risk-free rate of 3 %. Exercise Remaining Intrinsic Shares Price Life Value Outstanding, January 31, 2022 190,751 $ 4.26 2.97 years Granted 279,584 3.93 3.00 years - Expired/Cancelled - - - Exercised - - - Outstanding, January 31, 2023 470,335 4.13 2.53 years Granted 30,000 3.98 3.00 years - Expired/Cancelled - - - Exercised - - - Outstanding- April 30, 2023 500,335 $ 4.12 2.31 years $ - Exercisable - April 30, 2023 500,335 $ 4.12 2.31 years $ - 14 The following table summarizes additional information relating to the options outstanding as of April 30, 2023: Weighted Average Weighted Average Weighted Average Range of Remaining Contractual Exercise Price for Exercise Price for Exercise Prices Number Outstanding Life (Years) Shares Outstanding Number Exercisable Shares Exercisable Intrinsic Value $ 4.58 46,666 1.73 $ 4.58 46,666 $ 4.58 $ - $ 4.16 144,085 1.73 $ 4.16 144,085 $ 4.16 $ - $ 4.50 58,334 2.26 $ 4.50 58,334 $ 4.50 $ - $ 4.09 78,750 2.26 $ 4.09 78,750 $ 4.09 $ - $ 3.59 35,000 4.42 $ 3.59 35,000 $ 3.59 $ - $ 3.75 57,500 2.61 $ 3.75 57,500 $ 3.75 $ - $ 4.12 50,000 2.61 $ 4.12 50,000 $ 4.12 $ - $ 3.98 30,000 2.76 $ 3.98 30,000 $ 3.98 $ - 9. SEGMENT REPORTING We organize and manage our business in the following two segments which meet the definition of reportable segments under ASC280-10, Segment Reporting: Sales of Goods and Services. These segments are based on the customer type of products or services provided and are the same as our business units. Separate financial information is available and regularly reviewed by our chief decision maker, who is our chief executive officer, in making resource allocation decisions for our segments. Our chief-decision maker evaluates segment performance to the GAAP measure of gross profit. Three Months Ended April 30, 2023 2022 Net sales Pocono Pharmaceuticals $ 401,057 $ 401,990 4P Therapeutics 75,875 75,932 476,932 477,922 Gross profit Pocono Pharmaceuticals 169,308 198,059 4P Therapeutics 52,976 2,427 222,284 200,486 Operating expenses Selling ,general and administrative Pocono Pharmaceuticals 136,863 142,036 4P Therapeutics 16,921 24,389 Corporate 685,948 602,126 Research and development - 4P Therapeutics 400,430 117,184 1,240,162 885,735 Depreciation and Amortization Pocono Pharmaceuticals $ 55,208 $ 55,458 Corporate $ 3,497 $ 5,521 4P Therapeutics 16,496 16,496 $ 75,201 $ 77,475 15 The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere. Three Months Ended April 30, 2023 2022 Net sales: United States $ 476,932 $ 477,922 Outside the United States - - $ 476,932 $ 477,922 April 30, January 31, 2023 2023 Property and equipment, net of accumulated depreciation United States $ 853,445 $ - Outside of the United States - - $ 853,445 $ - Assets: Corporate $ 1,035,136 $ 1,745,731 Pocono Pharmaceuticals 2,317,645 5,400,814 4P Therapeutics 5,350,420 2,309,832 $ 8,703,201 $ 9,456,377 10. COMMITMENTS AND CONTIGENCIES Employment Agreements The Company entered into a three-year employment agreement with Gareth Sheridan, our CEO, and Serguei Melnik, our President, effective February 1, 2022 . The agreement also provides that the executives 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, 2025 , 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 their services to the Company during the term of the agreement, Mr. Sheridan and Mr. Melnik will receive an annual salary of $ 250,000 per annum, commencing on the effective date of the agreement. Mr. Sheridan and Mr. Melnik will also receive a performance bonus of 3.5 % of net income before income taxes. As of July 31, 2022, the Company and Mr. Sheridan and Mr. Melnik mutually agreed to reduce their annual salary to $ 150,000 . The Company entered into a three-year employment agreement with Gerald Goodman, our CFO, effective February 1, 2022. The agreement provides for an initial term, commencing on the effective date of the agreement and ending on January 31, 2025, 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. Goodman will receive an annual salary of $ 210,000 per annum, commencing on the effective date of the agreement. As of July 31, 2022, the Company and Mr. Goodman mutually agreed to reduce his annual salary to $ 110,000 . Kindeva Drug Delivery Agreement On January 4, 2022, the Company signed a feasibility agreement with Kindeva Drug Delivery, L.P. (“Kindeva”) to develop Nutriband’s lead product, AVERSAL Fentanyl, based on its proprietary AVERSAL abuse deterrent transdermal technology and Kindeva’s FDA-approved transdermal fentanyl patch (fentanyl transdermal system). The feasibility agreement provides for on adapting Kindeva’s commercial transdermal manufacturing process to incorporate AVERSAI technology in the fentanyl transdermal system. 16 The agreement will remain in force until the earlier of: (1) the completion of the work and deliverables under the Workplan; or (2) two (2) years after the Effective Date, after which time the agreement will expire. The estimated cost to complete the feasibility Workplan is approximately $ 2.1 million and the timing to complete will be between eight to fifteen months. Nutriband made an advance deposit of $ 250,000 in January 2022, to be applied against the final invoice. The Workplan commenced in February 2022, and the parties believe the Workplan will be completed in the time estimated in the agreement. During the three months ended April 30, 2023, the Company has incurred expenses of $ 400,430 and the deposit of $ 250,000 is included in prepaid expenses. Lease Agreement On February 1, 2022, Pocono Pharmaceuticals entered into a lease agreement with Geometric Group, LLC for 12,000 square feet of warehouse space currently occupied by Active Intelligence. The monthly rental is $ 3,000 and the lease expires on January 31, 2025 . The lease can be extended for an additional three years at the same monthly rental. The Company recorded a Right of Use asset in the amount of $ 94,134 in connection with the valuation. MDM Worldwide Agreement In September 2022, the Company entered into a public relations agreement with MDM Worldwide. In connection with the agreement, the Company agreed to issue 20,000 options to MDM Worldwide. The terms of the options have not yet been agreed and the Company will issue the options when the exercise price and term are finalized. Money Channel Agreement On March 13, 2023, the Company entered into a media advertising agreement with Money Channel Inc. The Company will pay a monthly fee and after ninety days can cancel the agreement. The Company, after 90 days, will also issue options to purchase 50,000 shares of common stock to Money Channel Inc. at an exercise price of $ 4.00 per share. 11. SUBSEQUENT EVENTS The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined there have been no events that have occurred that would require adjustments to our disclosures in the consolidated financial statements. 17