NutriBand Inc 10-K for FY2023
NutriBand Inc. (NTRB)
About this 10-K
NutriBand Inc filed this 10-K on April 26, 2023, covering the fiscal year ended January 31, 2023 (FY2023).
Headline figures
Fiscal year ended January 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.08M
- up 46.2% from $1.42M a year earlier
- Net loss
- $4.48M
- compared with a net loss of $6.18M a year earlier
- Diluted EPS
- -$0.53
- compared with -$0.80 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
or
For the transition period from __________ to __________
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including
area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Warrants | NTRBW | The Nasdaq Stock Market LLC |
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
Indicate by check mark whether the registrant
(1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent
filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendments to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal
quarter: $
As of April 26, 2023, the registrant had
TABLE OF CONTENTS
References to “we,” “us,” “our” and words of like import refer to us and our subsidiaries, including 4P Therapeutics LLC following our acquisition of 4P Therapeutics on August 1, 2018, and the acquisition of Pocono Pharmaceuticals Inc. on August 31, 2020, unless the context indicates otherwise. References to 4P Therapeutics and Pocono refer to the business and operations of 4P Therapeutics and Pocono prior to our acquisition unless the context indicates otherwise.
The market data and certain other statistical information used throughout this annual report are based on independent industry publications, government publications and other published independent sources. Some data is also based on our good faith estimates. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors.” These and other factors could cause results to differ materially from those expressed in these publications.
i
PART I
ITEM 1. BUSINESS.
Overview
Nutriband Inc. (the “Company”, “Nutriband”, “we” or “us”), was incorporated in Nevada in January 2016. Our primary business is the development of a portfolio of transdermal pharmaceutical products. Our development pipeline consists of transdermal products that are based on our proprietary AVERSA® abuse deterrent transdermal technology that we believe can be incorporated into existing transdermal patches that contain drugs that are susceptible to abuse and misuse. We operate in two distinct business segments: pharmaceuticals and medical devices.
The following is a description of the Company’s revenue types: service revenues, which include the contracting of research and development related services with the Company’s clients in the life sciences field on an as-needed basis; and contract manufacturing revenues, which are derived from the manufacture and production of products for a number of customers in the health, wellness and pharmaceutical space. We manage and evaluate our operations, and report our financial results, through these two business segments.
Our principal offices are located in Orlando, Florida, and we primarily operate and derive most of our revenues in the United States.
Our Business
Our lead product under development is AVERSA Fentanyl, an abuse deterrent fentanyl transdermal system that combines an approved generic fentanyl patch with our AVERSA abuse deterrent technology to reduce the abuse and misuse of fentanyl patches. We believe that AVERSA technology can be broadly applied to various transdermal products, and our plan is to follow the development of our abuse deterrent fentanyl transdermal system with the development of additional transdermal abuse deterrent products for pharmaceuticals that have a risk or history of abuse. Specifically, we have expanded our development pipeline to include AVERSA Buprenorphine and AVERSA Methylphenidate. In addition, we are developing a portfolio of transdermal pharmaceutical products to deliver already approved drugs or biologics that are typically delivered by injection but with the potential to improve compliance and therapeutic outcomes through transdermal delivery.
We have a feasibility agreement with Kindeva Drug Delivery, formerly 3M Drug Delivery (“Kindeva”), for the development of AVERSA Fentanyl using Kindeva’s FDA approved Fentanyl patch. The feasibility agreement is focused on adapting Kindeva’s commercial transdermal manufacturing process to incorporate AVERSA abuse deterrent technology.
The product development program for AVERSA Fentanyl includes performing preclinical and clinical studies to demonstrate the abuse deterrent properties of the product. The program assumes that the fentanyl transdermal system is already approved and the only change to the approved product will be to incorporate the AVERSA technology into the patch design with no change being made to the fentanyl drug matrix or its demonstrated safety, patch performance or drug release characteristics. Preclinical studies to be performed primarily consist of laboratory-based in vitro manipulation and extraction studies in various extraction media per FDA guidance. Clinical evaluation primarily consists of a Phase 1 Human Abuse Liability (HAL) study to demonstrate the abuse potential of the product per FDA guidance. The regulatory path for FDA approval is planned to be a 505(b)(2) NDA submission to access the safety and efficacy information on file for Duragesic® fentanyl transdermal system as the reference-listed drug and to be able to obtain approval for abuse deterrent claims as a branded pharmaceutical product.
The product development program for the additional AVERSA pipeline products, AVERSA Buprenorphine and AVERSA Methylphenidate, are similar to that of AVERSA Fentanyl, assuming that the AVERSA technology is incorporated into an already approved transdermal patch.
Through January 31, 2023, we had not generated any revenue from our transdermal consumer patches. Consumer products are products that can be sold over-the-counter and do not require a prescription. Most transdermal patches are considered drugs in the United States and cannot be marketed in the United States without approval from the FDA. We have not taken any steps to seek to obtain FDA approval for any of our consumer products in development that would permit sales of those products in the United States, and we have no plans to do so in the near term.
1
Acquisition of 4P Therapeutics
Pursuant to an acquisition agreement dated April 5, 2018 between us and 4P Therapeutics, on August 1, 2018, we acquired all of the equity interest in 4P Therapeutics from Steven Damon, the owner of 4P Therapeutics. The purchase price of $2,250,000, consisting of 62,500 shares of common stock, valued at $1,850,000, and cash of $400,000, and are to pay Mr. Damon a 6% royalty on any revenue we receive or derive from our utilization or sale of the abuse deterrent intellectual property that we acquired as a part of the assets 4P Therapeutics, including partner license milestones and development payments. The royalty is payable pursuant to the acquisition agreement and continues as long as we generate revenue from our utilization or sale of the abuse deterrent intellectual property we acquired as part of the acquisition of 4P Therapeutics. The 62,500 shares were issued to Mr. Damon (41,750 shares pre-split) and Dr. Alan Smith (20,750 shares pre-split). In connection with the acquisition, Mr. Damon retained any cash and accounts receivable and assumed any liabilities other than those relating to the ongoing business. Pursuant to the acquisition agreement, we appointed Mr. Damon to our board of directors in April 2018, when we signed the acquisition agreement, and we agreed to pay Mr. Damon the compensation received by independent board members.
As a result of the acquisition, the focus of our business has changed from the development and marketing outside of the U.S. of consumer transdermal products to the development of 4P Therapeutics’ portfolio of pharmaceutical transdermal products. Our lead product under development is AVERSA® Fentanyl (abuse deterrent fentanyl transdermal system) which we plan to develop to deter the abuse and accidental misuse of fentanyl transdermal patches. Fentanyl is a potent synthetic opioid that is marketed as a transdermal patch for chronic pain management. There are currently a number of generic fentanyl patches on the market but none of them have abuse deterrent properties. We believe that our AVERSA® abuse deterrent technology, containing aversive agents will significantly deter the abuse and accidental misuse of fentanyl from transdermal patches.
With the acquisition of 4P Therapeutics, we acquired a research pipeline of other transdermal products, including peptides and proteins such as exenatide for type 2 diabetes and FSH for infertility. These drugs are off patent but are currently only available as injections, and we are evaluating the possibility of developing a transdermal delivery system for these drugs as an alternative to injection but with improved compliance and safety. In addition, we may develop certain generic transdermal products where we think we can make an improvement to existing patches and where we believe we can take significant market share with good profit margins. The prioritization of our portfolio product candidates will be reviewed on an ongoing basis and will take into account technical progress, market potential and R&D funding available. We cannot assure you that we will be able to develop and obtain FDA approval for any of these potential products or that we can be successful in marketing any such products. The FDA approval process can take many years to complete successfully, and we will require substantial funding for each product that goes through the process. We cannot assure you that we will obtain FDA marketing approval for any of our products.
In addition to performing research and development for its own products, 4P Therapeutics performs contract research and development services for a small number of clients in the life sciences field to help support its ongoing operations. The work includes conducting early-stage drug and device clinical and preclinical studies and providing clinical-regulatory and formulation/analytical consulting services. Neither we nor current clients have any long-term commitments, and either party can terminate at any time. We do not expect to generate significant revenues from these services.
Acquisition of Pocono Coated Products
On August 25, 2020, the Company formed Pocono Pharmaceuticals Inc.(“Pocono”), a wholly owned subsidiary of the Company. Effective August 31, 2020, the Company entered into a Purchase Agreement (“Agreement”) with Pocono Coated Products (“PCP”), a manufacturer of Topical and transdermal products, pursuant to which PCP agreed to sell the Company certain of the assets and liabilities associated with its Transdermal, Topical, Cosmetic and Nutraceutical business (the “Business”), including all related equipment, intellectual property and trade secrets, cash balances, receivables, bank accounts and inventory. The net assets were contributed to Pocono. Included in the transaction, the Company acquired 100% of the membership interests of Active Intelligence LLC (“Active Intelligence”). The purchase price for the assets of the Business is (i) $6,000,000 paid in 608,519 shares of the Company’s common stock, based on the average price for the Company’s common stock for the previous 90 days as of the date of Closing (the “Shares”); (ii) a promissory note of the Company in the principal amount of $1,500,000, which has been paid in full as of October 1, 2021.
Our Organization
We are a Nevada corporation, incorporated on January 4, 2016. In January 2016, we acquired Nutriband Ltd, an Irish company which was formed by Gareth Sheridan, our chief executive officer, in 2012, to enter the health and wellness market by marketing transdermal patches. Our corporate headquarters are located at 121 S. Orange Ave. Suite 1500, Orlando, Florida 32801, telephone (407) 377-6695. Our website is www.nutriband.com. Information contained on or available through our website or any other website does not constitute a portion of this annual report.
2
Effects of the COVID-19 Pandemic
Our business may be affected by the COVID-19 pandemic and the response to the pandemic. Factors which may affect our business include, but are not limited to, the following:
| ● | The decision by investors who would invest in early-stage pharmaceutical companies to limit their financing efforts to companies that are dealing with products or services related to COVID-19 diagnosis or treatment. |
| ● | The effect of recent stock market declines on the willingness of investors to make an investment in our securities. |
| ● | The financial health of our potential contract service customers. |
| ● | Our ability to perform contract services. |
| ● | Our ability to obtain any goods or services which we may need to perform contract services. |
| ● | The ability of our foreign distributors to obtain regulatory approval, which may be affected by the regulatory agencies giving a low priority to products such as our consumer patches. |
Pharmaceutical Products in Development
We have a pipeline of transdermal pharmaceutical products that are primarily in the early stages of development. Our current focus is on the development of AVERSA Fentanyl for which we have a feasibility agreement with Kindeva Drug Delivery, a contract development and manufacturing organization. We plan to follow on from this with development of additional products utilizing the AVERSA abuse deterrent transdermal technology, namely, AVERSA Buprenorphine and AVERSA Methylphenidate.
AVERSA Fentanyl is an abuse deterrent fentanyl patch for the treatment of chronic pain. As the United States faces an epidemic of opioid abuse, fentanyl transdermal patches have become an attractive target for recreational drug abusers due to the high potency of fentanyl and its ease of abuse by the oral route. We are looking to utilize our proprietary approach to incorporate aversive agents into the transdermal patch to deter the abuse of fentanyl patches by the oral, buccal and inhaled routes, which represent as much as 70% of all transdermal fentanyl abuse. The technology is based on the incorporation of taste and sensory aversive agents into the patch that are intended to make abuse a very unpleasant experience thereby deterring the recreational abuse of fentanyl patches. These aversive agents have high potency, established safety, and the potential to prevent accidental misuse by children and pets. The aversive agents are coated onto the backing of the transdermal patch in a controlled release formulation that provides immediate and sustained release of aversive agents. This provides several advantages including having a physical separation of the aversive agents from the drug matrix, availability of aversive agents even after the patch is used and making it difficult to separate the aversive agents from the drug by extraction. The aversive agents are not contained in the drug matrix and are not delivered to the skin during patch wear. In addition to the fentanyl patch, this technology has broad applicability to any patch where deterring abuse as well as accidental misuse by children and pets are valuable attributes.
We believe that our abuse deterrent technology can be broadly applied to various transdermal products and our strategy is to follow the development of our AVERSA Fentanyl with the development of additional products for pharmaceuticals that have a risk or history of abuse. For example, we believe that our technology can be utilized in other transdermal products to deter the abuse of other drugs such as buprenorphine, an opioid used to treat acute pain and chronic pain, and methylphenidate, a central nervous system stimulant. Buprenorphine is an opioid used to treat opioid addiction, acute pain and chronic pain. It can be used under the tongue, by injection, as a skin patch, or as an implant. For opioid addiction, it is typically only started when withdrawal symptoms have begun and for the first two days of treatment under direct observation of a health care provider. For longer term treatment of addiction, a combination formulation of buprenorphine/naloxone is recommended to prevent misuse by injection. Methylphenidate, sold under various trade names, such as Ritalin in oral form, and in transdermal patch form known as Daytrana, is a central nervous system stimulant that is used in the treatment of attention deficit hyperactivity disorder and narcolepsy. We plan to develop transdermal delivery systems for buprenorphine and methylphenidate after we make significant progress on our abuse deterrent fentanyl transdermal system.
Our research pipeline consists primarily of drug compounds which have been previously approved by the FDA and are now off-patent. In some cases, we are developing a non-injectable version of the drug utilizing our transdermal technology which represents a new route of administration. In most cases, we plan to utilize the 505(b) (2) NDA regulatory pathway provided by the FDA which allows us to reference the safety information on file at FDA for the approved drug or to reference the published literature instead of having to generate new safety information that would typically be required for new chemical entities. However, we cannot assure you that the FDA will concur with our approach or that we will be able to receive FDA approval to market any of products that we develop.
3
We are also exploring transdermal delivery of proteins and peptides such as exenatide for type 2 diabetes and follicle stimulating hormone (FSH) for infertility. Presently, these products are only available by injection. We believe that transdermal delivery has the potential to improve compliance, which can lead to improved therapeutic outcomes associated with these treatments.
In addition, we may seek to develop certain generic transdermal products where we think we can efficiently make an improvement to existing patches and potentially take significant market share with good profit margins.
The prioritization of our portfolio of product candidates will be reviewed on an ongoing basis and will take into account technical progress, market potential, available funding and commercial interest. Our ability to take any meaningful steps to the development of any of these products is determined by our ability to provide sufficient funding for such activities. As stated above, without additional financing or a joint venture agreement we will not be able to take any steps to the development of any of these products.
We currently have no branded OTC or consumer products nor do we plan to launch any OTC or consumer products in the near term as our focus is primarily on our pharmaceutical development pipeline and continuing the contract services offered by our subsidiaries.
Pharmaceutical Manufacturing and Supply
Manufacturing of our pharmaceutical transdermal products in development will be performed in compliance with FDA current Good Manufacturing Practices (cGMP) and all applicable local regulations by contract manufacturers. All manufacturing processes and facilities will be subject to review by the FDA during development, prior to approval and during subsequent routine FDA inspections. We plan to continue to rely on contract manufacturers and, potentially, collaboration partners to manufacture commercial quantities of our products, if and when approved for marketing by the FDA.
Government Regulation
United States
The pharmaceutical business is subject to extensive government regulation. In the United States, we must comply with the rules and regulations of the FDA. In other countries, we must comply with the laws and regulations of each country to legally market and sell our products. Obtaining FDA approval does not mean that the product will be approved in other countries. Each country may require that additional clinical and nonclinical studies be conducted prior to approval.
The process required by the FDA to receive approval prior to marketing and distributing a drug in the United States generally involves a preclinical phase followed by three phases of clinical trials. The definition of drug is broadly defined and includes the pharmaceutical products we have in development. Even though the drug used in each of our proposed products is currently approved by the FDA in other dosage forms, we will still need to conduct a development program that will include preclinical and clinical trials before we receive FDA marketing approval. The FDA also has a number of abbreviated approval pathways which, if we are eligible, could shorten the time for approval. For example, the regulatory path for the AVERSA products in development is intended to follow a 505(b)(2) NDA regulatory pathway which reduces the amount of clinical work that needs to be performed to a single trial to evaluate the abuse potential of the product as the safety and efficacy of the drug has already been established. However, we cannot be certain that we will be able to use any abbreviated approval pathway, in which event we will need to comply with the full regulatory pathway as described below.
The full (although not typical for the AVERSA related products) FDA regulatory pathway consists of the following phases of development.
|
|
● | Preclinical phase. Before a drug company can test an experimental treatment in humans, it must prove the drug is safe and effective in animals. Scientists run tests in various animals before presenting the data to the FDA as an investigational new drug application. For already approved drugs, an animal study may not be required prior to testing in humans. In most cases, the company must file an Investigational New Drug (IND) submission to get clearance to test the product in humans. |
| ● | Phase one clinical trial. In the first round of clinical trials, the drug company attempts to establish the drug’s safety in humans. Drug researchers administer the treatment to healthy individuals — instead of patients suffering from the disease or condition the drug is intended to treat — and gradually increase the dose to see if the drug is toxic at higher levels or if any possible side effects occur. These drug trials are usually small, containing about 20 to 80 participants, according to the FDA. For drug delivery products incorporating already approved drugs, Phase 1 studies involve measuring blood levels of the drug to understand the pharmacokinetics for a new route of administration. |
4
| ● | Phase two clinical trial. In the second round of clinical trials, researchers give the treatment to patients who have the disease to assess the drug’s efficacy. The trial is randomized, meaning half of the study participants receive the drug and half receive a placebo. These trials usually contain hundreds of participants, according to the FDA. There is about a 30 percent chance of a drug moving on to a phase three clinical trial, according to data from the biotech trade organization BIO. For already approved drugs, as is the case with drug delivery products, a Phase 2 trial may not be necessary as the therapeutic drug doses and blood concentrations are already known. However, a Phase 2 may be conducted to inform the design of the Phase 3 clinical trial in regards to the safety and efficacy of the product when used by patients. |
| ● | Phase three clinical trial. In the third phase of clinical trials, researchers work with the FDA to design a larger trial to test the drug’s ideal dosage, patient population and other factors that could decide whether the drug is approved, according to the report. These trials usually contain a few hundred to thousands of participants. In the case of drug delivery products that utilize an approved drug, Phase 3 trials will typically include a comparison to the already approved reference product. For example, a transdermal patch may be compared to an injection. |
| ● | New drug application (NDA). Once a drug company collects and analyzes all data from the clinical trials, it submits a new drug application to the FDA. The application includes trial data, preclinical information and details on the drug’s manufacturing process. If the FDA accepts the application for review, the agency has ten months — or six months if the drug has priority review status — to make a decision, according to the report. The FDA can hold an advisory committee meeting where independent experts assess the data and recommend whether to approve the drug. From there, the FDA will either approve the drug or give the applicant a complete response letter, which explains why the drug did not get approved and what steps the applicant must take before resubmitting the application for approval. |
Before approving an NDA, the FDA may inspect the facilities where the product is being manufactured or facilities that are significantly involved in the product development and distribution process and will not approve the product unless they determine that compliance with current good manufacturing practices is satisfactory. The FDA may deny approval of an NDA if applicable statutory or regulatory criteria are not satisfied, or may require additional testing or information, which can delay the approval process. In pursuing FDA approval there may be various delays and it is possible that approval may never be granted. In addition, new government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.
If a product is approved, the FDA may impose limitations on the indications for use for which the product may be marketed, may require that warning statements be included in the product labeling, may require that additional studies or trials be conducted following approval as a condition of the approval, may impose restrictions and conditions on product distribution, prescribing or dispensing in the form of a risk management plan, or impose other limitations.
Once a product receives FDA approval, marketing the product for other indicated uses or making certain manufacturing or other changes related to the product will require FDA review and approval of a supplemental NDA or a new NDA, which may require additional clinical safety and efficacy data and may require additional review fees. In addition, further post-marketing testing and surveillance to monitor the safety or efficacy of a product may be required. Also, product approvals may be withdrawn if compliance with regulatory standards is not maintained or if safety or manufacturing problems occur following initial marketing.
With respect to the labeling for our abuse deterrent transdermal fentanyl system or any other opioid transdermal patch we develop, it is likely that we will need to disclose the risks of improper use or abuse using language required by the FDA.
FDA Approval Pathways
The FDA has several pathways that can be followed to obtain FDA approval.
| ● | A stand-alone NDA is an application submitted under Section 505(b)(1) of the Food, Drug and Cosmetic Act (“FD&C Act”) and approved under Section 505(c) of the FD&C Act that contains full reports of investigations of safety and effectiveness that were conducted by or for the applicant or for which the applicant has a right of reference or use. This is typically the pathway used for new chemical entities. |
| ● | A 505(b)(2) application is an NDA submitted under Section 505(b)(1) and approved under Section 505(c) of the FD&C Act that contains full reports of investigations of safety and effectiveness, where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use. This is the pathway typically taken for off-patent drugs that are being development into alternate dosage forms or routes of administration. |
| ● | An ANDA is an application for a duplicate of a previously approved drug product that was submitted and approved under Section 505(j) of the FD&C Act. An ANDA relies on the FDA’s finding that the previously approved drug product is safe and effective. An ANDA generally must contain information to show that the proposed generic product (1) is the same as the drug with respect to the active ingredients, conditions of use, route of administration, dosage form, strength and labeling (with certain permissible differences) and (2) is bioequivalent to the referenced drug. An ANDA may not be submitted if studies are necessary to establish the safety and effectiveness of the proposed product. This is the pathway taken for generic drugs. |
5
We cannot assure you that we will be able to take advantage of any of the available abbreviated approval pathways for any of our proposed products.
Post-approval requirements
Any drug products for which we receive FDA approval will be subject to continuing regulation by the FDA. Certain requirements include, among other things, record-keeping requirements, reporting of adverse events with the product, providing the FDA with updated safety and efficacy information on an annual basis or more frequently for specific events, product sampling and distribution requirements, complying with certain electronic records and signature requirements and complying with FDA promotion and advertising requirements. These promotion and advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against promoting drugs for uses or patient populations that are not described in the drug’s approved labeling, known as “off-label use,” and other promotional activities, such as those considered to be false or misleading. Failure to comply with FDA regulations can have negative consequences, including the immediate discontinuation of noncomplying materials, adverse publicity, enforcement letters from the FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Such enforcement may also lead to scrutiny and enforcement by other government and regulatory bodies.
Although physicians may prescribe legally available drugs for off-label uses, manufacturers may not encourage, market or promote such off-label uses. As a result, “off-label promotion” has formed the basis for litigation under the Federal False Claims Act, violations of which are subject to significant civil fines and penalties. In addition, manufacturers of prescription products are required to disclose annually to the Center for Medicaid and Medicare any payments made to physicians and teaching hospitals in the U.S. under the federal Physician Payment Sunshine Act. Reportable payments may be direct or indirect, in cash or kind, for any reason, and are required to be disclosed even if the payments are not related to the approved product. Failure to fully disclose or not in time reporting could lead to penalties up to $1.15 million per year.
The manufacturing of any of our products will be required to comply with the FDA’s current Good Manufacturing Practices (cGMP) regulations. These regulations require, among other things, quality control and quality assurance, as well as the corresponding maintenance of comprehensive records and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are also required to register with the FDA their establishments and list any products they make and to comply with related requirements in certain states. These entities are further subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with current good manufacturing practices and other laws. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.
Discovery of problems with a product after approval may result in serious and extensive restrictions on a product, manufacturer or holder of an approved NDA, as well as lead to potential market disruptions. These restrictions may include recalls, suspension of a product until the FDA is assured that quality standards can be met, and continuing oversight of manufacturing by the FDA under a “consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of many years, as well as possible withdrawal of the product from the market. In addition, changes to the manufacturing process generally require prior FDA approval before being implemented. Other types of changes to the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA review and approval.
The FDA also may require post-marketing testing, or Phase IV testing, as well as risk minimization action plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could otherwise restrict the distribution or use of our products.
6
Other Government Regulations
We may be subject to government regulations that are applicable to businesses generally, including those relating to workers’ health and safety, environmental and waste disposal, wage and hour and labor practices, including sexual harassment laws and regulations, and anti-discrimination laws and regulations.
In addition, we must comply with the laws and regulations governing the research and manufacture of products containing controlled substances such as fentanyl and other opioids. We or our contract manufacturer must be licensed by the Drug Enforcement Agency (DEA) and the state(s) in which we conduct research and development activities.
Europe and Other Countries
If we market our products in any countries other than the United States, we would be subject to the laws of those countries. To obtain market access for our products in other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our products.
The European medicines regulatory system is based on a network of around 50 regulatory authorities from the 31 countries in the European Economic Area, the European Commission and the European Medicines Agency. All medicines must be authorized before they can be placed on the market in the European Union. The European system offers different routes for authorization. A centralized procedure allows the marketing of a medicine on the basis of a single European Union assessment and marketing authorization which is valid throughout the European Union. However, a majority of medicines authorized in the European Union do not fall within the scope of the centralized procedure, and we do not know whether our proposed products will fall within the centralized authorization. We also do not know how the withdrawal of Great Britain from the European Union will affect the procedure for approval of medicines in the United Kingdom. If we are not able to use the centralized procedure, we would need to use one of the following procedures. One method is the decentralized procedure where we would apply for simultaneous authorization in more than one European Union member. The second method is the mutual-recognition procedure where we would have a medicine authorized in one European Union country apply for authorization to be recognized in other European Union countries. In either case, we would be required to complete clinical trials to demonstrate the safety and efficacy of the medicine and show that the medicine is manufactured in accordance with good manufacturing practices based upon European Union standards.
In countries other than the United States and the European Union, we would be required to comply with the applicable laws of those countries, which may require us to perform additional clinical testing.
Failure to obtain regulatory approval in any country would prevent our product candidates from being marketed in those countries. In order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the United States and the European Union generally includes all of the risks associated with obtaining FDA and European Union approval but can involve additional testing.
In addition, in many countries worldwide, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Even if we were to receive approval in the United States or the European Union, approval by the FDA or the European Medicines Agency does not ensure approval by regulatory authorities in other countries or jurisdictions. Similarly, approval by one regulatory authority outside the United States would not ensure approval by regulatory authorities in other countries or jurisdictions. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in other foreign jurisdictions, the commercial prospects of those product candidates may be significantly diminished and our business prospects could decline.
Outside the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures.
In addition to regulations in the United States, if we market outside of the United States, we will be subject to a variety of regulations governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries.
7
Intellectual Property
The AVERSA abuse deterrent technology utilized in our AVERSA product pipeline is covered by an international intellectual property portfolio with patents issued in 45 countries including the United States, Europe, Japan, Korea, Russia, Mexico, Canada, and Australia and pending in China. These patents provide patent coverage to 2035. We continue to build on our proprietary positions in the United States and internationally for our product candidates AVERSA Fentanyl, AVERSA buprenorphine and AVERSA methylphenidate as well as other products and technology that we may have in development. Our policy is to pursue, maintain and defend patent rights developed internally or acquired externally and to protect the technology, inventions and improvements that are commercially important to the development of our business. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology. We also may rely on trade secrets to protect our commercial products and product candidates. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties.
Further, we plan to seek trademark protection in the United States and internationally where available and when appropriate. We have registered the name Nutriband in the United States. We have received a notice of allowance for the AVERSA trademark for our abuse deterrent technology in the United States.
Competition
The pharmaceutical industry is highly competitive and subject to rapid change as new products are developed and marketed. Potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, and medical technology companies. We believe the key competitive factors that will affect the development and commercial success of our products are product performance including safety and efficacy, level of patient compliance, healthcare professional acceptance, and the extent of insurance reimbursement of our products.
As our development pipeline includes products that contain opioids (AVERSA Fentanyl and AVERSA Buprenorphine), we continually monitor the market for opioid products, particularly in the United States. Pharmaceutical companies engaged in the distribution and sale of opioids, in particular for the treatment of chronic pain, are promoting responsible opioid use. In 2022, the CDC revised its clinical practice guideline for prescribing opioids to ease the restrictions on prescribers and encourage responsible opioid use particularly for patients with moderate to severe pain. Our opioid products potentially offer a unique proposition to meet the unmet needs of patients by deterring the abuse and misuse of opioids while making opioids accessible to those patients who need them. If approved, our AVERSA pipeline products will compete with the currently marketed products that do not contain abuse deterrent features as well as other products that may employ different abuse deterrent technology. We may also have to compete with products that do not contain opioids or other drugs that are susceptible to abuse. We are not aware of any abuse deterrent transdermal products that are in development or being marketed at this time. If we obtain regulatory approval to market our products, we cannot assure you that we will be successful in the marketplace.
8
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in this report include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. The risks set forth below are not the only risks facing us. Additional risks and uncertainties may exist that could also adversely affect our business, prospects or operations. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or a significant part of your investment.
Risks Concerning our Business
Because we are an early-stage company with minimal revenue and a history of losses and we expect to continue to incur substantial losses for the foreseeable future, we cannot assure you that we can or will be able to operate profitably.
During the year ended January 31, 2023, we generated revenues of $2,079,609, a loss of $4,483,474 and a negative cash flow from operations of $2,987,198. As of January 31, 2023, we had a working capital surplus of $1,945,132, as compared with a working capital surplus of $4,686,112 as of January 31, 2022. We are subject to the risks common to start-up, pre-revenue enterprises, including, among other factors, undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of revenues. Drug development companies typically incur substantial losses during the product development and FDA testing phase of the business and do not generate revenues until after the drug has received FDA approval, which cannot be assured, and until the company has started to sell the product. We can give no assurance that we can or will ever be successful in achieving profitability and the likelihood of our success must be considered in light of our early stage of operations. We cannot assure you that we will be able to operate profitably or generate positive cash flow. If we cannot achieve profitability, we may be forced to cease operations and you may suffer a total loss of your investment.
The Russian/Belarus-Ukrainian conflict may adversely affect our business, financial condition and results of operations.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. The specific impact on our financial condition, results of operations and cash flows is not determinable as of the date hereof. However, to the extent that such military action spreads to other countries, intensifies, or otherwise remains active, such conflict could have a material adverse effect on our financial condition, results of operations, and cash flows. To date, this conflict is having a destabilizing effect on the world’s economy, resulting in higher energy prices and inflationary pressures generally in the world’s economy, as well as possible supply chain restraints, which negatively affects the world’s economy generally and possibly our ongoing operations specifically. The duration of this conflict, as well as its effects on the world economy are not known at this point. These factors may lead to a lack of certainty or other changes in the capital markets and limit or reduce our potential for raising the additional capital that we will require to execute our business plan in a timely fashion.
Our business will likely be adversely affected by the COVID-19 pandemic.
The COVID-19 pandemic and the response to the pandemic could affect our business in a number of ways, including, but are not limited to, the following:
| ● | Our ability to raise financing for our operations may be affected by both the willingness and ability of potential financing sources and potential joint venture partners to invest our business. |
| ● | The decision by investors who would invest in early-stage pharmaceutical companies to limit their financing efforts to companies that are dealing with products or services related to COVID-19 diagnosis or treatment. |
| ● | The effect of recent stock market decline on the willingness of investors to make an investment in our securities. |
9
Because we do not have a product we can market in the United States, we cannot predict when or whether we will operate profitably.
Our lead product, which is our abuse deterrent fentanyl transdermal system, is currently in development and is not yet approved by the FDA in the United States or by any other regulatory agency in any other country. We do not have any product that we can market in the United States. Because of the numerous risks and uncertainties associated with product development, we cannot assure you that we will be able to develop and market any products or achieve or attain profitability. If we are able to obtain financing for our operations, we expect that we will incur substantial expenses as we continue with our product development programs and clinical trials. Further, if we are required by applicable regulatory authorities, including the FDA as well as the comparable regulatory agencies in other countries in which we may seek to market product, to perform studies in addition to those we currently anticipate, our expenses will increase beyond expectations and the timing of any potential product approval may be delayed. As a result, we expect to continue to incur substantial losses and negative cash flow for the foreseeable future.
A number of factors, including, but not limited to the following, may affect our ability to develop our business and operate profitably:
| ● | our ability to obtain necessary funding to develop our proposed products; |
| ● | the success of clinical trials for our products; |
| ● | our ability to obtain FDA approval for us to market any proposed product in our pipeline in the United States; |
| ● | any delays in regulatory review and approval of product in development; |
| ● | if we obtain FDA approval to market our product, our ability to establish manufacturing and distribution operations or entering into manufacturing and distribution agreements with qualified third parties; |
| ● | market acceptance of our products; |
| ● | our ability to establish an effective sales and marketing infrastructure; |
| ● | our ability to protect our intellectual property; |
| ● | competition from existing products or new products that may emerge; |
| ● | the ability to commercialize our products; |
| ● | potential product liability claims and adverse events; |
| ● | our ability to adequately support future growth; and |
| ● | our ability to attract and retain key personnel to manage our business effectively. |
Our failure to develop our abuse deterrent fentanyl transdermal system will impair our ability to continue in business.
Our lead product is our abuse deterrent fentanyl transdermal system, and we are devoting our resources primarily to developing this product to enable us to obtain FDA approval and to market the product. If we are not able to obtain necessary financing to develop, obtain FDA marketing approval and market this product successfully, we may not have the resources to develop additional products, and we may not be able to continue in business.
Before we can market in the United States any product which is classified by the FDA as a drug, we must obtain FDA marketing approval.
Our proposed transdermal products are drug-device combinations that are considered by the FDA to be drugs, which require approval by the FDA. To obtain FDA approval, it is necessary to conduct a series of preclinical and clinical tests to confirm that the product is safe and effective. Even though the medication that is being delivered through our transdermal patch may have already received FDA approval, because we are changing the dosage form or route of administration, we will need to complete, to the FDA’s satisfaction, all of the studies required to demonstrate safety and efficacy. At any point, the FDA could ask us to perform additional tests or to refine and redo a test that we had previously completed. The process of obtaining FDA approval could take many years, with no assurance that the FDA will approve the product. The FDA also will need to approve the manufacturing process and the manufacturing facility.
10
We may need to rely on a contract research organization to conduct our preclinical and clinical trials.
We may need to rely on third party contract research organizations to conduct our preclinical and clinical trials. Our failure or the failure of the contract research organization to conduct the trials in compliance with FDA regulations could possibly derail our obtaining FDA approval and could require us to redo any preclinical or clinical trials which we or the contract research organization administered.
We may encounter delays in completing clinical trials, which would increase our costs and delay market entry.
We may experience delays in completing the clinical trials necessary for FDA approval. These delays may result from a number of factors which could prevent us from starting the trial on time or completing the study in a timely manner, which may include factors out of our control. Since we may need to rely on third parties for supplying us with the drug and transdermal patches used in the trials, there may be various reasons for us to experience a delay in obtaining the clinical materials required to start each clinical trial, which may include factors out of our control. Clinical trials can be delayed or terminated for a number of reasons, including delay or failure to:
| ● | obtain necessary financing; |
| ● | obtain regulatory approval to commence a trial; |
| ● | reach agreement on acceptable terms with prospective contract research organizations, investigators and clinical trial sites, the terms of which may be subject to extensive negotiation and vary significantly among different research organizations and trial sites; |
| ● | obtain institutional review board approval at each site; |
| ● | enlist suitable patients to participate in a trial; |
| ● | have patients complete a trial or return for post-treatment follow-up; |
| ● | ensure clinical sites observe trial protocol or continue to participate in a trial; |
| ● | address any patient safety concerns that arise during the course of a trial; |
| ● | address any conflicts with new or existing laws or regulations; |
| ● | add a sufficient number of clinical trial sites; or |
| ● | manufacture sufficient quantities of the product candidate for use in clinical trials. |
Patient enrollment is also a significant factor in the timely completion of clinical trials and is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to available alternatives, including any new drugs or treatments that may be approved for the indications we are investigating.
We may also encounter delays if a clinical trial is suspended or terminated by us, by the independent review boards of the institutions in which such trials are being conducted, by the trial’s data safety monitoring board, or by the FDA. Such authorities may suspend or terminate one or more of our clinical trials due to a number of factors, including our failure to conduct the clinical trial in accordance with relevant regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
If we experience delays in carrying out or completing clinical trials for any product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate revenues from any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down the product development and approval process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may significantly harm our business and financial condition. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
11
Our ability to finance our operations and generate revenues depends on the clinical and commercial success of our abuse deterrent fentanyl transdermal system and our other related product candidates and failure to achieve such success will negatively impact our business.
Our prospects, including our ability to finance our operations and generate revenues, depend on the successful development, regulatory approval and commercialization of our abuse deterrent fentanyl transdermal system, which itself requires substantial financing, as well as our other product candidates. The clinical and commercial success of our product candidates depends on a number of factors, many of which are beyond our control, including:
| ● | the FDA’s acceptance of our parameters for regulatory approval relating to our product candidates, including our proposed indications, primary endpoint assessments, primary endpoint measurements and regulatory pathways; |
| ● | the FDA’s acceptance of the number, design, size, conduct and implementation of our clinical trials, our trial protocols and the interpretation of data from preclinical studies or clinical trials; |
| ● | the FDA’s acceptance of the sufficiency of the data we collect from our preclinical studies and pivotal clinical trials to support the submission of a New Drug Application, known as an NDA, without requiring additional preclinical or clinical trials; |
| ● | the FDA’s acceptance of our abuse deterrent labelling relating to our products, including our abuse deterrent fentanyl transdermal system; |
| ● | when we submit our NDA upon completion of our clinical trials, the FDA’s willingness to schedule an advisory committee meeting, if applicable, in a timely manner to evaluate and decide on the approval of our NDA; |
| ● | the recommendation of the FDA’s advisory committee, if applicable, to approve our application without limiting the approved labelling, specifications, distribution or use of the products, or imposing other restrictions; |
| ● | our ability to satisfy any issued raised by the FDA in response to our test data; |
| ● | the FDA’s satisfaction with the safety and efficacy of our product candidates; |
| ● | the prevalence and severity of adverse events associated with our product candidates; |
| ● | the timely and satisfactory performance by third party contractors of their obligations in relation to our clinical trials; |
| ● | if we receive FDA approval, our success in educating physicians and patients about the benefits, administration and use our product candidates; |
| ● | our ability to raise additional capital on acceptable terms to achieve conduct the necessary clinical trials; |
| ● | the availability, perceived advantages and relative cost of alternative and competing treatments; |
| ● | the effectiveness of our marketing, sales and distribution strategy and operations; |
| ● | our ability to develop, validate and maintain a commercially viable manufacturing process that is compliant with current good manufacturing practices; |
| ● | our ability to obtain, protect and enforce our intellectual property rights; |
| ● | our ability to bring an action timely for patent infringement arising out of the filing of ANDAs by generic companies seeking approval to market generic versions of our products, if applicable, before the expiry of our patents; and |
| ● | our ability to avoid third party claims of patent infringement or intellectual property violations. |
If we fail to achieve these objectives or to overcome the challenges presented above, many of which are beyond our control, in a timely manner, we could experience significant delays or an inability to successfully commercialize our product candidates. Accordingly, even if we obtain FDA approval to market our products, we may not be able to generate sufficient revenues through the sale of our products to enable us to continue our business.
12
If we or any third-party manufacturer fails to comply with FDA current good manufacturing practices, we may not be able to sell our products until and unless the manufacture thereof becomes compliant.
All FDA approved drugs, including our proposed transdermal products, must be manufactured in accordance with good manufacturing practices. All manufacturing facilities are inspected by the FDA as a matter of routine inspection or for a specific cause. If a manufacturer fails to comply with all applicable regulations, the FDA can prohibit us from distributing products manufactured in those facilities, whether they are a contract manufacturer or own facility. Failure to be in compliance with good manufacturing practices could result in the FDA closing the facilities or limiting our use of the facilities.
If the FDA implements Risk Evaluation and Mitigation Strategies policies for any of our proposed products, we will need to comply with such policies before we can obtain FDA approval or the product.
The Food and Drug Administration Amendments Act of 2007 gave FDA the authority to require a Risk Evaluation and Mitigation Strategy (REMS) from manufacturers to ensure that the benefits of a drug or biological product outweigh its risks. If one of our proposed product candidates does receive regulatory approval, the approval may be limited to specific conditions and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. The FDA may require a REMS, which can include a medication guide, patient package insert, a communication plan, elements to assure safe use and implementation system, and include a timetable for assessment of the REMS. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. In addition, the FDA may require post-approval testing which involves clinical trials designed to further assess a drug product’s safety and effectiveness after the NDA.
Depending on the extent of the REMS requirements, any U.S. launch may be delayed, the costs to commercialize may increase substantially and the potential commercial market could be restricted. Furthermore, risks that are not adequately addressed through the proposed REMS program may also prevent or delay its approval for commercialization.
Our products will continue to be subject to FDA review after FDA approval is given.
Discovery of previously unknown problems with our products or unanticipated problems with the manufacturing processes and facilities, even after FDA and other regulatory approvals of the product for commercial sale, may result in the imposition of significant restrictions, including withdrawal of the product from the market.
The FDA and other regulatory agencies continue to review products even after the products receive agency approval. If and when the FDA approves one of our products, its manufacture and marketing will be subject to ongoing regulation, which could include compliance with current good manufacturing practices, adverse event reporting requirements and general prohibitions against promoting products for unapproved or “off-label” uses. We are also subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from the failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of our products. In addition, the FDA or other regulatory agencies could withdraw a previously approved product from the market upon receipt of newly discovered information. The FDA or another regulatory agency could also require us to conduct additional, and potentially expensive, studies in areas outside our approved indicated uses.
We must continually monitor the safety of our products once approved and marketed for potential adverse events which could jeopardize our ability to continue marketing the products.
As with all medical products, the use of our products could sometimes produce undesirable side effects or adverse reactions or events (referred to cumulatively as adverse events). For the most part, we expect these adverse events to be known and occur at some predicted frequency based on our experience in the clinical development program. When adverse events are reported to us, we are required to investigate each event and the circumstances surrounding it to determine whether it was caused by our product and whether a previously unrecognized safety issue exists. We will also be required to periodically report summaries of these events to the applicable regulatory authorities. If the adverse effects are significant, we may be required to recall our product. We cannot assure you that our transdermal products will not cause skin irritation or other adverse events. Our ability to market our products may be impaired by unanticipated adverse events and any recall of our product. Because we are an early-stage company, our reputation, and our ability to market products, could be affected more severely than a major pharmaceutical company.
In addition, the use of our products could be associated with serious and unexpected adverse events, or with less serious reactions at a greater than expected frequency. Such issues may arise when our products are used in critically ill or otherwise compromised patient populations. When unexpected events are reported to us, we are required to make a thorough investigation to determine causality and the implications for product safety. These events must also be specifically reported to the applicable regulatory authorities. If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with the product, we would be obligated to withdraw the impacted lot(s) of that product or recall the product and discontinue marketing until all problems are satisfactorily resolved. Furthermore, an unexpected adverse event of a new product could be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation and public image.
A serious adverse finding concerning the risk of any of our products by any regulatory authority could adversely affect our reputation, business and financial results.
13
If we obtain FDA approval to market our products, we expect to spend considerable time and money complying with federal and state laws and regulations governing their sale, and, if we are unable to fully comply with such laws and regulations, we could face substantial penalties.
Health care providers, physicians and others will play a primary role in the recommendation and prescription of our proposed products. Further, if we use third-party sales and marketing providers, they may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. Applicable federal and state health care laws and regulations are expected to include, but not be limited to, the following:
| ● | The federal anti-kickback statute is a criminal statute that makes it a felony for individuals or entities knowingly and willfully to offer or pay, or to solicit or receive, direct or indirect remuneration, in order to induce the purchase, order, lease, or recommending of items or services, or the referral of patients for services, that are reimbursed under a federal health care program, including Medicare and Medicaid; |
| ● | The federal False Claims Act imposes liability on any person who knowingly submits, or causes another person or entity to submit, a false claim for payment of government funds. Penalties include three times the government’s damages plus civil penalties of $5,500 to $11,000 per false claim. In addition, the False Claims Act permits a person with knowledge of fraud, referred to as a qui tam plaintiff, to file a lawsuit on behalf of the government against the person or business that committed the fraud, and, if the action is successful, the qui tam plaintiff is rewarded with a percentage of the recovery; |
| ● | Health Insurance Portability and Accountability Act, known as HIPAA, imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; |
| ● | The Social Security Act contains numerous provisions allowing the imposition of a civil money penalty, a monetary assessment, exclusion from the Medicare and Medicaid programs, or some combination of these penalties; and |
| ● | Many states have analogous state laws and regulations, such as state anti-kickback and false claims laws. In some cases, these state laws impose more strict requirements than the federal laws. Some state laws also require pharmaceutical companies to comply with certain price reporting and other compliance requirements. |
Our failure to comply with any of these federal and state health care laws and regulations, or health care laws in foreign jurisdictions, could have a material adverse effect on our business, financial condition, result of operations and cash flows.
Before we can market our products outside of the United States, we will need to obtain regulatory approval in each country in which we propose to sell our products.
In order to market and sell our products in jurisdictions other than the United States, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA and can involve additional testing.
In addition, in many countries worldwide, it is required that the product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Even if we were to receive approval in the United States, approval by the FDA for marketing in the United States does not ensure approval by regulatory authorities in other countries. Similarly, approval by one regulatory authority outside the United States would not ensure approval by regulatory authorities in other countries. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of our product candidates by regulatory authorities in foreign jurisdictions, the commercial prospects of those product candidates may be significantly diminished and our business prospects could be impaired.
Outside the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Certain countries allow companies to fix their own prices for medicines but monitor the pricing.
In addition to regulations in the United States, if we market outside of the United States, we will be subject to a variety of regulations governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries.
14
If we do not have sufficient product liability insurance, we may be subject to claims that are in excess of our net worth.
Before we market any pharmaceutical product, we will need to purchase significant product liability insurance. However, in the event of major claims from the use of our products, it is possible that our product liability insurance will not be sufficient to cover claims against us. We cannot assure you that we will not face liability arising out of the use of our products which is significantly in excess of the limits of our product liability insurance. In such event, if we do not have the funds or access to the funds necessary to satisfy such liability, we may be unable to continue in business.
Because some of the patches we are developing, such as our abuse deterrent fentanyl patch, have potential severe side effects, we may face liability in the event patients suffer serious, possibly life-threatening, side effects from our products.
Fentanyl patches have known side effects and may cause serious or life-threatening breathing problems due to opioid-induced respiratory depression. In addition, taking certain medications with fentanyl may increase the risk of serious or life-threatening breathing problems, sedation or coma. Because of the seriousness of the side effects, fentanyl patches should only be used in accordance labelling approved by the FDA or by the applicable regulatory authorities outside of the United States. Fentanyl patches are only indicated for the treatment of people who are tolerant to opioid medications because they have taken this type of medication for at least one week and should not be used to treat mild or moderate pain, short-term pain, pain after an operation or medical or dental procedure, or pain that can be controlled by medication that is taken on an as-needed basis. Although we will include all warnings on the packaging that are required by the FDA or foreign regulatory authorities, claims may be made against us in the event that death or serious side effects result from the use of our abuse deterrent fentanyl transdermal system, even if prescribed for a patient for whom fentanyl patches should not be prescribed. We cannot assure you that we will not face significant liability as a result of such side effects and we may not have sufficient product liability insurance to cover any damages that may be assessed against us.
Because of our lack of funds, we may have to enter into a joint venture or strategic relationship or licensing agreement with a third party to develop and seek to obtain FDA approval of our potential products.
Our present efforts are directed to developing and seeking FDA approval for our pipeline of transdermal pharmaceutical products including our lead product, the abuse deterrent fentanyl transdermal system. The development of pharmaceutical products is very expensive with no assurance of obtaining FDA approval. Because of the costs involved, we may need to enter into a joint venture or strategic alliance or licensing or similar agreement with a third party to bring our products to market, in which event we would have to give up a significant percentage of the equity in or rights to the product and require the other party to provide the necessary financing and personnel and to take a significant role in making the decisions relating to the development, testing, marketing and manufacturing of the product. The third party may have interests which are different from, and possibly in conflict with, our own. If we are unable to attract competent parties to distribute and market any product which we may develop, or if such parties’ efforts are inadequate, we will not be able to implement our business strategy and may have to cease operations. We cannot assure you that we will be successful in entering into joint ventures or other strategic relationships or that any relationship into which we may enter will develop a marketable product or that we will generate any revenue or net income from such a venture.
We may decide not to continue developing or commercializing any products at any time during development or after approval, which would reduce or eliminate our potential return on investment for those product candidates.
We may decide to discontinue the development of our abuse deterrent fentanyl transdermal system or any other product in our pipeline or not to continue to commercialize any potential product for a variety of reasons, such as the appearance of new technologies that make our product less commercially viable, an increase in competition, changes in or failure to comply with applicable regulatory requirements, changes in the regulatory or public policy environment, the discovery of unforeseen side effects during clinical development or after the approved product has been marketed or the occurrence of adverse events at a rate or severity level that is greater than experienced in prior clinical trials. If we discontinue a program in which we have invested significant resources, we will not receive any return on our investment.
If any of our potential products are approved for marketing but fail to achieve the broad degree of physician or market acceptance necessary for commercial success, our operating results and financial condition will be adversely affected.
If any of the products in our pipeline receives FDA approval thereby allowing us to market the product in the United States, it will be necessary for us to generate acceptance of our product for the indications covered by the FDA approval. In order to generate acceptance in the marketplace, we will need to demonstrate to physicians, patients and payors that our product provides a distinct advantage or better outcome at a price that reflects the value of our product as compared with existing products. We will need to develop and implement a marketing program directed at both physicians and the general public. Since we do not presently have the resources necessary to develop or implement an in-house marketing program and we may not have the funds to do so if and when we obtain FDA approval to market our product, we will need to establish a distribution network though license and distribution agreements with third parties who have the capability to market our product to physicians, and we will be dependent upon the ability of these third parties to market our products effectively. We cannot assure you that we will be able to negotiate license and distribution agreements with terms that are acceptable to us. Since we do not have an established track record and our product pipeline is relatively small, we may be at a disadvantage in negotiating the terms of license and distribution agreements. Further, we may have little control over the development and implementation of our licensee’s marketing program, and our licensees may have interests that are inconsistent with ours with respect to the allocation of resources and implementation of the marketing program. We cannot assure you that a marketing program for any of our products can or will be implemented effectively or that we will be successful in developing physician and emergency service acceptance of our products.
15
If we seek to market any products in our pipeline in countries other than the United States, we will need to comply with the regulations of each country in which we seek to market our products.
None of our pharmaceutical products are currently approved for sale by any government authority in any jurisdiction. If we fail to comply with regulatory requirements in any market we decide to enter, or to obtain and maintain required approvals, or if regulatory approvals in the relevant markets are delayed, our target market will be reduced and our ability to realize the full market potential of our products will be harmed. Marketing approval in one jurisdiction, including the United States, does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain a marketing approval in countries in which we seek to market our products or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for any of our products.
The drug delivery industry is subject to rapid technological change, and our failure to keep up with technological developments may impair our ability to market our products.
Our products use technology which we developed for the transdermal delivery of drugs. The field of drug delivery is subject to rapid technological changes. Our future success will depend upon our ability to keep abreast of the latest developments in the industry and to keep pace with advances in technology and changing customer requirements. If we cannot keep pace with such changes and advances, our proposed products could be rendered obsolete, which would result in our having to cease its operations.
If we obtain FDA approval, we will face significant competition from better known and better capitalized companies.
If we obtain FDA approval for any of our products, we expect to face significant competition from existing companies, which are better known and already have developed relationships with physicians within the healthcare system. Any product we may develop will compete with existing medications performing the same medicinal functions, which may include transdermal patches. We cannot assure you that we will be able to compete successfully. In addition, even if we are able to commercialize our product candidates, we may not be able to price them competitively with current standard of care products or their price may drop considerably due to factors outside our control. If this happens or the price of materials and manufacture increases dramatically, our ability to continue to operate our business would be materially harmed and we may be unable to commercialize any products successfully. In addition, other pharmaceutical companies may be engaged in developing, patenting, manufacturing and marketing products that compete with those that we are developing. These potential competitors may include large and experienced companies that enjoy significant competitive advantages over us, such as greater financial, research and development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in obtaining marketing approvals from the FDA and foreign regulatory authorities.
Healthcare reforms by governmental authorities, court decisions affecting health care policies and related reductions in pharmaceutical pricing, reimbursement and coverage by third-party payors may adversely affect our business.
We expect the healthcare industry to face increased limitations on reimbursement, rebates and other payments as a result of healthcare reform, which could adversely affect third-party coverage of our proposed products and how much or under what circumstances healthcare providers will prescribe or administer our products, if approved.
In both the U.S. and other countries, sales of our products, if approved for marketing, will depend in part upon the availability of reimbursement from third-party payors, which include governmental authorities, managed care organizations and other private health insurers. Third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services.
Increasing expenditures for healthcare have been the subject of considerable public attention in the United States. Both private and government entities are seeking ways to reduce or contain healthcare costs. Numerous proposals that would effect changes in the United States healthcare system have been introduced or proposed in Congress and in some state legislatures, including reducing reimbursement for prescription products and reducing the levels at which consumers and healthcare providers are reimbursed for purchases of pharmaceutical products.
Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement that results from federal legislation or regulation may also result in a similar reduction in payments from private payors, since private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates.
Significant developments that may adversely affect pricing in the United States include the enactment of federal healthcare reform laws and regulations, including the Affordable Care Act, or ACA, which is popularly known as Obamacare, and the Medicare Prescription Drug Improvement and Modernization Act of 2003. Changes to the healthcare system enacted as part of any healthcare reform in the United States, as well as the increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, may result in increased pricing pressure by influencing, for instance, the reimbursement policies of third-party payors. Regulatory changes which have the effect of decreasing the use of opioids has resulted in a decrease in the size of the market for opioid products, including fentanyl, could impact the market for our abuse deterrent fentanyl transdermal system or any other opioid-based transdermal product we may develop.
16
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for our technology which is incorporated in our products as well as successfully defending these patents against third-party challenges, should any be brought. 4P Therapeutics originally filed an international patent application under the Patent Cooperation Treaty for worldwide prosecution of the abuse deterrent transdermal technology intellectual property used in our lead product, the abuse deterrent fentanyl transdermal system.
The AVERSA abuse deterrent technology utilized in our AVERSA product pipeline is covered by an international intellectual property portfolio with patents issued in 45 countries including the United States, Europe, Japan, Korea, Russia, Mexico, Canada, and Australia. Patent prosecution is still pending in China. These patents provide patent coverage to 2035. We continue to build on our proprietary positions in the United States and internationally for our product candidates AVERSA Fentanyl, AVERSA buprenorphine and AVERSA methylphenidate as well as other products and technology that we may have in development. Our policy is to pursue, maintain and defend patent rights developed internally or acquired externally and to protect the technology, inventions and improvements that are commercially important to the development of our business. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology. We may rely on trade secrets to protect our commercial products and product candidates. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties.
Our ability to stop third parties from making, using, selling, offering to sell or importing products utilizing our proprietary or patented technology is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. The patent positions of pharmaceutical and biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biopharmaceutical patents has emerged to date in the United States. The biopharmaceutical patent situation outside the United States varies from country to country and is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in any patents we may be granted. Further, if any patents are granted and are subsequently deemed invalid and unenforceable, it could impact our ability to license our technology and, as noted previously, fend off competitive challenges. Patent litigation is very expensive, and we may not have sufficient funds to defend our proprietary technology from infringement, either as a plaintiff in an action seeking to stop infringers from using our technology, or as a defendant in an action against us alleging infringement by us.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
| ● | others may be able to make compositions or formulations that are similar to our product s but that are not covered by the claims of our patents; |
| ● | other persons may have filed patents covering inventions, technology or processes that we use, with the result that we may infringe upon the prior patents; |
| ● | others may independently develop similar or alternative technologies or duplicate any of our technologies; |
| ● | our pending patent applications may not result in the grant of patents; |
| ● | any patents which may be issued may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties; |
| ● | our inability to fund any litigation to defend our proprietary rights, either in defense of an action against us or a plaintiff to seek to prevent infringement. |
| ● | our failure to develop additional proprietary technologies that are patentable. |
17
If we seek to expand our business through acquisition, we may not be successful in identifying acquisition targets or integrating their businesses with our existing business.
We have recently expanded our business by acquisition, and we may make acquisitions in the future. In 2017, we issued 1,400,000 shares of common stock (adjusted for the 1-for-4 reverse stock split effective June 23, 2019 and the 7-for-6 forward stock split effective August 15, 2022), valued at $2,500,000, in connection with our proposed acquisition of Advanced Health Brands, Inc., but the stock of Advanced Health Brands was never transferred to us, and the value of the intellectual property we were to have acquired did not have the value we anticipated, with the result that we incurred a $2,500,000 impairment loss in the year ended January 31, 2018. We initiated litigation against Advance Health Brands and certain of its stockholders, and as a result recovered all of the original Nutriband share certificates. We previously entered into another acquisition agreement which was rescinded shortly after the agreement was executed. We cannot assure you that any acquisition we complete will be successful or that any acquisition agreement we may enter into will result in an acquisition. An acquisition can be unsuccessful for a number of reasons, including the following:
| ● | We may incur significant expenses and devote significant management time to the acquisition, and we may be unable to consummate the acquisition on acceptable terms. |
| ● | The integration of any acquisition with our existing business may be difficult and, if we are not able to integrate the business successfully, we may not only be unable to operate the business profitably, but management may be unable to devote the necessary time to the development of our existing business; |
| ● | The key employees who operated the acquired business successfully prior to the acquisition may not be happy working for us and may resign, thus leaving the business without the necessary continuity of management. |
| ● | Even if the business is successful, our senior executive officers may need to devote significant time to the acquired business, which may distract them from their other management activities. |
| ● | If the business does not operate as we expect, we may incur an impairment charge based on the value of the assets acquired. |
| ● | The products or proposed products of the acquired company may have regulatory problems with the FDA or any other regulatory agency, including the need for additional and unanticipated testing or the need for a recall or a change in labeling. |
| ● | We may have difficulty maintaining the necessary quality control over the acquired business and its products and services. |
| ● | To the extent that an acquired company operates at a loss prior to our acquisition, we may not be able to develop profitable operations following the acquisition. |
| ● | The acquired company may have liabilities or obligations which were not disclosed to us, or the acquired assets, including any intellectual property, may not have the value we anticipated. |
| ● | The assets, including intellectual property, of the acquired company may not have the value that we anticipated. |
| ● | We may require significant capital both to acquire and to operate the business, and the capital requirements of the business may be greater than we anticipated. Our failure to obtain funds on reasonable terms may impair the value of the acquisition. |
| ● | The acquired company may not operate at the revenue level or with the gross margin shown in the financial statements or projections. |
| ● | Patents may not be granted for patent applications which the acquired company filed or patents may be successfully challenged. |
| ● | There may be conflicts in management styles that prevent us from integrating the acquired company with us. |
| ● | The former equity owners or officers may compete in violation of their non-competition covenants or the non-competition covenants may be held to be unenforceable. |
| ● | The business of the acquired company may have problems of which management was unaware and which do not become evident until after the acquisition and we may require significant funding to remedy the problem. |
| ● | The indemnification obligations of the seller under the purchase agreement, if any, may be inadequate to compensate us for any loss, damage or expense which we may sustain, including undisclosed claims or liabilities. |
| ● | To the extent that the acquired company is dependent upon its management to maintain relationships with existing customers, we may have difficulty in retaining the business of these customers if there is a change in management. |
| ● | Government agencies may seek damages after we make the acquisition for conduct which occurred prior to the acquisition and we may not have adequate recourse against the seller. |
18
If any of the foregoing or any other events which we do not contemplate happen, we may incur significant expenses, which we may not be able to cover, and the development of our business can be impaired. We cannot assure you that any acquisition we complete will be successful.
We are dependent on third party distributors for the international marketing of our consumer products and complying with applicable laws.
We do not currently sell or market our consumer transdermal products domestically, or for our international sales, directly to international consumers, and we rely on distributors to sell and market these products. We cannot market our consumer transdermal patch products in the United States without first obtaining FDA approval. We do not plan to seek FDA approval or market these products in the United States at this time. We plan to sell our transdermal consumer products to distributors in those countries in which the products can be sold in compliance with all applicable regulations without our spending significant monies for preclinical and clinical studies to obtain regulatory approval.
We are dependent upon our chief executive officer, our president and our chief operating officer.
We are dependent upon Gareth Sheridan, our chief executive officer, Serguei Melnik, our president and Dr. Alan Smith, our chief operating officer who is president of 4P Therapeutics. These officers have employment agreements with us, but the employment agreements do not guarantee that the officer will continue with us. The loss of any one of Mr. Sheridan, Mr. Melnik or Dr. Smith would materially impair our ability to conduct our business.
If we are unable to attract, train and retain technical and financial personnel, our business may be materially and adversely affected.
Our future success depends, to a significant extent, on our ability to attract, train and retain key management, technical, regulatory and financial personnel. Recruiting and retaining capable personnel with experience in pharmaceutical product development is vital to our success. There is substantial competition for qualified personnel, and competition is likely to increase. We cannot assure you we will be able to attract or retain the personnel we require. Our financial condition is likely to impair our ability to attract qualified candidates. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.
Risks Concerning our Securities
Our lack of internal controls over financial reporting may affect the market for and price of our common stock.
Pursuant to Section 404 of the Sarbanes-Oxley Act, we are required to file a report by our management on our internal control over financial reporting. Our disclosure controls and our internal controls over financial reporting are not effective. We do not have the financial resources or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to be able to implement financial controls The absence of internal controls over financial reporting may inhibit investors from purchasing our stock and may make it more difficult for us to raise capital or borrow money. Implementing any appropriate changes to our internal controls may require specific compliance training of our directors and employees, entail substantial costs in order to modify our existing accounting systems, take a significant period of time to complete and divert management’s attention from other business concerns. These changes may not, however, be effective in developing or maintaining internal control.
The market price for our common stock may be volatile and your investment in our common stock could suffer a decline in value.
The trading volume in our stock is low, which may result in volatility in our stock price. As a result, any reported prices may not reflect the price at which you would be able to sell shares of common stock if you want to sell any shares you own or buy if you wish to buy shares. Further, stocks with a low trading volume may be more subject to manipulation than a stock that has a significant public float and is actively traded. The price of our stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
| ● | the market’s reaction to our financial condition and its perception of our ability to raise necessary funding or enter into a joint venture, given the economic environment resulting from the COVID-19 pandemic, as well as its perception of the possible terms of any financing or joint venture; |
| ● | the market’s perception as to our ability to generate positive cash flow or earnings; |
19
| ● | changes in our or any securities analysts’ estimate of our financial performance; |
| ● | the perception of our ability to raise the necessary financing to complete the product development activities including preclinical and clinical testing required for FDA approval and our ability to generate revenue and cash flow from our products; |
| ● | the anticipated or actual results of our operations; |
| ● | changes in market valuations of other companies in our industry; |
| ● | litigation or changes in regulations and insurance company reimbursement policies affecting prescription drugs; |
| ● | concern that our internal controls are ineffective; |
| ● | any discrepancy between anticipated or projected results and actual results of our operations; |
| ● | actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and |
| ● | other factors not within our control. |
Raising funds by issuing equity or convertible debt securities could dilute the net tangible book value of the common stock and impose restrictions on our working capital.
We anticipate that we will require funds in addition to the net proceeds from this offering for our business. If we were to raise capital by issuing equity securities, either alone or in connection with a non-equity financing, the net tangible book value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the market price, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer dilution, which could be significant. Further, if we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.
Stockholders may experience significant dilution as a result of future equity offerings and other issuances of our common stock or other securities.
We will need to raise substantial funds in order to develop our products. In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not which is less than the market price and which may be based on a discount from market at the time of issuance. Stockholders will incur dilution upon exercise of any outstanding stock options, warrants or upon the issuance of shares of common stock under our present and future stock incentive programs. In addition, the sale of shares and any future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock.
Our failure to meet the continued listing requirements of Nasdaq could result in a de-listing of our Common Stock.
If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to de-list our securities. Such a de-listing would likely have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.
20
We and our senior executive officers settled an SEC investigation, which may affect the market for and the market price of our common stock and our ability to list on a stock exchange.
Following an investigation into the accuracy of statements in our Form 10 registration statement filed June 2, 2016, as amended, and our Form 10-K annual report filed May 8, 2017 that did not accurately reflect the FDA’s jurisdiction over our consumer products and did not disclose that we could not legally market these products in the United States, a Wells notice which we, our chief executive officer and our chief financial officer received on August 10, 2017 and a Wells submission which we and the officers submitted in response to the Wells notice, the SEC, on December 26, 2018, announced that it has accepted our settlement offer and instituted settled an administrative cease-and-desist proceeding against us and our chief executive officer and chief financial officer. The SEC’s administrative order, dated December 26, 2018, finds that we and the officers consented – without admitting or denying any findings by the SEC — to cease-and-desist orders against them for violations by us of Sections 12(g) and 13(a) of the Securities Exchange Act of 1934 and Rules 12b-20 and 13a-1 thereunder, which require issuers to file accurate registration statements and annual reports with the Commission; violations by the officers for causing our violations of the above issuer reporting provisions; and violations by the officers of Rule 13a-14 of the Exchange Act, which requires each principal executive and principal financial officer of issuers to attest that annual reports filed with the SEC do not contain any untrue statements of material fact. In addition to consenting to the cease-and-desist orders, the officers have each agreed to pay a $25,000 civil penalty to resolve the investigation. The administrative order does not impose a civil penalty or any other monetary relief against us. The settlement may affect the market for and the market price of our common stock.
There are risks associated with our February 2023 dual listing of our common stock on the MERJ Upstream Exchange, which is available solely for our non-U.S. resident stockholders.
Listing shares of the Company on Upstream is only suitable for investors who are familiar with and willing to accept the high risk associated with speculative investments. There can be no assurance in that marketplace that the valuation of any particular company’s securities is accurate or in agreement with the market or industry comparative valuations. Investors must be able to afford market volatility and afford the loss of their investment. Companies listed on Upstream are subject to significant ongoing corporate obligations including, but not limited to disclosure, filings, and notification requirements, as well as compliance with applicable quantitative and qualitative listing standards. The following are specific risks in connection with our stockholders listing their shares on Upstream:
| ● | Regulatory Risk: Different countries have different rules and regulations governing securities trading, and investors who trade on foreign exchanges may be subject to unfamiliar or complex regulations. In some cases, foreign regulators may have different reporting requirements or different standards for disclosure than US regulators, which can make it difficult for investors to make informed decisions. In addition, these rules and regulations may be imposed on regulated companies in an unpredictable manner and adversely affect the trading environment on the particular exchange. |
| ● | There are risks to the investment of our shareholders who have listed their shares of common stock on Upstream in the event that Upstream and associated entities in its trading activities are not properly registered with the SEC as a broker or dealer, national securities exchange and/or clearing agency. |
| ● | Market Risk: Non-US markets may be subject to different economic, political, or social conditions than US markets of which we are not aware, and which could negatively affect the performance of securities traded in those markets. Investors who trade on non-US exchanges may be exposed to higher levels of volatility and uncertainty than they would be if they traded solely on US exchanges. |
| ● | Liquidity Risk: Dual listed securities traded on non-US exchanges may have lower liquidity than comparable securities traded on US exchanges, which can make it more difficult for investors to buy or sell those securities at the desired price. |
| ● | Operational Risk: Trading on overseas exchanges may also expose investors to operational risks, such as delays or errors in the settlement of trades or difficulties in accessing trading platforms or loss of securities resulting from a failure of the exchanges operating and securities transfer operations. |
| ● | Media Risk Negative news reported in the media concerning events reported with respect to the market for our securities on a foreign exchange or international markets generally could hurt the market for our Company’s stock. To the extent our stockholders that choose to have their Nutriband common stock traded in digital token form on Upstream experience trading difficulties, low trading prices due to foreign market conditions or a loss on their securities due to market conditions or exchange operational issues, there is the risk that reports in the media could hurt our stock prices in the Nasdaq Stock Market and harm our reputation, adversely affecting our ability to raise capital in the U.S. and international markets. |
21
The market price for our common stock may be volatile and your investment in our common stock could suffer a decline in value.
The trading volume in our stock is low, which may result in volatility in our stock price. As a result, any reported prices may not reflect the price at which you would be able to sell shares of common stock if you want to sell any shares you own or buy if you wish to buy shares. Further, stocks with a low trading volume may be more subject to manipulation than a stock that has a significant public float and is actively traded. The price of our stock may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
| ● | concern about the effects of our settlement with the SEC; |
| ● | the market’s reaction to our financial condition and its perception of our ability to raise necessary funding or enter into a joint venture, given the economic environment resulting from the COVID-19 pandemic, as well as its perception of the possible terms of any financing or joint venture; |
| ● | the market’s perception as to our ability to generate positive cash flow or earnings; |
| ● | changes in our or any securities analysts’ estimate of our financial performance; |
| ● | the perception of our ability to raise the necessary financing to complete the product development activities including preclinical and clinical testing required for FDA approval and our ability to generate revenue and cash flow from our products; |
| ● | the anticipated or actual results of our operations; |
| ● | changes in market valuations of other companies in our industry; |
| ● | litigation or changes in regulations and insurance company reimbursement policies affecting prescription drugs; |
| ● | concern that our internal controls are ineffective; |
| ● | any discrepancy between anticipated or projected results and actual results of our operations; |
| ● | actions by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price; and |
| ● | other factors not within our control. |
Because of our executive officers’ stock ownership and stock ownership of certain other stockholders that have invested in the company, these stockholders have the power to elect all directors and to approve any action requiring stockholder approval.
Our officers and directors as a group beneficially own approximately 35% of our common stock. As a result, they have the effective power using their contacts with a limited number of other shareholders to elect all of our directors and to approve any action requiring stockholder approval.
Raising funds by issuing equity or convertible debt securities could dilute the net tangible book value of the common stock and impose restrictions on our working capital.
We anticipate that we will require funds in addition to the net proceeds from this offering for our business. If we were to raise capital by issuing equity securities, either alone or in connection with a non-equity financing, the net tangible book value of the then outstanding common stock could decline. If the additional equity securities were issued at a per share price less than the market price, which is customary in the private placement of equity securities, the holders of the outstanding shares would suffer dilution, which could be significant. Further, if we are able to raise funds from the sale of debt securities, the lenders may impose restrictions on our operations and may impair our working capital as we service any such debt obligations.
Stockholders may experience significant dilution from future equity offerings and other issuances of our common stock or other securities.
We will need to raise substantial funds in order to develop our products. In order to raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may not which is less than the market price and which may be based on a discount from market at the time of issuance. Stockholders will incur dilution upon exercise of any outstanding stock options, warrants or upon the issuance of shares of common stock under our present and future stock incentive programs. In addition, the sale of shares and any future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the price of our common stock. We cannot predict the effect, if any, that market sales of those shares of common stock or the availability of those shares of common stock for sale will have on the market price of our common stock.
22
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our articles of incorporation authorize us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over our common stock respecting dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we might grant holders of preferred stock the right to elect a number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock.
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation, or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.07 billion of revenues in a fiscal year, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1.07 billion of non-convertible debt over a three-year period. To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our common stock to be less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We do not intend to pay any cash dividends in the foreseeable future.
We have not paid any cash dividends on our common stock and do not intend to pay cash dividends on our common stock in the foreseeable future.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
The Company received on February 13, 2023, correspondence setting forth SEC’s comments on the Current Report on Form 8-K filed by the Company on January 5, 2023, which included our press release announcing the dual listing of our common stock on the MERJ Upstream exchange, domiciled in the Seychelles. The SEC’s comments requested more detailed information concerning that exchange and required that additional disclosures be included in our SEC filings. We responded to the February 13 SEC correspondence on February 27, 2023, and received a second comment letter on this matter on March 24, 2023, to which we responded on April 6, 2023. We expect further comments from the SEC on this matter prior to our filing an amendment to the January 5, 2023 Form 8-K.
ITEM 2. PROPERTIES
Property
We do not own any real property. We lease under a one year lease an office for $ 2,500 per month at 121 South Orange Street, Orlando, Florida. With the office lease, we have access to boardrooms, kitchen facilities and administrative support services. We lease manufacturing space in Cherryville, North Carolina, for $3,000 per month under a three-year lease entered into on February 1, 2022, with a renewal option.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable
23
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Common Stock and Warrants Listing and Trading
Since our initial public offering on October 1, 2021, our common stock has traded on The NASDAQ Capital Market under the symbol “NTRB”, and our Warrants are traded on that exchange under the symbol “NTRBW”.
Shareholders of Record
As of April 15, 2023, we had approximately 77 holders of record of our common stock; our Warrants are held in book entry form by the Depository Trust Corporation, which is the holder of record of all of the publicly-traded warrants, based upon data provided by our transfer agent. The transfer agent for the common stock is American Stock Transfer & Trust Company, LLC, 6201 15th Ave, Brooklyn, NY 11219, telephone (800) 937-5449.
Dividends
We have not declared any cash dividends at any time, and we do not anticipate declaring any cash dividends in the foreseeable future.
Dual Listing on Upstream
We have set up the dual listing of our common stock (“common stock”) on the MERJ Upstream stock exchange, operated by MERJ Exchange (“Upstream”), that is an exchange registered in the Seychelles under the Seychelles Securities Act, 2007. Our shares that are listed and traded on Upstream by our global stockholders would be uncertificated common stock represented by digital share tokens, that represent the same class and shares that are currently traded on the Nasdaq Stock Exchange. U.S. or Canada residents are not permitted to list their Nutriband shares on Upstream, which limits stockholder listings to non-residents of the U.S. and Canada. At present, a total of 250,000 shares of our common stock have been listed on Upstream by global holders.
We have received comment letters from the SEC as to our disclosures in the Current Report on Form 8-K that we filed on January 5, 2023, announcing the dual listing, and expect that we will be filing further disclosures on the operation of the exchange and its rules regarding listing of Nutriband shares by our shareholders on that exchange. See discussion in “ITEM 1B. Unresolved Staff Comments.” in this Annual Report, as well as risk factors associated with the listing by Nutriband shareholders of their shares on that exchange set forth under “Risk Factors—Risks Concerning Our Securities”.
24
Sales of Unregistered Securities
The following table sets forth the sales of unregistered securities since the Company’s last report filed under this item.
| Date | Title and Amount (1) | Purchaser | Principal Underwriter | Total Offering Price/ Underwriting Discounts | ||||||||
| May 10, 2022 | 1,667 shares of common stock | Radu Bujoreanu, Director | NA | $ | 3,800/NA | |||||||
| May 10, 2022 | 1,667 shares of common stock | Stefani Mancas, Director | NA | $ | 3,800/NA | |||||||
| May 10, 2022 | 1,667 shares of common stock | Irina Gram, Director | NA | $ | 3,800/NA | |||||||
| May 10, 2022 | 1,667 shares of common stock | Consultant | NA | $ | 3,800/NA | |||||||
| May 10, 2022 | 1,667 shares of common stock | Mark Hamilton, Director | NA | $ | 3,800/NA | |||||||
| May 10, 2022 | 1,667 shares of common stock | Michael Meyer | NA | $ | 38,000/NA | |||||||
| May 10, 2022 | 11,667 shares of common stock | Gareth Sheridan, CEO | NA | $ | 38,000/NA | |||||||
| May 10, 2022 | 583 shares of common stock | Employee | NA | $ | 1,900/NA | |||||||
| May 10, 2022 | 583 shares of common stock | Employee | NA | $ | 1,900/NA | |||||||
| May 10, 2022 | 583 shares of common stock | Employee | NA | $ | 1,900/NA | |||||||
| May 10, 2022 | 583 shares of common stock | Employee | NA | $ | 1,900/NA | |||||||
| November 8, 2022 | 583 shares of common stock | Employee | NA | $ | 1,900/NA | |||||||
| November 8, 2022 | 1,667 shares of common stock | Consultant | NA | $ | 19,000/NA | |||||||
| November 8, 2022 | 5,833 shares of common stock | Consultant | NA | $ | 102,750/NA | |||||||
| (1) | The issuances to employees, consultants and investors are viewed by the Company as exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), alternatively, as transactions either not involving any public offering, or as exempt under the provisions of Regulation D or Rule 701, promulgated by the SEC under the Securities Act. |
Issuer Purchases of Equity Securities
During the year ended January 31,2023, the Company purchased 35,584 shares of its common stock for $119,006 and recorded the purchase as Treasury Stock.
ITEM 6. [RESERVED]
The Company, as a smaller reporting company, is not required to provide the information called for by this Item.
25
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk Factors” and elsewhere in this report.
It should be noted that current public health threats could adversely affect our ongoing or planned business operations. In particular, the novel coronavirus (COVID-19) has resulted in quarantines, restrictions on travel and other business and economic disruptions. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the partners and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted. The measures being taken by service providers and government agencies to suppress the spread of COVID-19 infection may delay time to production of our planned abuse deterrent fentanyl transdermal system product and therefor delay the time of filing with FDA for approval.
Overview
AVERSA™ transdermal abuse deterrent technology.
Our primary business is the development of a portfolio of transdermal pharmaceutical products. Our lead product is our abuse deterrent fentanyl transdermal system which will require approval from the Food and Drug Administration (“FDA”) and substantial additional capital for research and development. Our abuse deterrent transdermal product under development has the potential to provide clinicians and patients with an extended-release transdermal fentanyl product for use in managing chronic pain requiring around the clock opioid therapy combined with properties designed to deter the abuse and misuse of fentanyl patches. In addition, we believe that our abuse deterrent technology can be broadly applied to various transdermal products and our strategy is to follow the development of our abuse deterrent fentanyl transdermal system with the development of abuse deterrent transdermal products for pharmaceuticals that have risks or a history of abuse. We received on January 28, 2022 an Issue Notification from the United States Patent and Trademark Office (USPTO) for its United States patent entitled, “Abuse and Misuse Deterrent Transdermal System,” that protects our Aversa™ technology platform.
Transdermal Pharmaceutical Products
Through October 31, 2018, our business was the development of a line of consumer and health products that are delivered through a transdermal or topical patch. Following our acquisition of 4P Therapeutics on August 1, 2018, our focus expanded to include prescription pharmaceuticals, and we are seeking to develop and seek FDA approval on a number of transdermal pharmaceutical products under development by 4P Therapeutics.
Most of our planned consumer products require FDA approval for sale in the United States, and we have not sought to obtain, and we do not plan to seek to obtain, FDA approval to market these products in the United States at this time. Following our acquisition of selected assets from Pocono Coated Products, LLC (“Pocono”), we are primarily focused on providing contract manufacturing services and consulting services to 3rd party brands with no intention at this time to launch our own consumer products.
4P Therapeutics has not generated any revenue from any of its products under development. Rather, prior to our acquisition, 4P Therapeutics generated revenue to provide cash for its operations through contract research and development and related services for a small number of clients in the life sciences field on an as-needed basis. We are, for the near term, continuing this activity, although we do not anticipate that it will generate significant revenues and, since our acquisition, it has generated minor gross margins. We have no long-term contractual obligations, and either party can terminate at any time.
26
With the change in our focus, our capital requirements have increased substantially. The process of developing pharmaceutical products and submitting them for FDA approval is both time consuming and expensive, with no assurance of obtaining approval from the FDA to market our product in the United States. We will require approximately $13 million for research and development of our abuse deterrent fentanyl transdermal system, including clinical manufacturing and clinical trials that need to be completed in order to obtain FDA approval. However, the total cost could be substantially in excess of that amount.
On 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 consumer 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. The note was repaid in full in October 2021. Subsequent to the repayment of the note, the Shares were released from escrow.
On October 5, 2021, the Company, having been approved for the listing of its common stock on The Nasdaq Capital Market effective October 1, 2021, consummated a public offering (the “IPO”) of units (the “Units”), of common stock and warrants that were offered in the IPO on The Nasdaq Capital Market, which included 1,231,200 (each a “Unit”), each Unit consisting of one share of common stock, par value $0.001 per share, and one warrant (each a “Warrant”) at a price of $5.36 per Unit. Each Warrant is immediately exercisable, will entitle the holder to purchase one share of common stock at an exercise price of $6.43 and will expire five (5) years from the date of issuance. The underwriters’ over-allotment option was exercised for 184,800 warrants to purchase shares of common stock bringing to total net proceeds to the Company from the IPO to $5,836,230. The shares of common stock and Warrants are separately transferred immediately upon issuance. As of October 31, 2022, 457,795 Warrants issued in the IPO have been exercised, with net proceeds to the Company of $2,942,970.
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 issued under the Plan. 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, and on October 12, 2022, a Post-Effective Amendment to the Form S-8 was filed with the SEC. On January 21, 2022, the Board approved options to purchase 190,751 shares of the Company’s common stock under the Plan issued to executive officers and directors of the Company at an exercise price of $4.16 ($4.58 per share for two of the officers as required by IRS rules). On August 1, 2022, the Board approved option grants previously approved by the Compensation Committee for an aggregate of 137,084 shares of common stock at exercise prices $4.09 or $4.50 per share depending on IRS rules as applicable to the recipient,, and on September 30, 2022, approved option issuances under the Plan for an aggregate of 35,000 shares of common stock at an exercise price of $3.59 per share for services provided by the independent directors, as previously approved by the Compensation Committee.
The Company received a favorable verdict on July 13, 2022 from the Circuit Court, Orange County, Florida, providing for rescission of the Company’s 2017 acquisition of Advanced Health Brands and recovery by the Company of the 1,400,000 shares(adjusted for a 1-for-4 reverse stock split effective June 23, 2019 and the 7-for-six forward stock split effective August 15, 2022) of common stock issued in the acquisition, effectively allowing the Company on July 25, 2022 to cancel 1.4M shares of common stock held by the defendants.
On October 31, 2022, the Company filed the Proxy Statement with the SEC for its Annual Meeting of Stockholders, to be held December 9, 2022, in Orlando, Florida. This Proxy Statement is available on our website at HTTPS://Nutriband.com/proxy.
Forward Split of our Common Stock.
On July 26, 2022, our Board of Directors approved the amendment to our Articles of Incorporation to effect a 7 for 6 forward stock split (the “Stock Split”) of our outstanding common stock. We 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 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 of common stock 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 authorized 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.
27
Years Ended January 31, 2023 and 2022
For the year ended January 31, 2023, we generated revenue of $2,079,609 and our costs of revenue were $1,329,200, resulting in a gross margin of $750,409. For the year ended January 31, 2022, we generated revenue of $1,422,154 and our costs of revenue were $917,844, resulting in a gross margin of $504,310 in the subsequent year. Our revenue for the year ended January 31, 2023, was derived from sales of $1,785,507 from our transdermal patch manufacturing segment and $294,102 from contract services from our 4P Therapeutics segment. The increase in revenue of $657,455 from the transdermal patch manufacturing segment is primarily due to an increase in demand which has continued in the subsequent year. The transdermal patch manufacturing segment increased its margin by 3% during the period. Our cost of revenue for our contract research and development services represents our labor cost plus a modest amount of material costs which we passed on to the client. Our sales and cost of sales remained constant for our contract services compared to the prior year.
For the year ended January 31, 2023, our selling, general and administrative expenses were $3,916,041, primarily legal, accounting, administrative salaries and equity-based payments, compared to $4,022,824 for the year ended January 31, 2022. The amount remained relatively constant for the prior year.
During the years ended January 31, 2023 and 2022, the Company recorded an impairment expense of $327,326 and $2,180,836, respectively, due to a write down of Goodwill in connection with its Pocono acquisition. The write down of goodwill is attributable primarily to the effects of the pandemic. The valuation of the reporting unit does not exceed the carrying amount of goodwill using the value in use or the going concern premise.
During the year January 31, 2023, the Company incurred research and development expenses on its Aversa Fentanyl product of $982,227, primarily of salaries and development costs from Kindeva as compared to $411,383 for the year ended January 31, 2022.
During the year ended January 31, 2022, the Company incurred a gain on extinguishment of debt of $53,028, consisting primarily of forgiveness of a PPP loan. There was no gain on extinguishment of debt during the year ended January 31, 2023.
We incurred interest expense of $8,289 for the year ended January 31, 2023, as compared to $118,421 for the year ended January 31, 2022, primarily from the amortization of debt discounts.
As a result of the foregoing, we sustained a net loss of $4,483,474, or $(0.53) per share (basic and diluted) for the year ended January 31, 2023, compared with a loss of $6,372,715, or $(0.80) per share (basic and diluted) for the year ended January 31, 2022. The net loss for 2022 includes a deemed dividend of $196,589 from the settlement of a warrant round down.
Liquidity and Capital Resources
As of January 31, 2023, we had $1,985,440 in cash and cash equivalents and working capital of $1,945,132, as compared with cash and cash equivalents of $4,891,868 and working capital of $4,686,112 as of January 31, 2022. The Company received proceeds of approximately $8.8 million from the completion of its public offering, exercise of warrants and the sale of common stock during the year ended January 31, 2022.
For the year ended January 31, 2023, we used cash of $2,987,198 in our operations. The principal adjustments to our net loss of $4,483,474 were depreciation and amortization of $330,143, and stock-based compensation of $1,019,310, and goodwill impairment of $327,326.
For the year ended January 31, 2023, we used cash in investing activities of $79,304 primarily for the purchase of equipment.
For the year ended January 31, 2023, we provided cash in financing activities of $160,074, primarily from the proceeds of $296,875 from the exercise of warrants, offset from the purchase of treasury stock of $119,006. For the year ended January 31, 2022, we had cash flows of $7,630,693 from financing activities, primarily $9.4 million from the completion of our public offering, exercise of warrants, and gross proceeds from the sale of common stock offset by a payment on long-term debt of $1.5 million and the repurchase of treasury stock.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
28
Critical Accounting Policies
Forward Stock Split
On July 26, 2022, our Board of Directors approved the amendment to our Articles of Incorporation to effect 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 January 31, 2023, the Company had cash and cash equivalents of $1,985,440 and working capital of $1,945,132. For the year ended January 31, 2023, the Company incurred an operating loss of $4,483,474 and used cash flow from operations of $2,987,198. 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 $2,942,970 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 into a three-year $2,000,000 Creditline Note facility for $2 million which will permit the Company to draw on the credit line to fund the Company’s research and development of its Aversa Fentanyl 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.
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.
29
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.
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 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 years ended January 31, 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. 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 January 31, 2023 and 2022, 100% of the inventory consists of raw materials.
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. 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 January 31, 2023 and 2022, Goodwill amounted to $5,021,713 and $5,349,039, respectively.
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.
30
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 January 31, 2023, and 2022, there were 1,778,006 and 1,503,171 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.
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.
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.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company’s cash and cash equivalents are concentrated primarily in banks. At times, such deposits could be in excess of insured limits. Management believes that the financial institutions that hold the Company’s financial instruments are financially sound and, accordingly, minimal credit risk is believed to exist with respect to those financial interests. As of and for the year ended January 31, 2023, two customers accounted for 34% and 14% of the Company’s revenue and one customer accounted for 94% of accounts receivable. As of and for the year ended January 31, 2022, three customers accounted for 19%, 17% and 13% of the Company’s revenue and three customers accounted for 58%, 21% and 17% of accounts receivable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NUTRIBAND INC.
January 31, 2023
Index to Consolidated Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Nutriband Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nutriband Inc. (“the Company”) as of January 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two-year period ended January 31, 2023 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgements. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Long-Lived Asset Impairment Assessment
Critical Audit Matter Description
As described in note 2 to the consolidated financial statements, the Company performs impairment testing for its long-lived assets when events or changes in circumstances indicate that its carrying amount may not be recoverable and exceeds its fair value. Due to challenging industry and economic conditions, the Company tested its long-lived assets during the year ended January 31, 2023. The Company’s evaluation of the recoverability of these long-lived asset groups involved comparing the undiscounted future cash flows expected to be generated by these long-lived asset groups to its their respective carrying amounts. The Company’s recoverability analysis requires management to make significant estimates and assumptions related to forecasted sales growth rates and cash flows over the remaining useful life of these long-lived asset groups.
F-2
We identified the evaluation of the recoverability analysis for these long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the related cash flow analysis. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the following:
| ● | Testing management’s process for developing the tests for recoverability. |
| ● | Evaluating the appropriateness of the undiscounted cash flow models used by management. |
| ● | Testing the completeness and accuracy of underlying data used in the undiscounted cash flow model. |
| ● | Evaluating the significant assumptions used by management, including assumptions related to revenues, gross margin, other operating expenses and income taxes to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |
| ● | Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the undiscounted cash flow model and underlying assumptions. |
Goodwill Impairment Assessment
Critical Audit Matter Description
As described in note 2 to the consolidated financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently, if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount. Reporting units are tested for impairment by comparing the estimated fair value of each reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its estimated fair value, an impairment loss is recorded based on the difference between the fair value and carrying amount, not to exceed the associated carrying amount of goodwill. The Company’s annual impairment test occurred on January 31, 2023.
We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management used in the discounted cash flow analysis performed by management to determine fair value of the reporting unit. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter was Addressed in the Audit
Our audit procedures related to the following:
| ● | Testing management’s process for developing the fair value estimate. |
| ● | Evaluating the appropriateness of the discounted cash flow model used by management. |
| ● | Testing the completeness and accuracy of underlying data used in the fair value estimate. |
| ● | Evaluating the significant assumptions used by management including those related to revenues, gross margin, other operating expenses, income taxes, long term growth rate, and discount rate to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. |
| ● | Professionals with specialized skill and knowledge were utilized by the Firm to assist in the evaluation of the discounted cash flow model and underlying assumptions. |
/s/
We have served as the Company’s auditor since 2016.
April 25, 2023
F-3
NUTRIBAND INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| PROPERTY & EQUIPMENT-net | ||||||||
| OTHER ASSETS: | ||||||||
| Goodwill | ||||||||
| Operating lease right of use asset | ||||||||
| Intangible assets-net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Deferred revenue | ||||||||
| Operating lease liability-current portion | ||||||||
| Notes payable-current portion | ||||||||
| Total Current Liabilities | ||||||||
| LONG-TERM LIABILITIES: | ||||||||
| Note payable-net of current portion | ||||||||
| Operating lease liability-net of current portion | - | |||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $ | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
See notes to consolidated financial statements
F-4
NUTRIBAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Costs and expenses: | ||||||||
| Cost of revenues | ||||||||
| Research and development | ||||||||
| Goodwill impairment | ||||||||
| Selling, general and administrative | ||||||||
| Total Costs and Expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Gain on extinguishment of debt | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Total other income (expense) | ( | ) | ( | ) | ||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Deemed dividend related to warrant round-down | ( | ) | ||||||
| Net loss attributable to common shareholders | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| Other Comprehensive Loss: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Foreign currency translation adjustment | ||||||||
| Total Comprehensive Loss | $ | ( | ) | $ | ( | ) | ||
See notes to consolidated financial statements
F-5
NUTRIBAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Accumulated | ||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | |||||||||||||||||||||||||||
| Year Ended January 31, 2023 | Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | ||||||||||||||||||||||||
| Balance, February 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||||||||||||||
| Common stock returned in settlement | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Treasury stock issued for services | ||||||||||||||||||||||||||||||||
| Treasury stock and warrants issued for termination agreement | ||||||||||||||||||||||||||||||||
| Treasury stock repurchased | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Options issued for services | - | |||||||||||||||||||||||||||||||
| Net loss for the year ended January 31, 2023 | ( | ) | - | ( | ) | |||||||||||||||||||||||||||
| Balance, January 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
F-6
| Accumulated | ||||||||||||||||||||||||||||||||
| Common Stock | Additional | Other | ||||||||||||||||||||||||||||||
| Number of | Paid In | Comprehensive | Accumulated | Subscription | Treasury | |||||||||||||||||||||||||||
| Year Ended January 31, 2022 | Total | shares | Amount | Capital | Income(Loss) | Deficit | Payable | Stock | ||||||||||||||||||||||||
| Balance, February 1, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | - | ||||||||||||||||||||
| Proceeds from sale of common stock and warrants in public offering | ||||||||||||||||||||||||||||||||
| Proceeds from exercise of warrants | ||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | ( | ) | ||||||||||||||||||||||||||||||
| Issuance of common stock for notes payable | ||||||||||||||||||||||||||||||||
| Common stock issued for settlement of liabilities | ||||||||||||||||||||||||||||||||
| Warrants issued for services | - | |||||||||||||||||||||||||||||||
| Common stock issued for proceeds and in payment for license | ( | ) | ||||||||||||||||||||||||||||||
| Common stock issued for services | ( | ) | ||||||||||||||||||||||||||||||
| Treasury stock repurchased | ( | ) | ( | ) | ( | ) | - | - | ( | ) | ||||||||||||||||||||||
| Employee stock options issued for services | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Settlement of warrant round down | - | |||||||||||||||||||||||||||||||
| Deemed dividend for warrants | ( | ) | - | ( | ) | |||||||||||||||||||||||||||
| Net loss for the year ended January 31, 2022 | ( | ) | - | ( | ) | |||||||||||||||||||||||||||
| Balance, January 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
See notes to consolidated financial statements
F-7
NUTRIBAND INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Amortization of right of use asset | ||||||||
| (Gain) loss on extinguishment of debt | ( | ) | ||||||
| Stock-based compensation-options | ||||||||
| Stock-based compensation-warrants | ||||||||
| Treasury stock and warrants issued for termination agreement | - | |||||||
| Treasury stock issued for services | ||||||||
| Goodwill impairment | ||||||||
| Common stock issued for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from sale of common stock in public offering | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Payment on note payable | ( | ) | ( | ) | ||||
| Payment on related party note payable | ( | ) | ||||||
| Payment on finance leases | ( | ) | ||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Net Cash Provided by (used in) Financing Activities | ||||||||
| Effect of exchange rate on cash | ||||||||
| Net change in cash | ( | ) | ||||||
| Cash and cash equivalents - Beginning of period | ||||||||
| Cash and cash equivalents - End of period | $ | $ | ||||||
| Supplementary information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Common stock returned in settlement | $ | $ | ||||||
| Common stock issued for settlement of notes payable | $ | $ | ||||||
| Common stock issued for prepaid consulting | $ | $ | ||||||
| Non-cash payment for license agreement | $ | $ | ||||||
| Common stock issued for subscription payable | $ | $ | ||||||
| Adoption of ASC 842 Operating lease asset and liability | $ | $ | ||||||
| Promissory note on equipment purchase | $ | $ | ||||||
| Settlement of liabilities for common stock | $ | $ | ||||||
| Deemed dividend in connection with warrant round down | $ | - | $ | |||||
| Cashless exercise of warrant | $ | $ | ||||||
See notes to consolidated financial statements
F-8
NUTRIBAND INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
as of and for the Years Ended January 31, 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.
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
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 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.
F-9
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Forward Stock Split
On July 26,
2022, our Board of Directors approved the amendment to our Articles of Incorporation to effect 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.
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 January
31, 2023, the Company had cash and cash equivalents of $
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. The wholly owned subsidiaries are as follows:
Nutriband Ltd.
4P Therapeutics LLC
Pocono Pharmaceuticals Inc.
Active Intelligence LLC
F-10
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.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments that have a maturity of three months or less.
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.
F-11
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by type and by geographical location. See the tables:
| Years Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue by type | ||||||||
| Sale of goods | $ | $ | ||||||
| Services | ||||||||
| Total | $ | $ | ||||||
| Years Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue by geographic location: | ||||||||
| United States | $ | $ | ||||||
| Foreign | ||||||||
| $ | $ | |||||||
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 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 years ended January 31, 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. 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 January 31, 2023, total inventory
was $
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 | ||||
| Furniture and fixtures | ||||
| Machinery and equipment |
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
F-12
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 $
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 January 31, 2023, and 2022, there were
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.
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 the 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.
F-13
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.
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.
Concentration of Credit Risk
Financial instruments
which potentially subject the Company to concentrations of credit risk consist principally of cash. The Company’s cash and cash
equivalents are concentrated primarily in banks. At times, such deposits could be in excess of insured limits. Management believes that
the financial institutions that hold the Company’s financial instruments are financially sound and, accordingly, minimal credit
risk is believed to exist with respect to those financial interests. As of and for the year ended January 31, 2023, two customers accounted
for
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, inventories, deferred revenue, accounts payableand accrued expenses approximate their fair value due to the short maturities of these financial instruments.
F-14
Recent Accounting Standards
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies how to properly account for deferred revenue in a business combination. ASU 2021-08 is effective for periods after December 15, 2022. The Company adopted ASU 2021-08 on February 1, 2022. The adoption of ASU 2021-08 did not have a material effect on the Company’s consolidated financial statements.
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 |
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Lab equipment | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Furniture and fixtures | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Net Property and Equipment | $ | $ | ||||||
Depreciation expense amounted to $
| 4. | INCOME TAXES |
The Company adopted the provisions of ASC 740, “Income Taxes, (“ASC 740”). As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions, and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability or uncertain tax positions, the Company will also setup a liability for interest and penalties. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.
There is no U.S. tax provision due to losses from U.S. operations for the years ended January 31, 2023 and 2022. Deferred income taxes are provided for the temporary differences between the financial reporting and tax basis of the Company’s assets and liabilities. The principal item giving rise to deferred taxes is the net operating loss carryforward in the U.S. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has set up a valuation allowance for losses for certain carryforwards that it believes may not be realized.
F-15
The provision for income taxes consists of the following:
| Years Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Current | ||||||||
| Federal | $ | $ | ||||||
| Foreign | ||||||||
| Deferred | ||||||||
| Federal | ||||||||
| Foreign | ||||||||
A reconciliation of taxes on income computed at the federal statutory rate to amounts provided is as follows:
| Years Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Book income (loss from operations) | $ | ( | ) | $ | ( | ) | ||
| Common stock issued for services | ||||||||
| Impairment expense | ||||||||
| Unused operating losses | ||||||||
| Income tax expense | $ | $ | ||||||
As of January
31, 2023, the Company recorded a deferred tax asset associated with a net operating loss (“NOL”) carryforward of approximately
$
The types of temporary differences between tax basis of assets and liabilities and their financial reporting amounts that give rise to the deferred tax liability and deferred tax asset and their approximate tax effects are as follows:
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Net operating loss carryforward (expire through 2039) | $ | ( | ) | $ | ( | ) | ||
| Stock issued for services | ( | ) | ( | ) | ||||
| Intangible impairment expense | ( | ) | ( | ) | ||||
| Valuation allowance | ||||||||
| Net deferred taxes | $ | $ | ||||||
F-16
| 5. | NOTES PAYABLE |
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 year ended January 31, 2022.
In
July 2020, a minority shareholder made an additional loan to the Company in the amount of $
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 $22,794 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 January 31, 2023, the amount due was $19,610 of which $4,396 is current.
Finance Leases
Pocono had
two finance leases secured by equipment.
Related Party Payable
Interest expense for the year ended January 31, 2023, was $
F-17
| 6. | INTANGIBLE ASSETS |
As of January 31, 2023 and 2022, intangible assets consisted of intellectual property and trademarks, customer base, and license agreement, net of amortization, as follows:
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Customer base | $ | $ | ||||||
| License agreement | ||||||||
| Intellectual property and trademarks | ||||||||
| Total | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Net Intangible Assets | $ | $ | ||||||
In February 2021, the Company acquired an IP license for $
| Year Ended January 31, | |||||
| 2024 | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 and thereafter | |||||
| $ | |||||
| 7. | RELATED PARTY TRANSACTIONS |
| a) | In connection with the acquisition of Pocono, the Company recorded various transactions and operations
through Pocono Coated Products LLC, of which Mike Myer was a member and a related party. During the year ended January 31, 2022, the Company
was advanced $ |
| b) | In May 2022, the Company issued stock awards to the Company’s CEO and independent members of the
Board of Directors. The CEO received |
| c) | On August 2, 2022, options to purchase |
| d) | On September 30, 2022, options to purchase |
| e) | On December 7, 2022, options to purchase |
F-18
| 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
On May 24, 2019, the board of directors created a series
of preferred stock consisting of
Common Stock
On June 25, 2019,
On January 27, 2020, the Company amended its Articles of
Incorporation to increase its authorized common shares from
On July 26, 2022,
On August 4, 2022, the Company amended its Articles of Incorporation
to increase its authorized common shares from
Activity during the Year Ended January 31, 2023
| (a) | In March and May 2022, the Company purchased |
| (b) | On July 29, 2022, the Company received proceeds of $ |
| (c) | In July 2022, the Company cancelled |
Activity during the Year Ended January 31, 2022
| (a) | On February 25, 2021, |
| (b) | On February 25, 2021, the Company issued |
F-19
| (c) | On October 5, 2021, |
| (d) | During the year ended January 31, 2021, the Company issued |
| (e) | On October 25, 2021, the Company issued |
| (f) | On October 25, 2021, the Company issued |
| (g) | On October 5, 2021, in connection with the Company’s IPO, two former debtholders were issued an
additional |
| (h) | In December 2021, the Company purchased |
| (i) | In January 2022, the Company issued |
F-20
| 9. | 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 management (
| Exercise | Remaining | Intrinsic | ||||||||||||||
| Shares | Price | Life | Value | |||||||||||||
| Outstanding, January 31, 2021 | $ | | $ | |||||||||||||
| Granted | | |||||||||||||||
| Expired/Cancelled | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding, January 31, 2022 | ||||||||||||||||
| Granted | ||||||||||||||||
| Expired/Cancelled | ( | ) | ||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Outstanding- January 31, 2023 | $ | | $ | |||||||||||||
| Exercisable - January 31, 2023 | $ | | $ | |||||||||||||
The following table summarizes additional information relating to the warrants outstanding as of January 31, 2023:
| Weighted Average | Weighted Average | Weighted Average | ||||||||||||||||||||||||
| Range of Exercise | Number | Remaining Contractual | Exercise Price for | Number | Exercise Price for | Intrinsic | ||||||||||||||||||||
| Prices | Outstanding | Life(Years) | Shares Outstanding | Exercisable | Shares Exercisable | Value | ||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | - | ||||||||||||||||||||||
| $ | $ | $ | $ | - | ||||||||||||||||||||||
F-21
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
During the year ended January 31, 2023,
On January 21, 2022,
| Exercise | Remaining | Intrinsic | ||||||||||||||
| Shares | Price | Life | Value | |||||||||||||
| Outstanding, January 31, 2021 | $ | |||||||||||||||
| Granted | | |||||||||||||||
| Expired/Cancelled | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding, January 31, 2022 | ||||||||||||||||
| Granted | | |||||||||||||||
| Expired/Cancelled | ||||||||||||||||
| Exercised | ||||||||||||||||
| Outstanding- January 31, 2023 | $ | | $ | |||||||||||||
| Exercisable - January 31, 2023 | $ | | $ | |||||||||||||
The following table summarizes additional information relating to the options outstanding as of January 31, 2023:
| Weighted Average | Weighted Average | Weighted Average | ||||||||||||||||||||||||
| Range of Exercise | Number | Remaining Contractual | Exercise Price for | Number | Exercise Price for | Intrinsic | ||||||||||||||||||||
| Prices | Outstanding | Life(Years) | Shares Outstanding | Exercisable | Shares Exercisable | Value | ||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
F-22
| 10. | SEGMENT REPORTING |
We organize and manage our business by the following two segments which meet the definition of reportable segments under ASC 280-10, Segment Reporting:
4P Therapeutics and Pocono Pharmaceuticals. 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 or 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.
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Net sales | ||||||||
| Pocono Pharmaceuticals | $ | $ | ||||||
| 4P Therapeutics | ||||||||
| Gross profit | ||||||||
| Pocono Pharmaceuticals | ||||||||
| 4P Therapeutics | ( | ) | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative-Pocono Pharmaceuticals | ||||||||
| Selling, general and administrative-4P Therapeutics | ||||||||
| Corporate overhead | ||||||||
| Research and development-4P Therapeutics | ||||||||
| Goodwill impairment-Pocono Pharmaceuticals | ||||||||
| Depreciation and Amortization | ||||||||
| Pocono Pharmaceuticals | $ | $ | ||||||
| 4P Therapeutics | ||||||||
| $ | $ | |||||||
The following table presents information about net sales and property and equipment, net of accumulated depreciation, in the United States and elsewhere.
| Year Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| Net sales: | ||||||||
| United States | $ | $ | ||||||
| Outside the United States | - | |||||||
| $ | $ | |||||||
| Property and equipment, net of accumulated depreciation | ||||||||
| United States | $ | $ | ||||||
| Outside the United States | ||||||||
| $ | $ | |||||||
| Assets: | ||||||||
| Corporate | $ | $ | ||||||
| Pocono Pharmaceuticals | ||||||||
| 4P Therapeutics | ||||||||
| $ | $ | |||||||
F-23
| 11. | COMMITMENTS AND CONTIGENCIES |
Legal Proceedings
Following a three-day trial, on July
20, 2022, the Orange County Circuit Court entered a Final Judgment in favor of Nutriband for breach of contract, replevin and rescission
to rescind in the May 22, 2017 Share Exchange Agreement involving Nutriband, Advanced Health Brands Inc., and TD Therapeutics Inc. The
Court directed the return and cancellation of the
Thereafter, by Settlement Agreement and Release dated August 19, 2022, all parties agreed that the above-referenced Final Judgment in favor of Nutriband is binding and enforceable, no appeal would be taken, related Ohio and New York lawsuits were dismissed and all of the original Nutriband share certificates issued to Raymond Kalmar, Paul Murphy, Michelle Polly-Murphy and John Baker were returned to Nutriband.
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
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 $
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 $
F-24
BPM Distribution and Stock Purchase Agreements
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. The distribution was terminated November 22, 2022.
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.
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.
Lease Agreement
On February 1, 2022, Pocono Pharmaceuticals
entered into a lease agreement with Geometric Group, LLC for
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
| 12. | SUBSEQUENT EVENTS |
| (a) | 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 $ |
| (b) | On March 7, 2023, the Company issued |
| (c) | On March 13, 2023, the Company entered into a media advertising
agreement Money Channel Inc.. The Company will pay a monthly fee and after can cancel the agreement. The Company, after 90 days, will
also issue options to purchase |
F-25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Conclusions Regarding Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined by Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of January 31, 2023, the end of the period covered by this annual report. The disclosure controls evaluation was done under the supervision and with the participation of management, including our chief executive officer and chief financial officer, who are two of our three full-time employees. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our chief executive officer and chief financial officer concluded that, due to our limited internal audit function, our very limited staff, and our recent acquisition of 4P Therapeutics and Pocono Coated Products, which are principally responsible for our business operations and were privately owned when we acquired them, were not effective as of January 31, 2023, such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the chief executive officer/chief financial officer, as appropriate to allow timely decisions regarding disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Management assessed the effectiveness of our internal control over financial reporting as of January 31, 2023. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of January 31, 2023, management identified material weaknesses related to (i) our internal audit functions (ii) inadequate levels of review of the financial statements, (iii) a lack of segregation of duties within accounting functions, (iv) inadequate monitoring review controls in accounting for complex transactions. Therefore, our internal controls over financial reporting were not effective as of January 31, 2023.
Management has determined that our internal controls contain material weaknesses due to the absence of segregation of duties, as well as lack of qualified accounting personnel, excessive reliance on third party consultants for accounting, financial reporting and related activities, and the lack of any separation of duties. During the past fiscal year, we have added qualified accounting personnel so the Company does not have to rely on third party consultants. The Company has established additional monitoring controls over the financial statements. We have also improved our internal controls to provide for a detailed accounting review of all revenue items, and accounts receivable and payable transactions in connection with the entry and categorization of each transaction in the preparation of the Company’s financial statements. As a result of these improvements, we are confident our financial statements as of January 31, 2023 and for the two years then ended, fairly present in all material respects our financial condition and results of operations for all that reporting period covered by this report.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting.
During the quarterly period ended January 31, 2023, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGRDING FOREIGH JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
32
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
MANAGEMENT
Set forth below are the name, age, position of and biographical information about each nominee, all of whom are currently directors and compromise our entire Board as of the record date.
| Name | Age | Position | ||
| Gareth Sheridan | 33 | Chief Executive Officer and Director | ||
| Serguei Melnik | 50 | Chairman of the Board, President and Secretary | ||
| Mark Hamilton(1)(3) | 38 | Director | ||
| Radu Bujoreanu(1)(2)(3) | 53 | Director | ||
| Stefani Mancas(2)(3) | 46 | Director | ||
| Irina Gram(2)(1) | 34 | Director | ||
| Gerald Goodman | 75 | Chief Financial Officer | ||
| Alan Smith, Ph.D. | 57 | Chief operating officer and president of 4P Therapeutics | ||
| Patrick Ryan | 37 | Chief technical officer | ||
| Jeff Patrick, Pharm.D. | 53 | Chief scientific officer |
| (1) | Member of the Audit Committee. |
| (2) | Member of the Compensation Committee. |
| (3) | Member of the Nominating and Corporate Governance Committee. |
Gareth Sheridan, our founder, has been chief executive officer and a director since our organization in 2016. In 2012, Mr. Sheridan founded Nutriband Ltd., an Irish company which we acquired in 2016. Mr. Sheridan was named Ireland’s ‘Young Entrepreneur of the Year’ in 2014 in the National Bank of Ireland Startup Awards for establishing Nutriband Ltd. Mr. Sheridan has further business awards from S. Dublin’s Best Young Entrepreneur and Nutriband Ltd as S. Dublin’s Best Startup Company. Mr. Sheridan has also worked as a Business Mentor with 100 Minds, a social enterprise founded in 2013, that brings together some of Ireland’s top college students and connects them with one cause to achieve large charitable goals in a short space of time. Mr. Sheridan is also a past Nissan Generation Next Ambassador, receiving the acknowledgement in 2015 by Nissan Ireland as one of Ireland’s future generational leaders.
In 2019 Mr. Sheridan served on the Board of the St. James Hospital foundation, the charitable foundation for Ireland’s largest public hospital. Mr. Sheridan received a B.Sc. in Business and Management from Dublin Institute of Technology in 2012 where he concentrated on international economics, venture creation and entrepreneurship.
Serguei Melnik, who was elected by the Board as President on October 8, 2021, serves as a member of the board of directors and is a co-founder of Nutriband Inc. Mr. Melnik has previously served as our chief financial officer and a director since January 2016. Mr. Melnik has been involved in general business consulting for companies in the U.S. financial markets and setting up a legal and financial framework for operations of foreign companies in the U.S. Mr. Melnik advised UNR Holdings, Inc. with regard to the initiation of the trading of its stock in the over-the-counter markets in the U.S. and has provided general advice with respect to the U.S. financial markets for companies located in the U.S. and abroad. From February 2003 to May 2005, he was the Chief Operations Officer and a Board member of Asconi Corporation, Winter Park, Florida, with regard to restructuring the company and listing it on the American Stock Exchange. Mr. Melnik from June 1995 to December 1996 was a lawyer in the Department of Foreign Affairs, JSC Bank “Inteprinzbanca,”, Chisinau, Moldova, and prior thereto practiced law in Moldova in various positions. Mr. Melnik is fluent in Russian, Romanian, English and Spanish.
Mark Hamilton, an independent director since July 2018, is an experienced director level professional who joined global consulting firm, Korn Ferry in 2020 as a Managing Consultant. Prior to moving into organizational consulting, Mark qualified as a Chartered Accountant in global advisory firm, BDO, where he spent 12 years advising some of Ireland’s most successful businesses. His work originated in corporate finance/corporate recovery and more recently, he spent 5 years leading BDO’s client management and sales function, as Head of Business Development. Mr. Hamilton is a Member of the Association of Chartered Accountants (ACA), since 2012. Mr. Hamilton’s accounting/consulting background and experience in corporate finance, restructuring, sales and talent assists us in his role as an independent Board member and Committee Chair. Mr. Hamilton has a very strong presence in the business community across jurisdictions, along with an accomplished track record in project management and business development. Educated at Terenure College, Mark went on to study a B.Sc. degree in Business & Management at Dublin Institute of Technology and subsequently received First Class Honours in his postgraduate degree, for which he specialized in Accountancy in 2009. In addition to his ACA qualification, Mark has also recently completed a diploma in Corporate Governance and is now a member of the Corporate Governance Institute which will assist him in his role as Independent Director, alongside his recent approval by the Central Bank of Ireland to act as an Independent Director to regulated entities.
33
Radu Bujoreanu has been a director since June 2019. Mr. Bujoreanu has been the owner and executive director of Consular Assistance, Inc., which provides assistance in obtaining visas for the Republic of Moldova and related services since December 2002, and he has been a real estate agent with Keller Williams Realty, Inc. since May 2019. Mr. Bujoreanu received his bachelor degree in international public law from the University of Moldova.
Prof. Dr. Stefani Mancas received a Ph. D. in Applied Mathematics from the University of Central Florida, with the dissertation topic "Dissipative solitons in the cubic-quintic complex Ginzburg-Landau equation: Bifurcations and Spatiotemporal Structure", for which Stefani won the Outstanding Dissertation Award. Currently, Stefani is a tenured full professor, and a researcher, in the Department of Mathematics at Embry-Riddle Aeronautical University in Daytona Beach. Stefani’s research areas are finding analytical solutions to nonlinear dissipative equations that can be reduced through Darboux transformations to Riccati or Abel equations. The focus is on Schrödinger equation, for which Stefani is using methods based on factorization, and variational formulation together with ansatz reduction with global minimizers of objective functions, applied to supersymmetric quantum mechanics. Additionally, Stefani is using the theory of elliptic functions with applications to problems in nonlinear optics, soliton theory, general relativity, and inflation, as well as optimization of the blockchain, and quantum cryptography. Stefani has been admitted to the Harvard Business Analytics Program at Harvard Business School, an 18-month program which will build the capabilities in technical, analytical, and operational areas that can be used to advance her career in the global market.
Irina Gram was elected as a director of the Company at the January 21, 2022 stockholders meeting. Irina is a new member of our Board, and is a Senior Financial Analyst at Thales IFEC, Melbourne, Florida. There she is responsible for financial planning, analysis and risk and opportunities reviews of multiple development and customer programs. From 2016 to 2017, she was a Project Engineering Coordinator at Thales IFEC, where she executed budgeting and forecasting activities with specialized focus on SFRD spending, interfaced with engineering team to monitor and report the performance of the financial impact of projects. From 2013 to 2016, she held various project management, accounting and reporting positions with Siemens Building Technology, Inc., Winter Park, Florida. She received a Bachelor’s Degree in Finance from the University of Central Florida, Orlando, Florida, where she graduated in May 2015, with honors, and received a Masters Degree in business administration from the University of Central Florida, Orlando, Florida, in May 2019.
Gerald Goodman has been our chief accounting officer since July 31, 2018 and was elected our Chief Financial Officer on November 12, 2020. Mr. Goodman is a certified public accountant and, since 2014, has practiced with his own firm, Gerald Goodman CPA P.C. From January 1, 2010 until December 31, 2014, Mr. Goodman practiced with Madsen & Associates, CPA’s Inc., Murray, Utah, and was a non-equity partner and managed the firm’s SEC practice. Mr. Goodman is a director of Lifestyle Medical Network, Inc., which provides management services to healthcare providers. From 1971 to 2010, Mr. Goodman was a partner in the accounting firm of Wiener, Goodman & Company P.C. Mr. Goodman is a 1970 graduate of Pennsylvania State University where he received a B.S. Degree in Accounting.
34
Alan Smith, Ph.D., serves as Chief Operating Officer of Nutriband and President of 4P Therapeutics, a wholly owned subsidiary of Nutriband. He joined the Company after Nutriband acquired 4P Therapeutics in 2018. Dr. Smith co-founded 4P Therapeutics in 2011 to develop drug-device and biologic-device combination products to meet the needs of patients, physicians, and payers, and was Vice President, Clinical, Regulatory, Quality and Operations at the time of the acquisition. Dr. Smith is co-inventor of the Company’s Aversa™ abuse deterrent transdermal system technology. Dr. Smith has over 20 years of experience in the research and development of drug and biologic delivery systems, diagnostics and medical devices for treatment and management of chronic pain, diabetes, and cardiovascular disease. Previously, he was with Altea Therapeutics, a venture capital funded company focused on novel transdermal drug and biologic delivery, most recently serving as Vice President, Product Development and Head of Clinical R&D, Regulatory Affairs, and Project Management. Prior to joining Altea Therapeutics, he led the development of transdermal glucose monitoring systems at SpectRx, Inc., a publicly traded noninvasive diagnostics company. Dr. Smith received Ph.D. and M.S. degrees in Biomedical Engineering from Rutgers University and the University of Medicine and Dentistry of New Jersey. He currently serves on the Editorial Advisory Board of Expert Opinion on Drug Delivery.
Paddy Ryan has been chief technical officer since February 2018. Having worked in the tech industry for 8 years, Paddy brings a fresh perspective and understanding to our team. From September 2019 to present Mr. Ryan served as director of digital agency for Trigger Media. From 2013 to 2016, Mr. Ryan worked as an online security analyst with Paddy Power Betfair Plc. From 2016 to 2017, Mr. Ryan was general manager at CRS Events setting up and organising One-Zero, the largest sports conference in Ireland. Mr Ryan served as head of technology for Irish agency Trigger Movement between 2017 and 2019. Mr Ryan serves as technical advisor for sports media brand, Pundit Arena, where he has advised on their technical development since 2012. Mr. Ryan also served as a digital consultant for Irish Aid Charity, Bóthar, where he worked on the development of the charity’s digital plans. Mr. Ryan has also consulted with Irish Local Government in County Limerick (Limerick County Council) regarding their digital activity in September 2018. Mr. Ryan has also assisted Swiss Company, SEBA Crypto AG, to develop their online presence in October 2018. Mr. Ryan is also a technical advisor for Irish dairy company, Arrabawn where he has assisted them with online strategies since 2017. Mr. Ryan has been involved in general technical consulting for startups and companies in Ireland for more than ten years. Mr. Ryan attended University College Dublin where he studied engineering and is working towards his Masters Degree in data analytics from National College of Ireland. Mr. Ryan also assisted in the development and launch of the Pandemic Action Network website in early 2020. As CTO, Paddy is responsible for Nutriband’s technology strategy and plays a key role in leading new initiatives. Mr. Ryan works for us on a part-time basis.
Jeff Patrick Pharm.D. currently serves as Director of Drug Development Institute at the Ohio State University Comprehensive Cancer Center. Dr. Patrick most recently serving as Chief Scientific Officer for New Haven Pharmaceuticals. Prior roles included global vice president of professional affairs at Mallinckrodt Pharmaceuticals, Inc.; and roles with ascending responsibilities at Dyax, Myogen/Gilead, Actelion and Sanofi-Synthelabo, Inc. Dr. Patrick is a residency-trained clinical pharmacist with approximately 20 years of pharmaceutical industry experience. He brings expertise in executive leadership, scientific and medical strategy, drug development and commercialization to the company. Prior to pursuing a career in research and development, Patrick was an ambulatory care clinical pharmacist at the University of Tennessee Medical Center and a clinical assistant professor of pharmacy at the University of Tennessee College of Pharmacy, where he earned his doctorate in pharmacy. He also completed the Wharton School of Business Pharmaceutical Executive Program. Dr. Patrick works for us on a part-time basis.
35
CORPORATE GOVERNANCE AND THE BOARD OF DIRECTORS
Board Leadership Structure and Risk Oversight
Gareth Sheridan serves as Chief Executive Officer and Serguei Melnik is serving as our Chairman and President. Our Chairman leads the Board of Directors in its discussions and has such other duties as are prescribed by the Board. As Chief Executive Officer, Mr. Sheridan is responsible for implementing the Company’s strategic and operating objectives and day-to-day decision-making related to such implementation.
The Board of Directors currently has three standing committees (audit, compensation, and nominating and corporate governance) that are chaired and composed entirely of directors who are independent under Nasdaq and SEC rules. Given the role and scope of authority of these committees, and that a majority of the members of the Board are independent, the Board of Directors believes that its leadership structure is appropriate. We select directors as members of these committees with the expectation that they will be free of relationships that might interfere with the exercise of independent judgement.
Our Board of Directors is our Company’s ultimate decision-making body, except with respect to those matters reserved to the stockholders. Our Board of Directors selects our senior management team, which is charged with the conduct of our business. Our Board of Directors also acts as an advisor and counselor to senior management and oversees its performance.
Board Composition
Our business and affairs are managed under the direction of our Board of Directors. The number of directors is determined by our board of directors, subject to the terms of our certificate of incorporation and bylaws. Our board of directors currently consists of six members, four of which are independent directors.
Meetings
Our Board of Directors held two meetings and acted by written consent eight times during 2023.
Committees of the Board of Directors
The board of directors has created three committees — the audit committee, the compensation committee and the nominating and corporate governance committee. Each of the committees has a charter which meets the Nasdaq Stock Market requirements and is composed of three independent directors.
Audit Committee
The audit committee is comprised of Mr. Hamilton, as chairman, Mr. Bujoreanu and Irina Gram. We believe that Mark Hamilton qualifies as an “audit committee financial expert” under the rules of the Nasdaq Stock Market. The audit committee oversees, reviews, acts on and reports on various auditing and accounting matters to the board, including: the selection of our independent accountants, the scope of our annual audits, fees to be paid to the independent accountants, the performance of our independent accountants and our accounting practices, all as set forth in our audit committee charter. The Audit Committee met three times in fiscal 2023.
Compensation Committee
The compensation committee is comprised of Irina Gram, Chairperson, Mr. Bujoreanu and Dr. Mancas. The compensation committee oversees the compensation of our chief executive officer and our other executive officers and reviews our overall compensation policies for employees generally as set forth in the audit committee charter. If so authorized by the board, the compensation committee may also serve as the granting and administrative committee under any option or other equity-based compensation plans which we may adopt. The compensation committee will not delegate its authority to fix compensation; however, as to officers who report to the chief executive officer, the compensation committee will consult with the chief executive officer, who may make recommendations to the compensation committee. Any recommendations by the chief executive officer are accompanied by an analysis of the basis for the recommendations. The committee will also discuss with the chief executive officer and other responsible officers the compensation policies for employees who are not officers. The compensation committee has the responsibilities and authority relating to the retention, compensation, oversight and funding of compensation consultants, legal counsel and other compensation advisers. The compensation committee members will consider the independence of such advisors before selecting or receiving advice from such advisors. The compensation committee met three times in fiscal 2023.
36
Nominating and Corporate Governance Committee
The nominating and corporate governance committee, which is comprised of Dr. Mancas, Mark Hamilton and Mr. Bujoreanu, will identify, evaluate and recommend qualified nominees to serve on our board; develop and oversee our internal corporate governance processes, and maintain a management succession plan. The nominating and corporate governance committee met two times in fiscal 2023.
Risk Management
The Board has an active role, as a whole and also at the committee level, in overseeing management of our risks. The Compensation Committee of our Board is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements. The Audit Committee of our Board oversees management of financial risks, under its charter it is to meet periodically and at least four times per year with management to review and assess the Company’s major financial risk exposures and the manner in which such risks are being monitored and controlled. The Nominating and Corporate Governance Committee of our Board is responsible for management of risks associated with the independence of the Board members and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire Board of Directors is informed about such risks.
Independent Directors
Four of our directors, Mark Hamilton, Radu Bujoreanu, Stefani Mancas and Irina Gram are independent directors based on the NASDAQ definition of independent director.
Family Relationships
There are no family relationships among our directors and executive officers.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer who serves on our Board or compensation committee. No member of our Board is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company.
Conflicts of Interest
Certain conflicts of interest exist and may continue to exist between the Company and its officers and directors due to the fact that each has other business interests to which they devote their primary attention. Each officer and director may continue to do so notwithstanding the fact that management time should be devoted to the business of the Company.
Certain conflicts of interest may exist between the Company and its management, and conflicts may develop in the future. The Company has not established policies or procedures for the resolution of current or potential conflicts of interest between the Company, its officers and directors or affiliated entities. There can be no assurance that management will resolve all conflicts of interest in favor of the Company, and conflicts of interest may arise that can be resolved only through the exercise by management their best judgment as may be consistent with their fiduciary duties. Management will try to resolve conflicts to the best advantage of all concerned.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our officers and directors, and persons who beneficially own more than ten percent of our Common Stock, to file reports of ownership and changes of ownership of such securities with the SEC. Mr. Goodman, Dr. Smith, Dr. Patrick, Mr. Bujoreanu, and Ms. Gram have not yet filed their Form 3 reports.
On February 10, 2022, Serguei Melnik filed a late Form 4 with regard to a gift of common stock. On July5, 2022, Gareth Sheridan filed a late Form 5 with respect to the acquisition of shares of common stock. On July 5, 2022, Mr. Melnik filed a late Form 5 with respect to stock option compensation received by him as a director on January 21, 2022. On July 5, 2022, Mr. Sheridan filed a late Form 5 with respect to stock option compensation received by him as a director on January 21, 2022. On July 7, 2022, Mr. Sheridan filed a late Form 4 report an acquisition and disposition of shares of common stock.
37
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
The table below shows the compensation for services in all capacities we paid during the years ended January 31, 2023 and 2022, to the individuals serving as our principal executive officers during the last completed fiscal year and our other two most highly paid executive officers at the end of the last completed fiscal year (whom we refer to collectively as our “named executive officers”);
| Name and Principal Position | Year | Salary $ | Bonus Awards $ | Stock Awards $ | Option/ Awards(1) $ | Incentive Plan Compensation $ | Nonqualified Deferred Earnings $ | All Other Compensation $ | Total $ | |||||||||||||||||||||||||||
| Gareth Sheridan, | 2023 | 200,000 | 38,000 | 140,672 | 378,672 | |||||||||||||||||||||||||||||||
| CEO(1) | 2022 | 149,000 | 100,000 | 61,778 | - | - | - | 310,770 | ||||||||||||||||||||||||||||
| Serguei Melnik | 2023 | 200,000 | 146,672 | 340,672 | ||||||||||||||||||||||||||||||||
| President | 2022 | 149,000 | 100,000 | - | 61,778 | - | - | - | 310,770 | |||||||||||||||||||||||||||
| Alan Smith | 2023 | 179,000 | 57,490 | 236,490 | ||||||||||||||||||||||||||||||||
| Chief Operating Officer | 2022 | 148,000 | - | - | 32,654 | - | - | - | 264,654 | |||||||||||||||||||||||||||
| Gerald Goodman | 2023 | 160,000 | - | 114,976 | - | - | 274,976 | |||||||||||||||||||||||||||||
| Chief Financial Officer | 2022 | 120,135 | - | 32,654 | - | - | - | 152,789 | ||||||||||||||||||||||||||||
| 1 | During the year ended January 31, 2023, we issued to Gareth Sheridan, our CEO, 11,667 shares of common stock valued at $38,000, representing compensation for the year ended January 31, 2023. |
38
Non-Employee Director Compensation Table
The table below shows the cash fees paid to our independent directors in connection with their service on our board of directors, and the stock option awards granted, during the fiscal year ended January 31, 2023.
DIRECTOR COMPENSATION
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
| Mark Hamilton | 5,000 | 3,800 | 23,509 | 32,309 | ||||||||||||||||||||||||
| Radu Bujourneau | 5,000 | 3,800 | 31,863 | 40,663 | ||||||||||||||||||||||||
| Stefani Mancas | 5,000 | 3,800 | 23,509 | 32,309 | ||||||||||||||||||||||||
| Irina Gram | 5,000 | 3,800 | 23,509 | 32,309 | ||||||||||||||||||||||||
Employment Agreements with Company Officers
On January 21, 2022, the Board of Directors of the Company approved Employment Agreements with Gareth Sheridan, our Chief Executive Officer, Serguei Melnik, our President, Gerald Goodman, the Company’s Chief Financial Officer and Alan Smith, our Chief Operating Officer.
Each of the three Employment Agreements is effective February 1, 2022, for an initial term of three years, and the term is automatically extended for additional one-year periods if neither party gives notice of termination at least 90 days prior to the end of the initial term or any current additional one-year term.
The Employment Agreements with Mr. Sheridan and Mr. Melnik each provide for a base salary of $250,000 per year; the Employment Agreement with Mr. Goodman provides for a base salary of $210,000; and the agreement with Mr. Smith provides for a base salary $205,000. Effective August 1, 2022, the base compensation under these agreements was reduced as follows: Mr. Sheridan’s and Mr. Melnik’s agreements to $150,000; under Mr. Goodman’s. to $110,000; and under Mr. Smith’s to $155,000.
The Employment Agreements provide for incentive payments as established by the Board of Directors, and the Employment Agreements with Mr. Sheridan and Mr. Melnik provide for a performance bonus as follows:
The Employment Agreements of Mr. Sheridan and Mr. Melnik provide that, to the extent any payment under the Employment Agreement to the executive is subject to the excise tax imposed by section 4999 of the Internal Revenue Code, the executive is entitled to a gross-up payment from the Company to reimburse the executive for additional federal, state and local taxes imposed on executive by reason of the excise tax and the Company’s payment of the initial taxes on such amount. The Company is also required to bear the costs and expenses of any proceeding with any taxing authority in connection with the imposition of any such excise tax.
39
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
| Name | Number of Shares of Common Stock Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||
| Gareth Sheridan, CEO | 23,333 | - | - | $ | 4.58 | January 21, 2025 | - | - | - | - | ||||||||||||||||||||||||
| 29,167 | 4.50 | August 2, 2025 | ||||||||||||||||||||||||||||||||
| 25,000 | 4.12 | December 8, 2025 | ||||||||||||||||||||||||||||||||
| Serguei Melnik, President | 23,333 | - | - | $ | 4.58 | January 21, 2025 | - | - | - | - | ||||||||||||||||||||||||
| 29,167 | 4.50 | August 2, 2025 | ||||||||||||||||||||||||||||||||
| 25,000 | 4.12 | December 8, 2025 | ||||||||||||||||||||||||||||||||
| Alan Smith, COO | 11,667 | - | - | $ | 4.16 | January 21, 2025 | - | - | - | - | ||||||||||||||||||||||||
| 11,667 | 4.09 | August 2, 2025 | ||||||||||||||||||||||||||||||||
| 10,000 | 3.75 | December 8, 2025 | ||||||||||||||||||||||||||||||||
| Gerald Goodman, CFO | 87,500 | $ | 4.20 | October 22, 2024 | ||||||||||||||||||||||||||||||
| 11,667 | - | - | 4.16 | January 21, 2025 | - | - | - | - | ||||||||||||||||||||||||||
| 23,333 | - | - | 4.09 | August 2, 2025 | - | - | - | - | ||||||||||||||||||||||||||
| 20,000 | 3.75 | December 8, 2025 | ||||||||||||||||||||||||||||||||
| (1) | The amounts reported represent the aggregate grant-date fair value of stock options awarded to certain directors in 2023, calculated in accordance with Financial Accounting Standards Board, Accounting Standards Codification Topic 718, or ASC Topic 718. The amounts presented do not correspond to the actual value that may be recognized by the named director upon vesting of the applicable awards. |
Bonuses
Any bonuses granted in the future will relate to meeting certain performance criteria that are directly related to areas within the named executive’s responsibilities with the Company. As we continue to grow, more defined bonus programs may be established to attract and retain our employees at all levels.
Other Director Compensation
There are no agreements or arrangements by which any directors or nominees are to receive compensation or other payments from third parties in return for serving on the Board of Directors.
Pension Benefits
We currently have no plans that provide for payments or other benefits at, following, or in connection with retirement of our officers.
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table provides information concerning the beneficial ownership of the Company’s common Stock by each director and nominee for director, certain executive officers, and by all directors and officers of the Company as a group as of April 26, 2023. In addition, the table provides information concerning the current beneficial owners, if any, known to the Company to hold more than five percent (5%) of the outstanding common Stock of the Company.
The amounts and percentage of stock beneficially owned are reported based on regulations of the securities and Exchange Commission (“SEC”) governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days after October 17, 2022. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities in which he has no economic interest. The percentage of common stock beneficially owned is based on 7,843,150 shares of common stock outstanding as of April 26, 2023.
| Name and Address(1) of Beneficial Owner | Shares of Common Stock Owned Directly | Shares of Derivative Securities Owned Beneficially | Total Beneficial Ownership Including Option Grants(5) | Percentage of Issued and Outstanding Common Stock | ||||||||||||
| Gareth Sheridan | 1,761,667 | 77,500 | 1,839,167 | 23.22 | % | |||||||||||
| Serguei Melnik(2) | 832,999 | 77,500 | 910,499 | 11.34 | % | |||||||||||
| Stefani Mancas | 16,480 | 16,083 | 32,563 | * | ||||||||||||
| Mark Hamilton | 17,750 | 19,000 | 36,750 | * | ||||||||||||
| Radu Bujoreanu | 15,750 | 18,833 | 34,583 | * | ||||||||||||
| Irina Gram | 1,167 | 8,500 | 9,667 | * | ||||||||||||
| Dr. Jeff Patrick | 36,612 | 45,000 | 81612 | * | ||||||||||||
| Patrick Ryan | 12,347 | 33,334 | 45,681 | * | ||||||||||||
| Alan Smith | 48,893 | 33,334 | 82,227 | * | ||||||||||||
| Gerald Goodman(3) | 26,250 | 142,500 | 168,750 | 2.11 | % | |||||||||||
| All officers and directors as a group (10 individuals) | 2,752,979 | 471,584 | 3,214,895 | 38.67 | % | |||||||||||
| * | Less than One (1%) Percent. |
| (1) | The address for each director and officer, unless indicated otherwise, is c/o Nutriband, Inc., 121 South Orange Ave., Suite 1500, Orlando, FL 32801. |
| (2) | Includes 29,167 shares owned by Mr. Melnik’s wife, as to which Mr. Melnik disclaims beneficial ownership, and 58,334 shares held under the UGMA for the benefit of his minor children. |
| (3) | Gerald Goodman holds 26,250 shares directly and has been granted three-year options under the Company’s 2021 Employee Stock Option Plan to purchase an aggregate of 55000 shares of common stock at exercise prices ranging from $4.09 per share to $4.20 per share. Mr. Goodman also was issued on October 22, 2021 a stock purchase warrant for the purchase of 87,500 shares of common stock, exercisable at $4.20 per share. |
To our knowledge, all beneficial owners named in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them.
41
Changes in Control
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On May 10, 2022 the Board approved the following stock grants to the listed officers and directors:
| Date | No. of Shares | Name | Valuation | |||||
| May 10, 2022 | 1,667 shares of common stock | Radu Bujoreanu, Director | $ | 3,800 | ||||
| May 10, 2022 | 1,667 shares of common stock | Stefani Mancas, Director | $ | 3,800 | ||||
| May 10, 2022 | 1,667 shares of common stock | Irina Gram, Director | $ | 3,800 | ||||
| May 10, 2022 | 1,667 shares of common stock | Mark Hamilton, Director | $ | 3,800 | ||||
| May 10, 2022 | 11,667 shares of common stock | Gareth Sheridan, CEO | $ | 38,000 | ||||
On August 16, 2022, the Board of Directors ratified and authorized the issuance the issuance of Option Award Agreements with respect option grants approved August 1, 2022 by the Compensation Committee, to officers and directors as set forth in the table below.
| Name | No. of Shares | |||||||||
| Gareth Sheridan, CEO | 29,167 | $ | 4.50 | Services rendered in fiscal 2023 | ||||||
| Serguei Melnik, Chairman and President | 29,167 | $ | 4.50 | Services rendered in fiscal 2023 | ||||||
| Gerald Goodman, Chief Financial Officer | 23,333 | $ | 4.09 | Services rendered in fiscal 2023 | ||||||
| Alan Smith, Chief Operating Officer | 11,667 | $ | 4.09 | Services rendered in fiscal 2023 | ||||||
| Jeff Patrick, Chief Scientific Officer | 23,333 | $ | 4.09 | Services rendered in fiscal 2023 | ||||||
| Patrick Ryan, Chief Technical Officer | 11,667 | $ | 4.09 | Services rendered in fiscal 2023 | ||||||
On December 9, 2022, the newly-elected Board of Directors approved the following option grants and the issuance of Option Award Agreements with respect thereto to officers and directors as set forth in the table below.
| Serguei Melnik | 25,000 | $ | 4.12 | |||||
| Gareth Sheridan | 25,000 | $ | 4.12 | |||||
| Gerald Goodman | 20,000 | $ | 3.75 | |||||
| Patrick Ryan | 10,000 | $ | 3.75 | |||||
| Jeff Patrick | 10,000 | $ | 3.75 | |||||
| Alan Smith | 10,000 | $ | 3.75 |
Independent Directors
Four of our directors, Mark Hamilton, Radu Bujoreanu, Stefani Mancas and Irina Gram are independent directors based on the NASDAQ definition of independent director.
42
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees billed by our independent accountants, Sadler, Gibb & Associates, LLC, for each of our last two years for the categories of services indicated.
| Year Ended January 31 | ||||||||
| 2023 | 2022 | |||||||
| Audit fees | $ | 86,640 | $ | 69,250 | ||||
| Audit – related fees | 6,500 | 12,200 | ||||||
| Tax fees | - | - | ||||||
| All other fees | $ | - | $ | - | ||||
Audit fees consist of fees related to professional services rendered in connection with the audit of our annual financial statements and review of our interim financial statements.
All other fees relate to professional services rendered in connection with our registration statements and acquisition audits.
Our policy is to pre-approve all audit and permissible non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services and other services. Under our audit committee’s policy, pre-approval is generally provided for particular services or categories of services, including planned services, project based services and routine consultations. In addition, the audit committee may also pre-approve particular services on a case-by-case basis. Our board approved all services that our independent accountants provided to us in the past two fiscal years.
43
PART IV
ITEM 15. Exhibits.
| (1) | Filed as exhibit to the Company’s registration statement on Form 10, which was filed with the Commission on June 2, 2016, and incorporated herein by reference. |
| (2) | Filed as an exhibit to the Company’s report on Form 8-K, which was filed with the Commission on January 27, 2020 and incorporated herein by reference. |
| (3) | Filed as an exhibit to the Company’s report on Form 8-K, which was filed with the Commission on April 10, 2018 and incorporated herein by reference. |
44
| (4) | Filed as an exhibit to the Company’s annual report on Form 10-K for the year ended January 3, 2019 which was filed with the Commission on April 19, 2019, and incorporated herein by reference. |
| (5) | Filed as an exhibit to the Company’s Registration Statement on Form S-1/A, which was filed with the Commission on May 19, 2020, and incorporated herein by reference. |
| (6) | Filed as an exhibit to the Company’s report on Form 8-K, which was filed with the Commission on November 4, 2019, and incorporated herein by reference. |
| (7) | Filed as an exhibit to the Company’s report on Form 8-K, which was filed with the Commission on September 4, 2020, and incorporated herein by reference. |
| (8) | Filed as exhibits to the Company’s report on Form 8-K, which was filed with the Commission on March 11, 2021, and incorporated herein by reference. |
| (8a) | Filed as an exhibit to the Company’s report on Form 8-K, which was filed with the Commission on September 1, 2021, and incorporated herein by reference. |
| (9) | [Reserved] |
| (10) | Filed as an exhibit to the Company’s Current Report on Form 8-K, which was filed with the Securities and Exchange Commission on October 12, 2021, and incorporated herein by reference. |
| (11) | Filed as an exhibit to the Company’s Registration Statement on Form S-8, which was filed with the Commission on November 5, 2021, and incorporated herein by reference. |
| (12) | Filed as an exhibit to the Company’s Current Report on Form 8-K, which was filed with the Commission on January 27, 2022, and incorporated herein by reference. |
| (13) | Filed as Exhibit 3.1C to the Company’s Current Report on Form 8-K, which was filed with the Commission on August 10, 2022, and incorporated herein by reference. |
| (14) | To be filed by Amendment. |
ITEM 16. FORM 10-K SUMMARY
Not applicable.
45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 26, 2023
| NUTRIBAND INC. | ||
| By: | /s/ Gareth Sheridan | |
| Gareth Sheridan | ||
| Chief Executive Officer | ||
| By: | /s/ Gerald Goodman | |
| Gerald Goodman | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| Signature | Title | Date | ||
| /s/ Gareth Sheridan | Chief Executive Officer and Director | April 26, 2023 | ||
| Gareth Sheridan | ||||
| /s/ Serguei Melnik | Director | April 26, 2023 | ||
| Serguei Melnik | ||||
| /s/ Radu Bujoreanu | Director | April 26, 2023 | ||
| Radu Bujoreanu | ||||
| /s/ Mark Hamilton | Director | April 26, 2023 | ||
| Mark Hamilton | ||||
| /s/ Stefan Mancas | Director | April 26, 2023 | ||
| Stefan Mancas | ||||
| /s/ Irina Gram | Director | April 26, 2023 | ||
| Irina Gram |
46
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Gareth Sheridan, certify that:
1. I have reviewed this annual report on Form 10-K of Nutriband Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;
| DATE: April 26, 2023 | /s/ Gareth Sheridan |
| Gareth Sheridan, Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Gerald Goodman, certify that:
1. I have reviewed this annual report on Form 10-K of Nutriband Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting;
| DATE: April 26, 2023 | /s/ Gerald Goodman |
| Gerald Goodman, Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Nutriband Inc. (the “Company”) on Form 10-K for the year ended January 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gareth Sheridan, Chief Executive Officer, and I, Gerald Goodman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
| April 26, 2023 | /s/ Gareth Sheridan |
| Gareth Sheridan, Chief Executive Officer | |
| (Principal Executive Officer) |
| April 26, 2023 | /s/ Gerald Goodman |
| Gerald Goodman, Chief Financial Officer | |
| (Principal Financial Officer) |