NUTRA PHARMA CORP - Quarter Report: 2010 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
|
x
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For the
quarterly period ended September 30, 2010
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¨
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TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
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For the
transition period from _________ to ________
Commission
file numbers 000-32141
NUTRA
PHARMA CORP.
(Name
of registrant as specified in its charter)
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California
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91-2021600
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|
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(State
or Other Jurisdiction of Organization)
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(IRS
Employer Identification Number)
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33065
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||
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(Zip
Code)
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(954)
509-0911
(Issuer's
telephone number)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
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Large
accelerated filer ¨
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Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
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Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨ No x
The
number of shares outstanding of the registrant's common stock, par value $0.001
per share, as of November 9, 2010, 2010 was 277,177,632.
TABLE OF
CONTENTS
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PART
I. FINANCIAL INFORMATION
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F-1 | |||
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Item
1. Financial Statements
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F-1 | |||
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Condensed
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and
December 31, 2009
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F-1 | |||
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Condensed
Consolidated Statements of Operations for the Three and Nine Months Ended
September 30, 2010 and 2009 (Unaudited)
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F-2 | |||
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Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 2010 and 2009 (Unaudited)
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F-3 | |||
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Notes
to Condensed Consolidated Financial Statements (Unaudited)
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F-4 | |||
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Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
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3 | |||
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Item
3. Quantitative and Qualitative Disclosures about Market
Risk
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11 | |||
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Item
4. Controls and Procedures
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11 | |||
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PART
II. OTHER INFORMATION
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12 | |||
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Item
1. Legal Proceedings
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12 | |||
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Item
1A. Risk Factors
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12 | |||
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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12 | |||
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Item
3. Defaults Upon Senior Securities
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12 | |||
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Item
5. Other Information
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12 | |||
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Item
6. Exhibits
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13 |
2
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
NUTRA
PHARMA CORP.
Condensed
Consolidated Balance Sheets
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
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|||||||
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(Unaudited)
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ASSETS
|
||||||||
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Current
assets:
|
||||||||
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Cash
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$ | 78,760 | $ | 802,875 | ||||
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Accounts
receivable
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155,795 | 239,583 | ||||||
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Inventory
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268,998 | 165,786 | ||||||
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Prepaid
expenses
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124,382 | 23,290 | ||||||
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Total
current assets
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627,935 | 1,231,534 | ||||||
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Property
and equipment, net
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73,123 | 12,369 | ||||||
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Other
assets
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69,363 | 8,803 | ||||||
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TOTAL
ASSETS
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$ | 770,421 | $ | 1,252,706 | ||||
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 524,207 | $ | 104,223 | ||||
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Accrued
expenses
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907,212 | 960,548 | ||||||
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Due
to officers
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1,323,450 | 1,252,385 | ||||||
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Other
loans payable
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332,507 | 80,000 | ||||||
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Total
current liabilities
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3,087,376 | 2,397,156 | ||||||
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Stockholders'
deficit:
|
||||||||
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Common
stock, $0.001 par value, 2,000,000,000 shares authorized; 276,175,232 and
270,425,232 shares issued and outstanding, respectively
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276,176 | 270,426 | ||||||
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Additional
paid-in capital
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26,807,217 | 25,157,967 | ||||||
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Deferred
compensation
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(531,250 | ) | - | |||||
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Accumulated
deficit
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(28,869,098 | ) | (26,572,843 | ) | ||||
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Total
stockholders' deficit
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(2,316,955 | ) | (1,144,450 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 770,421 | $ | 1,252,706 | ||||
See the
accompanying notes to the condensed consolidated financial
statements.
F-1
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Operations - Unaudited
|
Three
Months Ended
September
30,
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Nine
Months Ended
September
30,
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|||||||||||||||
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2010
|
2009
|
2010
|
2009
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|||||||||||||
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Net
sales
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$ | 359,936 | $ | 900 | $ | 1,382,056 | $ | 27,528 | ||||||||
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Cost
of sales
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104,083 | - | 569,559 | 3,260 | ||||||||||||
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Gross
profit
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255,853 | 900 | 812,497 | 24,268 | ||||||||||||
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Costs
and expenses:
|
||||||||||||||||
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Salaries
and employee benefits
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317,041 | 127,532 | 904,758 | 382,434 | ||||||||||||
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Selling,
general and administrative - including stock based compensation of
$318,750, $195,000, $823,750 and $410,000
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575,074 | 515,859 | 2,016,235 | 1,047,762 | ||||||||||||
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Research
and development
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17,553 | 91,580 | 174,801 | 126,955 | ||||||||||||
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Interest
expense
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36,922 | 20,957 | 62,958 | 55,243 | ||||||||||||
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Total
costs and expenses
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946,590 | 755,928 | 3,158,752 | 1,612,394 | ||||||||||||
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Loss
from operations
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(690,737 | ) | (755,028 | ) | (2,346,255 | ) | (1,588,126 | ) | ||||||||
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Other
income
|
||||||||||||||||
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Consulting
income
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50,000 | - | 50,000 | - | ||||||||||||
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Net
loss
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$ | (640,737 | ) | $ | (755,028 | ) | $ | (2,296,255 | ) | $ | (1,588,126 | ) | ||||
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Per
share information - basic and diluted:
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||||||||||||||||
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Loss
per common share
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
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Weighted
average common shares outstanding
|
276,175,232 | 224,710,545 | 274,055,747 | 217,217,631 | ||||||||||||
See the
accompanying notes to the condensed consolidated financial
statements.
F-2
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Cash Flows - Unaudited
|
Nine
Months Ended
September
30,
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||||||||
|
2010
|
2009
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|||||||
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Net
cash used in operating activities
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$ | (1,216,012 | ) | $ | (1,115,011 | ) | ||
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Cash
flows from investing activities:
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||||||||
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Acquisition
of property and equipment
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$ | (72,003 | ) | $ | - | |||
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Cash
flows from financing activities:
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||||||||
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Common
stock issued for cash
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300,000 | 3,060,275 | ||||||
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Proceeds
from notes payable
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230,000 | 40,000 | ||||||
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Repayment
of notes payable
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- | (80,000 | ) | |||||
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Loans
from stockholders
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190,300 | 546,530 | ||||||
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Repayment
of stockholder loans
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(156,400 | ) | (506,250 | ) | ||||
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Net
cash provided by financing activities
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$ | 563,900 | $ | 3,060,555 | ||||
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Net
(decrease) increase in cash
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(724,115 | ) | 1,945,544 | |||||
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Cash
- beginning of period
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802,875 | 50,910 | ||||||
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Cash
- end of period
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$ | 78,760 | $ | 1,996,454 | ||||
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Supplemental
Cash Flow Information:
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||||||||
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Cash
paid for interest
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$ | 3,286 | $ | - | ||||
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Cash
paid for income taxes
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$ | - | $ | - | ||||
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Stock
issued for deferred compensation
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$ | 1,275,000 | $ | - | ||||
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Common
stock issued for services
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$ | 823,750 | $ | 410,000 | ||||
See the
accompanying notes to the condensed consolidated financial
statements.
F-3
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
1. BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Nutra
Pharma Corp. ("Nutra Pharma" or "the Company") is a holding company that owns
intellectual property and operations in the biotechnology
industry. Nutra Pharma incorporated under the laws of the state of
California on February 1, 2000, under the original name of
Exotic-Bird.com.
Through
its wholly-owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and
Designer Diagnostics, Inc. (“Designer Diagnostics”), the Company conducts drug
discovery research and development activities. In October 2009, the
Company launched its first consumer product called Cobroxin, an over-the-counter
pain reliever designed to treat moderate to severe chronic pain.
Principles
of Consolidation
The
condensed consolidated financial statements presented herein include the
accounts of Nutra Pharma and its wholly-owned subsidiaries, Designer Diagnostics
and ReceptoPharm.
All
intercompany transactions and balances have been eliminated in
consolidation.
Basis
of Presentation
The
condensed consolidated financial statements and notes are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission and do not contain certain information included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal, recurring nature. Interim
results are not necessarily indicative of results for a full year.
Therefore, the interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company’s Annual Report on Form 10-K.
Liquidity
The
Company's condensed consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
The
Company has experienced a net loss of $2,296,255 for the nine months ended
September 30, 2010, and has an accumulated deficit of $28,869,098 at September
30, 2010. In addition, the Company used $1,216,012 of cash for
operations during the nine months ended September 30, 2010 and had working
capital and stockholders’ deficits at September 30, 2010 of $2,459,441 and
$2,316,955, respectively.
The
Company currently does not have sufficient cash to sustain itself for the next
quarter and will require additional financing in order to execute its operating
plan and continue as a going concern. Management’s plan is to attempt
to secure adequate funding to bridge the commercialization of its Cobroxin and
Nyloxin products. Management cannot predict whether additional
financing will be in the form of equity, debt, or another form and the Company
may be unable to obtain the necessary additional capital on a timely
basis, on acceptable terms, or at all. In the event that these
financing sources do not materialize, or that the Company is unsuccessful in
increasing its revenues and profits, it may be unable to implement its current
plans for expansion, repay its obligations as they become due or continue as a
going concern, any of which circumstances would have a material adverse effect
on its business prospects, financial condition and results of
operations.
After
September 30, 2010, the Company entered into an agreement with an investor to
purchase up to $10,000,000 worth of Nutra Pharma common stock. On
November 9, 2010, the Company received $200,000 related to this
transaction in exchange for 1,666,667 shares of common stock
and warrants to purchase $1,666,667 additional shares of common stock at an
exercise price of $0.15 per share. The remaining financing under this
transaction deal will be unavailable until a registration statement
becomes effective for the shares issued under the agreement.
The items
discussed above raise substantial doubt about the Company’s ability to continue
as a going concern.
The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
F-4
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
Use
of Estimates
The
accompanying condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America which require management to make certain estimates and
assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense. Significant estimates include management’s
belief that it will be able to raise and/or generate sufficient cash to continue
as a going concern, the allowance for doubtful accounts, the recoverability of
long-lived assets and the fair value of stock-based
compensation. Actual results could differ from those
estimates.
Revenue
Recognition
In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable are stated at estimated net realizable value. Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts. In determining collectability,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances. There was no allowance at September
30, 2010.
Inventories
Inventories
are valued at the lower of cost or market on an average cost basis and consist
primarily of raw materials and finished goods.
Research
and Development
Research
and development is charged to operations as incurred.
Reclassifications
Certain
amounts in the accompanying condensed consolidated financial statements have
been reclassified to conform with the current period presentation.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC 718, Stock
Compensation. FASB ASC 718 requires that the cost resulting
from all share-based transactions be recorded in the financial statements over
the respective service periods. It establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees. It also establishes
fair value as the measurement objective for transactions in which an entity
acquires goods or services from non-employees in share-based payment
transactions.
Net
Loss Per Share
Net loss
per share is calculated in accordance with FASB ASC 260, Earnings per
Share. Basic earnings (loss) per share are calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share are calculated by
dividing net income (loss) by the weighted average number of common shares and
dilutive common stock equivalents outstanding. During periods in
which we incur losses, common stock equivalents, if any, are not considered, as
their effect would be anti-dilutive or have no effect on earnings per
share.
F-5
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
Recent
Accounting Pronouncements
The
following Accounting Standards Codification Updates have been issued, or became
effective, since the beginning of the current period covered by these financial
statements:
|
Pronouncement
|
Issued
|
Title
|
||
|
ASSASU
No. 2010-01
|
January
2010
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash – a consensus of the FASB Emerging Issues
Task Force
|
||
|
AS ASU
No. 2010-02
|
January
2010
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of
a Subsidiary – a Scope Clarification
|
||
|
A ASU
No. 2012-03
|
January
2010
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
||
|
AS ASU
No. 2010-04
|
January
2010
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
||
|
ASU
No. 2010-05
|
January
2010
|
Compensation
- Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
||
|
ASU
No. 2010-06
|
January
2010
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements
|
||
|
AS ASU
No. 2010-07
|
January
2010
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities – Mergers and
Acquisitions
|
||
|
AS ASU
No. 2010-08
|
February
2010
|
Technical
Corrections to Various Topics
|
||
|
AS ASU
No. 2010-09
|
February
2010
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
||
|
AS ASU No.
2010-10
|
February
2010
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
||
|
AS ASU
No. 2010-11
|
March
2010
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
F-6
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
|
AS ASU
No. 2010-12
|
April
2010
|
Income Taxes (Topic 740):
Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts
(SEC Update)
|
||
|
AS ASU
No. 2010-13
|
April
2010
|
Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades—a consensus of the FASB Emerging Issues
Task Force
|
||
|
AS ASU
No. 2010-14
|
April
2010
|
Accounting
for Extractive Activities—Oil & Gas—Amendments to Paragraph
932-10-S99-1 (SEC Update)
|
||
|
AS ASU
No. 2010-15
|
April
2010
|
Financial
Services—Insurance (Topic 944): How Investments Held through Separate
Accounts Affect an Insurer’s Consolidation Analysis of Those Investments—a
consensus of the FASB Emerging Issues Task Force
|
||
|
A ASU No.
2010-16
|
April
2010
|
Entertainment—Casinos
(Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the
FASB Emerging Issues Task Force
|
||
|
AS ASU
No. 2010-17
|
April
2010
|
Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition—a consensus of the FASB Emerging Issues Task
Force
|
||
|
AS ASU No.
2010-18
|
April
2010
|
Receivables
(Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool
That is Accounted for as a Single Asset—a consensus of the FASB Emerging
Issues Task Force
|
||
|
AS ASU
No. 2010-19
|
May
2010
|
Foreign
Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency
Exchange Rates
|
||
|
AS ASU
No. 2010-20
|
July
2010
|
Receivables
(Topic 310): Disclosure about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
|
||
|
AS ASU
No. 2010-21
|
August
2010
|
Accounting
for Technical Amendments to Various SEC Rules and Schedules Amendments to
SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to
Rules, Forms, Schedules and Codification of Financial Reporting
Policies
|
||
|
AS ASU
No. 2010-22
|
August
2010
|
Accounting
for Various Topics-Technical Corrections to SEC
Paragraphs
|
||
|
AS ASU
No. 2010-23
|
August
2010
|
Health
Care Entities (Topic 954): Measuring Charity Care for
Disclosure
|
||
|
AS ASU
No. 2010-24
|
August
2010
|
Health
Care Entities (Topic 954): Presentation of Insurance Claims and Related
Insurance Recoveries
|
||
|
AS ASU
No. 2010-25
|
September
2010
|
Plan
Accounting-Defined Contribution Pension Plans (Topic 962): Reporting Loans
to Participants by Defined Contribution Pension Plans
|
||
|
AS ASU
No. 2010-26
|
October
2010
|
Financial
Services-Insurance (Topic 944): Accounting for Costs Associated with
Acquiring or Renewing Insurance
Contracts
|
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our condensed consolidated financial statements
and management does not anticipate that these accounting pronouncements will
have any future effect on our consolidated financial statements.
F-7
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
2. INVENTORIES
At
September 30, 2010, inventory of $268,998 consisted of $252,829 of raw materials
and $16,169 of finished goods. At December 31, 2009, inventory of
$165,786 consisted entirely of raw materials.
3. DUE
TO OFFICERS
Officers'
Loans
During
the year ended December 31, 2009, the Company borrowed $546,530 from its
President, Rik Deitsch, and repaid him $709,663, bringing the total amount owed
to Mr. Deitsch to $1,151,361 at December 31, 2009. Included in the
amount owed to Mr. Deitsch is $211,119 of accrued interest.
During
the nine month period ended September 30, 2010, the Company borrowed a total of
$196,300 and repaid a total of $162,400 from Mr. Deitsch for a net borrowing of
$33,900 during that nine month period. At September 30, 2010, we owe
Mr. Deitsch the total amount of $1,218,627, which
amount includes $244,485 of accrued interest. This loan is
due on demand and bears interest at a rate of 4% per annum.
At
September 30, 2010, the Company was indebted to Paul Reid, President of
ReceptoPharm, in the amount of $104,823. This amount includes accrued
interest of $24,996. This loan is due on demand and bears interest at
a rate of 5% per annum. The loan is secured by certain intellectual
property of ReceptoPharm. At December 31, 2009, the Company owed Mr.
Reid $101,024, of which amount $21,197 was for accrued interest.
4. OTHER
LOANS
Director's
Loans
During
the third quarter the Company borrowed $200,000 from one of its
directors. This loan is expected to be repaid in six months to a year
from the date of the loan along with interest calculated at 10% straight
interest for the first month plus 12% annum calculated monthly after 30 days
from funding.
5.
RELATED PARTIES TRANSACTIONS
During
the year ended December 31, 2008, ReceptoPharm, the Company's wholly-owned
subsidiary, entered into a
contract for the production of a drug (Crotoxin) with Celtic Biotech, Ltd a
company based in Dublin, Ireland. An officer of ReceptoPharm is related to the
Managing Director of Celtic Biotech, Ltd. The contract has a total budget of
$134,336 and is expected to be completed in early 2011. The initial deposit of
$40,301 has been deemed earned and has
been recorded as revenue in the quarter ending September 30, 2010.
6.
STOCKHOLDERS' DEFICIT
On
February 26, 2010, the Company issued 2,500,000 shares to a consultant for
services to be rendered from March 1, 2010 to February 28, 2011. Of this
total, 2,000,000 shares were restricted and 500,000 shares were free-trading
pursuant to the Company’s S-8 Registration Statement. The shares were
valued at $0.51 per share which was the fair market value of the Company’s
common stock on February 26, 2010. The expense is being recorded in
selling, general and administrative over the service period of one
year.
During
April and May 2010, the Company sold an aggregate of 2,500,000 shares of
restricted common stock to three investors at a price per share of $0.10 and
received proceeds of $250,000. These shares were sold pursuant to
warrant agreements between the Company and the investors. These
shares were issued on May 7, 2010.
In May
2010, the Company issued 250,000 shares of restricted common stock to a
consultant for services rendered. The shares were valued at $0.32 per
share, which was the fair market value of the Company’s common stock on the date
of issuance.
In June
2010, the Company sold 500,000 shares of restricted common stock to an investor
at a price per share of $0.10 and received proceeds of $50,000. These
shares were sold pursuant to warrant agreements between the Company and the
investor. These shares were issued on June 30, 2010.
7. STOCK
OPTIONS AND WARRANTS
On
September 30, 2010, the Company had a total of 45,315,000 stock options and
warrants outstanding at a weighted average exercise price of
$0.10. There were no awards of options or warrants during the nine
months ended September 30, 2010 and all outstanding options are vested and
exercisable.
F-8
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
8. COMMITMENTS
AND CONTINGENCIES
Patricia
Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.
On August
18, 2006, ReceptoPharm was named as a defendant in Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.:18247/06 (New York
Supreme Court, Queens County). The original proceeding claimed that
ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to
own, the sum of $118,928 plus interest and counsel fees on a series promissory
notes that were allegedly executed in 2001 and 2002. On August 23,
2007, the Queens County New York Supreme Court issued a decision denying
Plaintiffs' motion for summary judgment in lieu of a complaint, concluding that
there were issues of fact concerning the enforceability of the promissory
notes. On May 23, 2008, the Plaintiffs filed an amended complaint in
which they reasserted their original claims and asserted new claims seeking
damages of no less than $768,506 on their claims that in or about June 2004
ReceptoPharm wrongfully cancelled certain of their purported ReceptoPharm share
certificates.
In late
2009, Plaintiffs filed a motion seeking to further amend their complaint
alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights
by cancelling additional ReceptoPharm share certificates totaling 1,214,800
shares and failing to permit the Plaintiffs to exercise dissenting shareholder
rights with respect to those share certificates. The court ultimately granted
Plaintiffs permission to further amend their complaint in a decision and order
dated July 14, 2010. ReceptoPharm has moved to dismiss and/or to strike portions
of Plaintiffs' latest amended complaint, and the motion currently is
pending.
The
damages associated with the Plaintiffs' claims could rise as the result of
increases in our share price as the ReceptoPharm shares may be convertible into
shares of our common stock.
ReceptoPharm
believes the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, and
breach of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. Discovery in this matter is ongoing. We
intend to vigorously contest this matter.
Concentrations
During
the nine months ended September 30, 2010, 96% of the Company’s sales were to a
single customer.
9. SUBSEQUENT
EVENTS
Additional
Officer Loans
Subsequent
to September 30, 2010 and through November 15, 2010, the date of the filing of
its third quarter report the Company received additional advances from its
President, Rik Deitsch in the amount of $25,000 and repaid Mr. Deitsch $49,900
for a net repayment of $24,900. The amount owed to Mr. Deitsch at
November 15, 2010 was $1,197,802, which includes $248,559 of accrued
interest
On
October 29, 2010 the Department of the Treasury notified the Company that it had
approved a grant in the amount of $244,479 based on the Company's application
submitted to the Internal Revenue Service on July 20, 2010 requesting
certification for qualified investments in a qualifying therapeutic discovery
project under section 48D of the Internal Revenue Code.
On
November 8, 2010 the Company signed a $10 million dollar purchase agreement with
Lincoln Park Capital Fund, LLC, an Illinois limited liability company. Upon
signing the agreement Nutra Pharma received on November 9,
2010 $200,000 in exchange for 1,666,667 shares of common
stock and warrants to purchase 1,666,667 shares of common stock at an exercise
price of $0.15 per share. A copy of the agreement and description of the terms
is included in Form 8-K which the Company filed on November 12,
2010.
F-9
Nutra
Pharma Corp. is referred to hereinafter as “we”, “us” or “our”
Forward
Looking Statements
This
Quarterly Report on Form 10-Q for the period ending September 30, 2010 contains
forward-looking statements that involve risks and uncertainties, as well as
assumptions that, if they never materialize or prove incorrect, could cause our
results of to differ materially from those expressed or implied by such
forward-looking statements. The words or phrases "would be," "will allow,
"intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements." We are subject to the following risks in
connection with our business: (a) we have experienced recurring net losses and
have a working capital deficiency, which raises substantial doubt about our
ability to continue as a going concern; (b) our history of losses makes it
difficult to evaluate our current and future business and our future financial
results; (c) our operations are dependent upon generating sufficient
revenues from product sales and clinical research services and/or obtaining
equity or other financing; (d) we are subject to substantial U.S.
Food and Drug Administration ("FDA") and other regulations, which may subject us
to substantial cost increases; (e) a market for our products
and technologies may never develop; (f) if we fail to adequately protect our
patents, we may be unable to proceed with development of potential drug
products; (g) we are dependent upon patents, licenses and other proprietary
rights from third parties; should we lose such rights our operations will be
negatively affected; (h) to date, we have not generated any significant
revenues; (i) to date, none of our prescription drug candidates have
received FDA drug orphan status approval; (j) should we continue to
have insufficient funds to conduct our operations, development of our possible
future products will be negatively impacted; (k) we may be unable to compete
against our competitors in the homeopathic product, medical device and
biopharmaceutical markets since our competitors have superior financial and
technical resources than we do; (l) we completed our acquisition of ReceptoPharm
as our wholly owned subsidiary in April 2008; our operations and financial
condition will be negatively affected if we fail to efficiently manage their
operations and their expansion plans pending adequate
financing; (m) if our distributor, XenaCare Holdings, Inc.
(“XenaCare”) fails to accomplish its stated domestic advertising campaign for
Cobroxin, our revenues will be negatively affected; and (n) if
we fail to generate adequate revenues from our first products, Cobroxin and
Nyloxin, our financial condition will be negatively affected.
All
statements other than statements of historical fact are statements that could be
deemed forward-looking statements, including: (a) any projections of revenue,
gross margin, expenses, earnings or losses from operations, synergies or other
financial items; and (b) any statements of the plans, strategies and objectives
of management for future operations; and (c) any statement concerning
developments, plans, or performance. Unless otherwise required by applicable
law, we do not undertake and we specifically disclaim any obligation to update
any forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such
statement.
Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Our
business during the first, second and third quarter of 2010 has focused upon
marketing our fully developed three homeopathic drugs for the treatment of
pain:
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Cobroxin,
an over the counter pain reliever designed to treat moderate to severe
(Stage 2) chronic pain; and
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Nyloxin
(Stage 2 Pain) and Nyloxin Extra Strength (Stage 3
Pain).
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We will
continue this focus during the remainder of 2010.
3
During
our third quarter of 2010, the following has occurred:
Patent
Approved
The US
Patent and Trademark Office issued us a patent for a method of preventing
infectious diseases, including colds, flu viruses, and bacterial and parasitic
infections, using modified and detoxified cobra venom and neurotoxins. The
patent (US 7,758,894), titled “Modified elapid venoms as stimulators of the
immune reaction,” describes a method for treating and inhibiting infections by
influenza viruses through the use of subcutaneous, intramuscular, or intravenous
injections of therapeutically effective amounts of a detoxified and
neurotropically active oxidized alpha cobratoxin or alpha-cobrotoxin protein.
The patent continues by explaining clinical evidence supporting marked increases
in the expression of genes associated with the production of gamma interferon
through exposure to these detoxified proteins. Gamma interferon is considered a
potent antiviral agent and regulator of the immune response.
Pepteron,
an Antiviral Therapy
During
July 2010, ReceptoPharm presented its novel antiviral therapy, Pepteron, at the
International AIDS Conference in Vienna, Austria. Pepteron is based
on our leading drug candidate, RPI-MN, which has been shown to inhibit the entry
of several viruses that are known to cause severe neurologic damages in diseases
such as encephalitis and HIV.
Product
Advertising/Product Distribution
According
to our US distributor, XenaCare, the Cobroxin advertising campaign began during
July 2010 and is scheduled to run through December 2010. To date, XenaCare has
reported to us that Cobroxin advertising has appeared on CNN, Fox News, Food,
Travel, ESPN, USA, Lifetime, CNBC, Comedy Central, AMC, History, Discovery, Fox
Sports, Headline News (HLN), and Home and Garden as well as Los Angeles, Tampa,
Atlanta and Houston based radio stations. As of October 31, 2010, XenaCare
reported to us that Cobroxin has been aired in 690 television commercials, a
difference of 1825 commercials from the 2515 forecasted by Xenacare
at year-end December 31, 2010. After the year ended December 31, 2010 we will
determine whether XenaCare has met its projected air time for Cobroxin and we
retain the right to adjust certain provisions of
the agreement.
Product
Distribution
In June
2010, we entered into a partnership with the healthcare products distributor,
Henry Schein, Inc., for distribution of our Nyloxin-branded pain relievers in
the United States. Henry Schein, which ranks #339 on the Fortune 500 list, is
one of the largest distributor of healthcare products and services to
medical, dental, and veterinary office-based practitioners in the world
(www.henryschein.com). With more than 12,500 “Team Schein Members” worldwide,
Henry Schein currently serves approximately 45% of the estimated 250,000 U.S.
office-based physician practices, surgical centers and other alternate-care
sites.
In June
2010, Grupo Farmaceutico de Tijuana (“GTF”) became our exclusive distributor in
Mexico for our Nyloxin branded pain relievers. GTF specializes in the
distribution of pharmaceutical products to national retailers and to over 3,000
pharmacies throughout Mexico.
In August
2010, we selected Amarey Nova Medical S. A. to serve as our exclusive
distributor in Colombia for our Nyloxin-branded pain relievers.
In August
2010, we began our drug registration process in India for Nyloxin. We
have been seeking a relationship with an India-based pharmaceutical company to
support the launch, marketing and sales of Nyloxin throughout
India.
In
September 2010, we introduced “Nyloxin for Pets”, a treatment for moderate to
severe chronic pain in companion animals.
In
October 2010, we announced Nutritional Alliance as our global sales agent for
our Nyloxin pain relievers intended for the human and animal health markets.
Nutritional Alliance is considered one of the premier sales brokerage firms in
the United States according to its own website at www.nutritionalalliance.com and
they specialize in products distributed through food, drug and mass retailers as
well as medical product distributors.
4
Drug
Registration
In June
2010, we began the drug registration process in Panama and Mexico for our
Nyloxin Pain Reliever. In August 2010, we began the drug registration
process in India for our Nyloxin Pain Reliever. Additionally, we have ongoing
drug registrations being completed in Europe, Canada, Colombia, and
Brazil.
Retail
Sales and Distribution
During
the third quarter of 2010, we generated revenues of $311,701 from Cobroxin
sales. Our collective revenues for the first three quarters of 2010
are $1,326,283. During the first three 2010 quarters, we continued to
focus on expanding brand awareness for our over-the-counter pain relievers,
Cobroxin, Nyloxin and Nyloxin Extra Strength by: (a)
coordinating marketing and awareness for those pain relievers through
attendance at various conferences; (b) seeking out additional international
distribution partners for our Nyloxin branded pain relievers, (c) assisting
XenaCare, our U.S. Cobroxin distributor, with the creation of marketing and
advertising materials, including print advertisements, television commercials,
packaging enhancements and television interviews; and (d) coordinating our
ongoing drug registration process in Europe, Canada, Brazil and Colombia,
Panama, Mexico, and India, including reviewing distributor candidates within
those territories. We plan to continue our brand development and operations
during the remainder of 2010 by continuing the above efforts, researching
potential product line extensions for our branded pain relievers and organizing
clinical studies that support our current drug products and advance our current
research and development pipeline.
Cobroxin
We offer
Cobroxin, our over-the-counter pain reliever clinically proven to treat moderate
to severe (Stage 2) chronic pain that was developed by ReceptoPharm, our drug
discovery arm and wholly owned subsidiary. Cobroxin is marketed
online and at retailers through our United States distributor,
XenaCare. In August 2009, we completed an agreement with XenaCare
granting it the exclusive license to market and distribute Cobroxin within the
United States. In mid-October 2009, XenaCare began selling Cobroxin
online through its product website, Cobroxin.com.
In
November 2009, XenaCare began selling Cobroxin to brick-and-mortar retailers,
including distribution to CVS in March 2010 and Walgreens in May 2010. To
support ongoing sales, XenaCare intends to conduct a marketing campaign,
consisting of print, online and broadcast advertising.
Cobroxin
is available at the following retailers:
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CVS
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Walgreens
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Winn
Dixie
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Support
Plus
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e
Vitamins
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Duane
“Reade”
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Overstock.com
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Kerr
Drug
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Meijer
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Quick2You.com
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Johnson
Smith & Co
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Benchmark
Brands
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Hannaford
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Kinney
Drug
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Value
Drug
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Amerimark
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Vitamin
World
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5
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Drugstore.com
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Sweetbay
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CDMA
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Amazon.com
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Dr.
Leonard’s
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Publix
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Rite
Aid
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Cardinal
Health
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Imperial
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DermaDoctor
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Cobroxin
is currently available as a two ounce topical gel for treating joint pain and
pain associated with arthritis and repetitive stress, and as a one ounce oral
spray for treating lower back pain, migraines, neck aches, shoulder pain,
cramps, and neuropathic pain. Both the topical gel and oral spray are packaged
and sold as a one-month supply.
Cobroxin
offers several benefits as a pain reliever. With increasing concern
about consumers using opioid and acetaminophen-based pain relievers, Cobroxin
provides an alternative that does not rely on opiates or non-steroidal
anti-inflammatory drugs, otherwise known as NSAIDs, for its pain relieving
effects. Cobroxin also has a well-defined safety profile. Since the
early 1930s, the active pharmaceutical ingredient (API) of Cobroxin, Asian cobra
venom, has been studied in more than 46 human clinical studies. The data from
these studies provide clinical evidence that cobra venom provides an effective
treatment for pain with few side effects and has the following
benefits:
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safe
and effective;
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all
natural;
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long-acting;
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easy
to use;
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non-narcotic;
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non-addictive;
and
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analgesic
and anti-inflammatory
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Potential
side effects from the use of Cobroxin include headache, nausea, vomiting, sore
throat, allergic rhinitis and coughing.
Nyloxin/Nyloxin
Extra Strength
Nyloxin
and Nyloxin Extra Strength are similar to Cobroxin in that they both contain the
same active ingredient as Cobroxin, Asian cobra venom. The primary
difference between Nyloxin, Nyloxin Extra Strength and Cobroxin is the dilution
level of the venom. The approximate dilution levels for Nyloxin, Nyloxin Extra
Strength and Cobroxin are as follows:
Nyloxin
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Topical
Gel: 30 mcg/mL
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Oral
Spray: 70 mcg/mL
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Nyloxin Extra
Strength
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Topical
Gel: 60 mcg/mL
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Oral
Spray: 140 mcg/mL
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Cobroxin
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Topical
Gel: 20 mcg/mL
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Oral
Spray: 35 mcg/mL
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6
We intend
to market Nyloxin and Nyloxin Extra Strength as treatments for moderate to
severe chronic pain during our fourth quarter of 2010, pending successful
completion of international drug applications. Nyloxin will be
available as an oral spray for treating back pain, neck pain, headaches, joint
pain, migraines, and neuralgia and as a topical gel for treating joint pain,
neck pain, arthritis pain, and pain associated with repetitive
stress. Nyloxin Extra Strength will be available as an oral spray and
gel application for treating the same physical indications, but is aimed at
treating the most severe (Stage 3) pain that inhibits one’s ability to function
fully.
We intend
to begin selling Nyloxin Extra Strength in the form of topical gel and oral
spray products outside of the United States upon completion of international
drug registrations, which we estimate will be completed during the fourth
quarter of 2010. Additionally, we plan to complete two human clinical
studies aimed at comparing the ability of Nyloxin Extra Strength to replace
prescription pain relievers. We originally believed that these studies would
begin during the second quarter of 2010; however, these studies have been
delayed because of lack of funding. We expect that these studies will
begin by the second quarter of 2011.
In
December 2009, we began marketing Nyloxin and Nyloxin Extra Strength at www.nyloxin.com. Both
Nyloxin and Nyloxin Extra Strength will be packaged in a roll-on container,
squeeze bottle and as an oral spray. Additionally, Nyloxin topical gel will be
available in an 8oz pump bottle.
Critical
Accounting Policies and Estimates
Our
consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) applied on a consistent basis. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare
our consolidated financial statements. In general, management’s
estimates are based on historical experience, information from third party
professionals, and various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those
estimates made by management under different and/or future
circumstances.
We
believe that our critical accounting policies and estimates include our ability
to continue as a going concern, revenue recognition, accounts receivable and
allowance for doubtful accounts, inventory obsolescence, accounting for
long-lived assets and accounting for stock based compensation.
Ability to Continue as a Going
Concern: Our ability to continue as a going concern is
contingent upon our ability to secure additional financing, increase ownership
equity, and attain profitable operations. In addition, our ability to
continue as a going concern must be considered in light of the problems,
expenses and complications frequently encountered in established markets and the
competitive environment in which we operate.
Revenue
Recognition: In general, the Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. There was no
provision for sales returns at September 30, 2010 as all products sold as of
that date have been accepted by our customer and contractually we are not
obligated to accept returns.
Accounts Receivable and Allowance
for Doubtful Accounts: Our accounts receivable are stated at
estimated net realizable value. Accounts receivable are comprised of
balances due from customers net of estimated allowances for uncollectible
accounts. In determining collectability, historical trends are
evaluated and specific customer issues are reviewed to arrive at appropriate
allowances. There was no allowance for doubtful accounts at September
30, 2010.
Inventory
Obsolescence: Inventories are valued at the lower of cost or
market value using the average cost method. We periodically perform
an evaluation of inventory for excess and obsolete items. At
September 30, 2010, our inventory consisted of finished goods and raw materials
that are utilized in the manufacturing of finished goods. These raw
materials generally have expiration dates in excess of 10 years. We
performed an evaluation of our inventory and determined that at September 30,
2010, there were no obsolete or excess items.
7
Long-Lived
Assets: The carrying value of long-lived assets is reviewed
annually and on a regular basis for the existence of facts and circumstances
that may suggest impairment. If indicators of impairment are present,
we determine whether the sum of the estimated undiscounted future cash flows
attributable to the long-lived asset in question is less than its carrying
amount. If less, we measure the amount of the impairment based on the
amount that the carrying value of the impaired asset exceeds the discounted cash
flows expected to result from the use and eventual disposal of the impaired
assets. We do not believe there to be any impairments of long-lived
assets as of September 30, 2010.
Stock Based Compensation: We
record stock based compensation in accordance with FASB ASC 718, Stock
Compensation. FASB ASC 718 requires that the cost resulting from all share-based
transactions be recorded in the financial statements over the respective service
periods. It establishes fair value as the measurement objective in accounting
for share-based payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based payment transactions
with employees. FASB ASC 718 also establishes fair value as the measurement
objective for transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions.
Results
of Operations – Comparison of Three Month Periods Ended September 30, 2010 and
September 30, 2009
Net sales
for the three months ended September 30, 2010 were $359,936 compared to $900 for
the three months ended September 30, 2009. Of the total sales during
the three months ended September 30, 2010, $311,701 was related to sales of our
consumer product Cobroxin and $48,235 was related to clinical research services
provided to third parties by our wholly owned subsidiary,
ReceptoPharm.
Cost of
sales for the three months ended September 30, 2010 was $104,083 compared to $0
for the three months ended September 30, 2009. Our cost of sales
includes the direct costs associated with the manufacturing of
Cobroxin. Our gross profit margin for the three months ended
September 30, 2010 was $255,853 or 71%. A comparison of gross profit
from 2010 to 2009 is not meaningful since we did not sell Cobroxin during the
quarter ended September 30, 2009.
Salaries
and employee benefits for the three months ended September 30, 2010 were
$317,041 compared to $127,532 for the comparable period in 2009. The
increase of $189,509 was attributable to the increase in the number of full-time
employees from four in 2009 to eleven in 2010.
Selling,
general and administrative expenses (“SG&A”) increased $59,215 or 11% from
$515,859 for the quarter ended September 30, 2009 to $575,074 for the quarter
ended September 30, 2010. Our SG&A expenses include office
expenses such as rent and utilities, product liability insurance and outside
legal and accounting services. Also included in SG&A expenses is
stock based compensation expense which increased $123,750 or 63 % from $195,000
for the three month period ended September 30, 2009 to $318,750 for the three
month period ended September 30, 2010. This accounted for all of the dollar
increase in G&A expenses.
Research
and development expenses decreased $74,027or 81% from $91,580 for the quarter
ended September 30, 2009 to $17,553for the comparable period in
2010. Our research expenses are primarily related to ongoing research
activities pertaining to ReceptoPharm’s leading drug compound, RPI-78 and costs
associated with a clinical trial related to Cobroxin.
Interest
expense increased $15,965 or 76%, from $20,957 for the quarter ended September
30, 2009 to $36,922 for the comparable period in 2010.
Our net
loss decreased by $114,291 or 15%, from $755,028 for the quarter ended September
30, 2009 to $640,737 for the comparable period in 2010.
8
Results
of Operations – Comparison of Nine Month Periods Ending September 30, 2010 and
September 30, 2009
Net sales
for the nine months ended September 30, 2010 were $1,382,056 compared to $27,528
for the nine months ended September 30, 2009. Of the total sales
during the nine months ended September 30, 2010, $1,326,283 was related to sales
of our consumer product, Cobroxin, and $55,773 was related to clinical research
services provided to third parties by our wholly owned subsidiary,
ReceptoPharm.. During the nine months ended September 30, 2009, all of our
sales were related to the provision of clinical research services since we did
not commence selling Cobroxin until the fourth quarter of 2009.
Cost of
sales for the nine months ended September 30, 2010 was $569,559 compared to
$3,260 for the nine months ended September 30, 2009. Our cost of
sales includes the direct costs associated with the manufacturing of
Cobroxin. Our gross profit margin for the nine months ended September
30, 2010 was $812,497 or 59%.
Salaries
and employee benefits for the nine months ended September 30, 2010 were $904,758
compared to $382,434 for the comparable period in 2009. The increase
of $522,324 or 136% was attributable to the increase in the number of full-time
employees from four in 2009 to eleven in 2010.
Selling,
general and administrative expenses (“SG&A”) increased $968,473 or 92% from
$1,047,762 for the nine months ended September 30, 2009 to $2,016,235 for the
nine months ended September 30, 2010. Our SG&A expenses include
office expenses such as rent and utilities, product liability insurance and
outside legal and accounting services. Also included in SG&A
expenses is stock based compensation expense which increased $413,750 or 100%
from $410,000 for the nine month period ended September 30, 2009 to $823,750 for
the nine month period ended September 30, 2010. This accounted for
approximately 43% of the overall dollar increase in SG&A
expenses. The remaining increase in SG&A expenses is due
primarily to the expansion of our operations, including increased marketing
expenses related to our upcoming launch of our Nyloxin products both
domestically and internationally.
Research
and development expenses increased $47,846 or 38% from $126,955 for the nine
months ended September 30, 2009 to $174,801 for the comparable period in
2010. Our research expenses are primarily related to ongoing research
activities pertaining to ReceptoPharm’s leading drug compound, RPI-78, and costs
associated with a clinical trial related to Cobroxin.
Interest
expense increased $7,715 or 14%, from $55,243 for the nine months ended
September 30, 2009 to $62,958 for the comparable period in 2010. This
increase is due to an increase in short term loans used for working
capital.
Our net
loss increased by $708,129 or 45%, from $1,588,126 for the nine months ended
September 30, 2009 to $2,296,255 for the comparable period in 2010. This
increase is due principally to an increase in non-stock compensation and
salaries.
Liquidity
and Capital Resources
Our
independent registered public accounting firm noted in their report on our
consolidated financial statements for the year ended December 31, 2009 that our
significant losses from operations and working capital and stockholders’
deficits raise substantial doubt about our ability to continue as a going
concern. Further, as stated in Note 1 to our condensed consolidated
financial statements for the period ended September 30, 2010, we have an
accumulated deficit of $28,869,098 and working capital and stockholders’
deficits of $2,459,441 and $2,316,955, respectively. In addition, we
used $1,216,012 of cash for operations during the nine months ended September
30, 2010.
We
currently have insufficient cash on hand to sustain us for the next quarter and
we will require additional funds in order to execute our operating plan and
continue as a going concern. We estimate that we will require
approximately $1,600,000 to fund our existing operations and the operations of
our subsidiaries, ReceptoPharm and Designer Diagnostics, over the next twelve
months. These costs include: (i) compensation for our full-time
employees; (ii) compensation for two consultants who we deem critical to our
business; (iii) general office expenses including rent and utilities; (iv)
product liability insurance; and (v) outside legal and accounting
services. These costs reflected in (i) – (v) do not include research
and development costs or other costs associated with clinical
studies.
9
Our
ability to meet our future operating expenses is highly dependent on the amount
of future revenues. To the extent that future revenues are
insufficient to cover our operating expenses we will need to raise additional
capital. Our management’s plan is to attempt to secure adequate
funding to bridge the further commercialization of our Cobroxin and Nyloxin
products. We cannot predict whether this additional financing will be
in the form of equity, debt, or another form and we may be unable to obtain the
necessary additional capital on a timely basis, on acceptable terms, or at
all. If we are successful at securing additional equity financing, it
could result in substantial dilution to existing shareholders. We may
also seek additional loans from our officers and directors; however, there can
be no assurance that we will be successful in securing such additional
loans.
After September
30, 2010, we entered into an agreement with an investor to purchase
up to $10,000,000 worth of our common stock. We received
$200,000 related to this transaction on November 9, 2010 in exchange
for 1,666,667 shares of common stock and warrants to purchase $1,666,667
additional shares of common stock at an exercise price of $0.15 per
share. The remaining financing under the transaction will
not be available until a registration statement becomes effective for the shares
issued under the agreement.
In the
event that additional financing sources do not materialize, or that we are
unsuccessful in increasing our revenues and profits, we may be unable to
implement our current plans for expansion, repay our obligations as they become
due or continue as a going concern, any of which circumstances would have a
material adverse effect on our business, prospects, financial condition and
results of operations.
Historically,
we have relied upon loans from our Chief Executive Officer Rik Deitsch, to fund
costs associated with our operations. These loans are unsecured,
accrue interest at a rate of 4.0% per annum and are due on
demand. During the year ended December 31, 2009, we borrowed $546,530
from Mr. Deitsch and repaid him $709,663 bringing the total amount owed to him
to $1,151,361 at December 31, 2009. During the nine month period
ended September 30, 2010, we borrowed $196,300 and repaid $162,400 for a net
borrowing of $33,900 from Mr. Deitsch, bringing the total amount owed to Mr.
Deitsch to $1,218,627 at September 30, 2010. This amount includes
$244,485 of accrued interest. After September 30, 2010,
we received additional advances in the amount of $25,000 and repaid
Mr. Deitsch $49,900 for a net repayment of $24,900. The amount owed
to Mr. Deitsch at November 15, 2010 was $1,197,802, which includes $248,559 of
accrued interest.
During
the year ended December 31, 2009, we raised a total of $3,060,275 through
private placements of shares of our common stock. Of the total,
$2,795,900 was raised through the sale of 34,948,750 shares at a price per share
of $0.08 and $264,375 was raised through the sale of 10,575,000 shares at a
price per share of $0.025. During the nine months ended September 30,
2010 we raised a total of $300,000 through the sale of 3,000,000 shares of our
common stock at a price per share of $0.10. These shares were sold to
accredited investors in connection with warrant agreements previously entered
into between us and the investors.
Uncertainties
and Trends
Our
operations and possible revenues are dependent now and in the future upon the
following factors:
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·
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whether
Cobroxin, Nyloxin, and Nyloxin Extra Strength will be accepted by retail
establishments where they are sold;
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·
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because
Cobroxin is a novel approach to the over-the-counter pain market, whether
it will be accepted by consumers over conventional over-the-counter pain
products;
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·
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whether
our international drug applications will be approved and in how many
countries;
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·
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whether
we will be successful in marketing Cobroxin, Nyloxin and Nyloxin Extra
Strength in our target markets and create nationwide and international
visibility for our products;
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·
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whether
our drug delivery system, i.e. oral spray and gel, will be
accepted by consumers who may prefer a pain pill delivery
system;
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·
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whether
competitors’ pain products will be found to be more attractive to
consumers;
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10
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·
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whether
we successfully develop and commercialize products from our research and
development activities;
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·
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whether
we compete effectively in the intensely competitive biotechnology
area;
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·
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whether
we successfully execute our planned partnering and out-licensing products
or technologies;
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·
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whether
the recent economic downturn and related credit and financial market
crisis will adversely affect our ability to obtain financing, conduct our
operations and realize opportunities to successfully bring our
technologies to market;
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·
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whether
we are subject to litigation and related costs in connection with use of
products;
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·
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whether
we will have to replace our domestic distributor/advertiser, XenaCare with
another distributor and whether that will cause interruptions in our
operations;
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·
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whether
we comply with FDA and other extensive legal/regulatory requirements
affecting the healthcare industry.
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Off-Balance
Sheet Arrangements
We have
not entered into any transaction, agreement or other contractual arrangement
with an entity unconsolidated with us under whom we have:
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·
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An
obligation under a guarantee contract.
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·
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A
retained or contingent interest in assets transferred to the
unconsolidated entity or similar arrangement that serves as credit,
liquidity or market risk support to such entity for such
assets.
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·
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Any
obligation, including a contingent obligation, under a contract that would
be accounted for as a derivative instrument.
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·
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Any
obligation, including a contingent obligation, arising out of a variable
interest in an unconsolidated entity that is held by us and material to us
where such entity provides financing, liquidity, market risk or credit
risk support to, or engages in leasing, hedging or research and
development services with us.
|
We do not
have any off-balance sheet arrangements or commitments that have a current or
future effect on its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures, or
capital resources that is material.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable
Item
4. Controls and Procedures
Disclosure
Controls and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(“Exchange Act”) we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. This evaluation was
carried out under the supervision of our Chief Executive Officer who is also our
Principal Financial and Accounting Officer. Following this inspection, this
officer concluded that our disclosure controls and procedures were effective as
of September 30, 2010, the end of the period covered by this
report.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer, who also acted as our Principal Financial Officer as appropriate, to
allow timely decisions regarding required disclosure.
Changes
in internal control over financial reporting
There was
no change in our internal control over financial reporting that occurred during
the period covered by this Quarterly Report on Form 10-Q that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting. We are aware that any system of controls, however well
designed and operated, can only provide reasonable, and not absolute, assurance
that the objectives of the system are met, and that maintenance of disclosure
controls and procedures is an ongoing process that may change over
time.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August
18, 2006, ReceptoPharm was named as a defendant in Patricia Meding, et. al. v. ReceptoPharm,
Inc. f/k/a Receptogen, Inc., Index No.:18247/06 (New York Supreme Court,
Queens County). The original proceeding claimed that ReceptoPharm
owed the Plaintiffs, including Patricia Meding, a former ReceptoPharm officer
and shareholder and several corporations that she claims to own, the sum of
$118,928 plus interest and counsel fees on a series promissory notes that were
allegedly executed in 2001 and 2002. On August 23, 2007, the Queens
County New York Supreme Court issued a decision denying Plaintiffs' motion for
summary judgment in lieu of a complaint, concluding that there were issues of
fact concerning the enforceability of the promissory notes. On May
23, 2008, the Plaintiffs filed an amended complaint in which they reasserted
their original claims and asserted new claims seeking damages of no less than
$768,506 on their claims that in or about June 2004 ReceptoPharm wrongfully
cancelled certain of their purported ReceptoPharm share
certificates.
In late
2009, Plaintiffs filed a motion seeking to further amend their complaint
alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights
by cancelling additional ReceptoPharm share certificates totaling 1,214,800
shares and failing to permit the Plaintiffs to exercise dissenting shareholder
rights with respect to those share certificates. The court ultimately granted
Plaintiffs permission to further amend their complaint in a decision and order
dated July 14, 2010. ReceptoPharm has moved to dismiss and/or to strike portions
of Plaintiffs' latest amended complaint, and the motion currently is
pending.
The
damages associated with the Plaintiffs' claims could rise as the result of
increases in our share price as the ReceptoPharm shares may be convertible into
shares of our common stock.
ReceptoPharm
believes the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, and
breach of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. Discovery in this matter is ongoing. We
intend to vigorously contest this matter.
Item
1A. Risk Factors
As a
Smaller Reporting Company, we are not required to provide the information
required by this item; however, our disclosure under Forward Looking Statements
of this report contains various risks that we are subject to.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Subsequent
Event
As noted
in footnote 9 to our financial statements contained herein, on November 8, 2010,
we signed a $10 million dollar purchase agreement with Lincoln Park Capital
Fund, LLC, an Illinois limited liability company. On the
following day, we received $200,000 in exchange for 1,666,667 shares
of common stock and warrants to purchase 1,666,667 shares of our common stock at
an exercise price of $0.15 per share. A copy of the agreement and
description of the terms are included in Form 8-K, which we filed on November
12, 2010.
12
Item 6. Exhibits
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Exhibit No.
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Title
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31.1
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Certification of
Chief Executive Officer and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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13
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
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NUTRA
PHARMA CORP.
Registrant
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Dated: November
15, 2010
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/s/
Rik J. Deitsch
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Rik
J. Deitsch
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Chief
Executive Officer/Chief Financial Officer
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14