NUTRA PHARMA CORP - Quarter Report: 2010 June (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
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For the
quarterly period ended June 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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(State
or Other Jurisdiction of Organization)
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(IRS
Employer Identification
Number)
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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 ¨
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Non-accelerated
filer ¨
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Smaller
reporting company x
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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 August 13, 2010 was 276,175,232.
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 June 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 Six Months Ended
June 30, 2010 and 2009 (Unaudited)
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F-2
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Condensed
Consolidated Statements of Cash Flows for the Six Months Ended June 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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10
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Item
4. Controls and Procedures
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10
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PART
II. OTHER INFORMATION
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11
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Item
1. Legal Proceedings
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11
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Item
1A. Risk Factors
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11
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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11
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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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12
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2
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
NUTRA
PHARMA CORP.
Condensed
Consolidated Balance Sheets
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June
30,
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December
31,
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|||||||
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2010
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2009
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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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$ | 45,833 | $ | 802,875 | ||||
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Accounts
receivable
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2,147 | 239,583 | ||||||
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Inventory
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340,908 | 165,786 | ||||||
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Prepaid
expenses
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13,035 | 23,290 | ||||||
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Total
current assets
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401,923 | 1,231,534 | ||||||
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Property
and equipment, net
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80,717 | 12,369 | ||||||
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Other
assets
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71,716 | 8,803 | ||||||
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TOTAL
ASSETS
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$ | 554,356 | $ | 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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$ | 398,551 | $ | 104,223 | ||||
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Accrued
expenses
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939,405 | 960,548 | ||||||
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Due
to officers
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1,131,368 | 1,252,385 | ||||||
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Other
loans payable
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80,000 | 80,000 | ||||||
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Total
current liabilities
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2,549,324 | 2,397,156 | ||||||
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Stockholders'
deficit:
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Common
stock, $0.001 par value, 2,000,000,000 shares authorized; 276,175,232
and 270,425,232 shares issued and outstanding,
respectively
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276,176 | 270,426 | ||||||
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Additional
paid-in capital
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26,807,217 | 25,157,967 | ||||||
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Deferred
compensation
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(850,000 | ) | 0 | |||||
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Accumulated
deficit
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(28,228,361 | ) | (26,572,843 | ) | ||||
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Total
stockholders' deficit
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(1,994,968 | ) | (1,144,450 | ) | ||||
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
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$ | 554,356 | $ | 1,252,706 | ||||
See the
accompanying notes to the condensed consolidatedfinancial
statements.
F-1
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Operations - Unaudited
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Three Months Ended June 30,
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Six Months Ended June 30,
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2010
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2009
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2010
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2009
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Net
sales
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$ | 157,696 | $ | 8,398 | $ | 1,022,120 | $ | 26,628 | ||||||||
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Cost
of sales
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62,934 | 3,000 | 465,476 | 3,260 | ||||||||||||
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Gross
profit
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94,762 | 5,398 | 556,644 | 23,368 | ||||||||||||
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Costs
and expenses:
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Salaries
and employee benefits
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330,284 | 127,676 | 587,717 | 254,902 | ||||||||||||
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Selling,
general and administrative - including stock based compensation of
$398,750, $195,000, $505,000 and $215,000, respectively
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1,003,932 | 316,787 | 1,441,161 | 441,903 | ||||||||||||
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Research
and development
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102,435 | 55,155 | 157,248 | 125,375 | ||||||||||||
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Interest
expense
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12,847 | 17,965 | 26,036 | 34,286 | ||||||||||||
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Total
costs and expenses
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1,449,498 | 517,583 | 2,212,162 | 856,466 | ||||||||||||
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Net
loss
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$ | (1,354,736 | ) | $ | (512,185 | ) | $ | (1,655,518 | ) | $ | (833,098 | ) | ||||
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Per
share information - basic and diluted:
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Loss
per common share
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||
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Weighted
average common shares outstanding
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274,592,814 | 215,518,240 | 272,990,149 | 213,409,079 | ||||||||||||
See the
accompanying notes to the condensed consolidated financial
statements.
F-2
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Cash Flows – Unaudited
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Six Months Ended June 30,
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2010
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2009
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Net
cash used in operating activities
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$ | (836,580 | ) | $ | (445,440 | ) | ||
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Cash
flows from investing activities:
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Acquisition
of property and equipment
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(75,462 | ) | - | |||||
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Net
cash used in investing activities
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$ | (75,462 | ) | $ | - | |||
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Cash
flows from financing activities:
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Common
stock issued for cash
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300,000 | 35,000 | ||||||
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Proceeds
from notes payable
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- | 40,000 | ||||||
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Repayment
of stockholder loans
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(145,000 | ) | - | |||||
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Loans
from stockholders
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- | 319,530 | ||||||
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Net
cash (used in) provided by financing activities
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$ | 155,000 | $ | 394,530 | ||||
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Net
(decrease) increase in cash
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(757,042 | ) | (50,910 | ) | ||||
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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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$ | 45,833 | $ | - | ||||
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Supplemental
Cash Flow Information:
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Cash
paid for interest
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$ | 2,053 | $ | - | ||||
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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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$ | 505,000 | $ | 215,000 | ||||
See the
accompanying notes to the condensed consolidated financial
statements.
F-3
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
June
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 $1,655,518 for the six months ended June
30, 2010, and has an accumulated deficit of $28,228,361 at June 30,
2010. In addition, the Company used $836,580 of cash for operations
during the six months ended June 30, 2010 and had working capital and
stockholders’ deficits at June 30, 2010 of $2,147,401 and $1,994,968,
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 not be able 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. Subsequent to June 30, 2010, the Company borrowed
$190,300 from our President, Rik Deitsch.
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
June
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 June 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
June
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
|
||
|
ASU
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
|
||
|
ASU
No. 2010-02
|
January
2010
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of
a Subsidiary – a Scope Clarification
|
||
|
ASU
No. 2012-03
|
January
2010
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
||
|
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
|
||
|
ASU
No. 2010-07
|
January
2010
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities – Mergers and
Acquisitions
|
||
|
ASU
No. 2010-08
|
February
2010
|
Technical
Corrections to Various Topics
|
||
|
ASU
No. 2010-09
|
February
2010
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
||
|
ASU
No. 2010-10
|
February
2010
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
||
|
ASU
No. 2010-11
|
March
2010
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
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F-6
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
June
30, 2010
|
ASU
No. 2010-12
|
April
2010
|
Income Taxes (Topic 740):
Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts
(SEC Update)
|
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|
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
|
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|
ASU
No. 2010-14
|
April
2010
|
Accounting
for Extractive Activities—Oil & Gas—Amendments to Paragraph
932-10-S99-1 (SEC Update)
|
||
|
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
|
||
|
ASU
No. 2010-16
|
April
2010
|
Entertainment—Casinos
(Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the
FASB Emerging Issues Task Force
|
||
|
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
|
||
|
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
|
||
|
ASU
No. 2010-19
|
May
2010
|
Foreign
Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency
Exchange Rates
|
||
|
ASU
No. 2010-20
|
July
2010
|
Receivables
(Topic 310): Disclosure about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
|
||
|
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
|
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
June
30, 2010
2. INVENTORIES
At June
30, 2010, inventory of $340,908 consisted of $246,829 of raw materials and
$94,079 of finished goods. At December 31, 2009, inventory of
$165,786 consisted entirely of raw materials.
3. DUE
TO OFFICERS
Officer
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 six month period ended June 30, 2010, the Company repaid Mr. Deitsch an
additional $145,000 bringing the total amount owed to Mr. Deitsch to $1,027,849
at June 30, 2010. This amount includes $232,607 of accrued
interest. This loan is due on demand and bears interest at a rate of
4% per annum.
At June
30, 2010, the Company was indebted to Paul Reid, President of ReceptoPharm in
the amount of $103,519. This amount includes accrued interest of
$23,692. 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. 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.
5. STOCK
OPTIONS AND WARRANTS
On June
30, 2010, the Company had a total of 47,315,000 stock options and warrants
outstanding at a weighted average exercise price of $0.11. There were
no awards of options or warrants during the six months ended June 30, 2010 and
all outstanding options are vested and exercisable at that
date.
F-8
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
June
30, 2010
6. 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 breached its fiduciary
duty to the Plaintiffs as shareholders of ReceptoPharm by wrongfully canceling
certain of their purported ReceptoPharm share certificates. The damages
associated with the Plaintiff's claims could rise as the result of increases in
the Company's share price as the Receptopharm shares may be convertible into the
Company's common shares.
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. In a decision and order dated
March 22, 2010, the court denied Plaintiffs' motion to further amend their
complaint to assert claims regarding the 1,214,800 shares. However, the
Plaintiffs have moved to reargue the court's decision on their motion to amend,
and also have filed a notice of appeal of the court's decision denying the
motion to amend, in the event that the court, on re-argument, affirms its
previous decision denying the motion to amend.
The
damages associated with the Plaintiff's claims could rise in the event that the
court ultimately permits them to assert their proposed new claims regarding the
1,214,800 shares.
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, breach
of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. In addition, ReceptoPharm has opposed the
Plaintiffs' recent motion to amend and the motion is currently pending before
the Court. Discovery in this matter is ongoing. The Company
intends to vigorously contest this matter.
Concentrations
During
the six months ended June 30, 2010, 95% of the Company’s sales were to a single
customer.
7. SUBSEQUENT
EVENTS
Additional
Officer Loans
Subsequent
to June 30, 2010 and through July 30, 2010, the Company borrowed an additional
$190,300 from its President, Rik Deitsch. The amount owed to Mr.
Deitsch at July 30, 2010 was $1,218,149.
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 June 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 increase
our costs or otherwise adversely affect our operations; (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 proposed products have received FDA 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; and (m)
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; (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 and second 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
OTC (Stage 2 Pain) and Nyloxin Extra Strength (Stage 3 Pain), stronger
versions of Cobroxin.
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We will
continue this focus during the remainder of 2010.
During
our second quarter of 2010 and thereafter in the third quarter, we accomplished
the following:
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.
3
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 neurological damages in
diseases such as encephalitis and HIV.
Product
Advertising
In July
2010, our US distributor, XenaCare Holdings, Inc. (“XenaCare”), announced its
Cobroxin advertising campaign to begin on July 28, 2010 and run through December
2010, to consist of 2,515 television commercials in 60, 30 and 10 second spots
appearing on major cable stations such as: CNN, Fox News, Food, Travel, ESPN,
USA, Lifetime, CNBC, Comedy Central, AMC, History, Discovery, Fox Sports,
Headline News (HLN), and Home and Garden and 770 radio spots during drive-time
hours in Tampa, Atlanta, New York, Los Angeles and Houston.
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. 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.
Drug
Registration
In June
2010, we began the drug registration process in Panama for our Nyloxin Pain
Reliever.
Manufacturing
In May
2010, we completed manufacturing the first batch of Nyloxin Extra Strength, a
prescription treatment for chronic pain.
Retail
Sales and Distribution
During
the second quarter of 2010, we generated revenues of $150,158 from Cobroxin
sales; our collective revenues for the first and second quarters of 2010 are
$1,014,582. During the first and second quarters of 2010, we
continued to focus on expanding brand awareness for our over-the-counter pain
relievers, Cobroxin, Nyloxin OTC 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, 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.
4
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 an extensive 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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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 |
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.
5
Nyloxin
OTC/Nyloxin Extra Strength
Nyloxin
OTC 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 OTC/Nyloxin Extra Strength and Cobroxin is
the dilution level of the venom, with Nyloxin OTC and Nyloxin Extra Strength
being more concentrated then Cobroxin and Nyloxin Extra Strength being more
concentrated than Nyloxin OTC.
We intend
to market Nyloxin OTC 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 OTC 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 gel and 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 additional 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 first quarter of 2011.
In
December 2009, we began marketing Nyloxin OTC and Nyloxin Extra Strength at
www.nyloxin.com.
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 June 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 June 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 June 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 June 30, 2010, there were
no obsolete or excess items.
6
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 June 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 June 30, 2010 and June
30, 2009
Net sales
for the three months ended June 30, 2010 were $157,696 compared to $8,398 for
the three months ended June 30, 2009. Of the total sales during the
three months ended June 30, 2010, $150,158 was related to sales of our consumer
product Cobroxin and $7,538 was related to clinical research services provided
to third parties by our wholly owned subsidiary, ReceptoPharm. During
the three months ended June 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.
Net sales
for the periods ending December 31, 2009 and March 31, 2010 were $610,010 and
$864,424, respectively. Our sales during this quarter were significantly lower
primarily because our licensee, XenaCare Holdings, failed to provide proper
advertising and marketing exposure for Cobroxin. If XenaCare fails to
advertise Cobroxin effectively, our revenues may be negatively affected and we
will seek new marketing and distribution partners.
Cost of
sales for the three months ended June 30, 2010 was $62,934 compared to $3,000
for the three months ended June 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 June 30, 2010 was $94,762 or
60.1%. A comparison of gross profit from 2010 to 2009 is not
meaningful since we did not sell Cobroxin during the quarter ended June 30,
2009.
Salaries
and employee benefits for the three months ended June 30, 2010 were $330,284
compared to $127,676 for the comparable period in 2009. The increase
of $202,608 or 158.7% 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 $687,145 or 216.9%
from $316,787 for the quarter ended June 30, 2009 to $1,003,932 for the quarter
ended June 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 $203,750 or 104.5% from $195,000 for
the three month period ended June 30, 2009 to $398,750 for the three month
period ended June 30, 2010. This accounted for approximately 30% 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 $47,280 or 85.7% from $55,155 for the quarter
ended June 30, 2009 to $102,435 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 decreased $5,118 or 28.5%, from $17,965 for the quarter ended June 30,
2009 to $12,847 for the comparable period in 2010. This decrease was
due to an overall lower level of indebtedness during the quarter ended June 30,
2010 compared to the quarter ended June 30, 2009.
Our net
loss increased by $842,551 or 164.5%, from $512,185 for the quarter ended June
30, 2009 to $1,354,736 for the comparable period in 2010.
7
Results
of Operations – Comparison of Six Month Periods Ending June 30, 2010 and June
30, 2009
Net sales
for the six months ended June 30, 2010 were $1,022,120 compared to $26,628 for
the six months ended June 30, 2009. Of the total sales during the six
months ended June 30, 2010, $1,014,582 was related to sales of our consumer
product, Cobroxin, and $7,538 was related to clinical research services provided
by our wholly owned subsidiary, ReceptoPharm, to third
parties. During the six months ended June 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.
Net sales
for the periods ending December 31, 2009 and March 31, 2010 were $618,010 and
$864,424, respectively. Our sales during this quarter were significantly lower
primarily because our licensee, XenaCare Holdings, failed to provide proper
advertising and marketing exposure for Cobroxin. If XenaCare fails to
advertise Cobroxin effectively, our revenues may be negatively affected and we
will seek new marketing and distribution partners.
Cost of
sales for the six months ended June 30, 2010 was $465,476 compared to $3,260 for
the six months ended June 30, 2009. Our cost of sales includes the
direct costs associated with the manufacturing of Cobroxin. Our gross
profit margin for the six months ended June 30, 2010 was $556,644 or
54.5%. A comparison of gross profit from 2010 to 2009 is not
meaningful since we did not sell Cobroxin during the six months ended June 30,
2009.
Salaries
and employee benefits for the six months ended June 30, 2010 were $587,717
compared to $254,902 for the comparable period in 2009. The increase
of $332,815 or 130.6% 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 $999,258 or 226.1%
from $441,903 for the six months ended June 30, 2009 to $1,441,161 for the six
months ended June 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 $290,000 or 134.9% from
$215,000 for the six month period ended June 30, 2009 to $505,000 for the six
month period ended June 30, 2010. This accounted for approximately
29% 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 $31,873 or 25.4% from $125,375 for the six
months ended June 30, 2009 to $157,248 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 decreased $8,250 or 24.1%, from $34,286 for the six months ended June
30, 2009 to $26,036 for the comparable period in 2010. This decrease
was due to an overall lower level of indebtedness during the six month period
ended June 30, 2010 compared to the six month period ended June 30,
2009.
Our net
loss increased by $822,420 or 98.7%, from $833,098 for the six months ended June
30, 2009 to $1,655,518 for the comparable period in 2010.
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 June 30, 2010, we have an accumulated
deficit of $28,228,361 and working capital and stockholders’ deficits of
$2,147,401 and $1,994,968, respectively. In addition, we used
$836,580 of cash for operations during the six months ended June 30,
2010.
8
We
currently do not have sufficient 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.
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.
In the
event that 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 six month period ended
June 30, 2010, we repaid Mr. Deitsch an additional $145,000 bringing the total
amount owed to him to $1,027,849 at June 30, 2010. Included in this
amount is accrued interest of $232,607. After to June 30, 2010, we
borrowed an additional $190,300 from Mr. Deitsch.
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 six months ended June 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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whether
Cobroxin, Nyloxin OTC, 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 OTC 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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·
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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; and
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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 comply with FDA and other extensive legal/regulatory requirements
affecting the healthcare
industry.
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9
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.
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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 June 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.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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 breached its fiduciary
duty to the Plaintiffs as shareholders of ReceptoPharm by wrongfully canceling
certain of their purported ReceptoPharm share certificates. The damages
associated with the Plaintiff's 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.
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. In a decision and order dated
March 22, 2010, the court denied Plaintiffs' motion to further amend their
complaint to assert claims regarding the 1,214,800 shares. However, the
Plaintiffs have moved to reargue the court's decision on their motion to amend,
and also have filed a notice of appeal of the court's decision denying the
motion to amend, in the event that the court, on re-argument, affirms its
previous decision denying the motion to amend.
The
damages associated with the Plaintiff's claims could rise in the event that the
court ultimately permits them to assert their proposed new claims regarding the
1,214,800 shares.
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, breach
of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. In addition, Receptopharm has opposed the
Plaintiffs' recent motion to amend and the motion is currently pending before
the Court. 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
In April
2010, we sold 500,000 shares at a price per share of $0.10 to an accredited
investor and received cash proceeds of $50,000. These shares were
sold in connection with the exercise of warrants and were issued on May 7,
2010.
In April
and May 2010, we sold 1,000,000 shares at a price per share of $0.10 to an
accredited investor and received cash proceeds of $100,000. These
shares were sold in connection with the exercise of warrants and were issued on
May 7, 2010.
In May
2010, we sold 1,000,000 shares at a price per share of $0.10 to an accredited
investor and received cash proceeds of $100,000. These shares were
sold in connection with the exercise of warrants and were issued on May 7,
2010.
11
In May
2010, we 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, we sold 500,000 shares at a price per share of $0.10 to an accredited
investor and received cash proceeds of $50,000. These shares were
sold in connection with the exercise of warrants and were issued on June 30,
2010.
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
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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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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Dated: August
16, 2010
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NUTRA
PHARMA CORP.
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|
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Registrant
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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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12