As of March 18, 2011,April 15, 2013, there were 285,194,335589,393,259 shares of common stock.
INDEX
| Part I | ||
| Item 1. | Business | 3 |
| Item 1A. | Risk Factors | |
| Item 1B. | Unresolved Staff Comments | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | ||
| Part II | ||
| Item 5. | Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | |
| Item 9A. | Controls and Procedures | |
| Item 9B. | Other Information | |
| Part III | ||
| Item 10. | Directors, Executive Officers and Corporate Governance | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
| Item 14. | Principal Accountant Fees and Services | |
| Part IV | ||
| Item 15. | Exhibits and Financial Statement Schedules | |
| Signatures |
Nutra Pharma Corp and its wholly owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics, Inc. (“Designer Diagnostics”) are referred to herein as “we”, “our” or “us” (ReceptoPharm and Designer Diagnostics are also individually referred to herein).
Forward Looking Statements
This Annual Report on Form 10-K for the period ending December 31, 20102012 contains forward-looking statements that involve risks and uncertainties,most significantly, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operation), as well as assumptions that, if they never materialize or prove incorrect, could cause our results 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."” All statements other than statements of historical fact, are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations; and 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.
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PART I
Item 1. Business
Introduction
We were incorporated in the state of California on February 1, 2000. We have conducted our operations since October 2003.
Our wholly owned subsidiary and drug discovery arm, ReceptoPharm, carrieshas carried out our homeopathic and drug discovery research and clinical development and has fully developed three homeopathic drugs for the treatment of pain:
| · | Cobroxin®, an over-the-counter pain reliever designed to treat moderate to severe (Stage 2) chronic pain; and |
| · | Nyloxin™ and Nyloxin™ Extra Strength: stronger versions of Cobroxin® |
Our business plan will continue its efforts to produce, market and distribute our Cobroxin® and Nyloxin™ branded products both domestically and internationally.
From October 2009 until December 31, 2010,2012, our operations have centered on the marketing of Cobroxin® and Nyloxin™ and Nyloxin™ Extra Strength, from which we have earned accumulated net revenues of $1,910,238$2,259,172, which includes a reduction of $503,958 for Nyloxin™ sold during 2011 and returned in 2012. During fiscal year 2012, we earned revenues of $4,059 from the sale of Cobroxin® and net revenues of $199,231from sales of Cobroxin®Nyloxin™.
Additionally, ReceptoPharm has developed two drug candidates:
| · | RPI-78M, to treat neurological diseases, including Multiple Sclerosis (MS), Adrenomyeloneuropathy (AMN), Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s disease ) and Myasthenia Gravis; and |
| · | RPI-MN, to treat viral diseases, including HIV/AIDS and Herpes. |
ReceptoPharm has been and continues to developdeveloped proprietary therapeutic protein products primarily for the prevention and treatment of viral and neurological diseases, including Multiple Sclerosis (MS), Adrenomyeloneuropathy (AMN), Human Immunodeficiency Virus (HIV) and pain in humans. These potential products are subject to FDA approval. ReceptoPharm also provides contract research services through its ISO class 5 and Good Manufacturing Practice (“GMP”) certified facilities.
Our wholly owned subsidiary, Designer Diagnostics, has developed diagnostic test kits designed to be used for the rapid identification of infectious diseases, such as Nontuberculous Mycobacteria (NTM). These diagnostic test kits are currently being validated by National Jewish Hospital in Denver, Colorado.
We continue to identify biotechnology related intellectual property and companies with which we may potentially be able to enter into arrangements, agreements or to potentially acquire.
Industry Overview of the Pain Market
Pain is the most common symptom for patients seeking medical attention. Chronic pain in the United States is estimated to be 35.5% or 105 million people with costs of more than $100 billion per year in direct health-care expenditure and lost work time (American Pain Society)Society, 2010).
The global market for pain management products, including prescription and nonprescription analgesics, reached over $50 billion in 2009 according to an August 2010 article published in the journalNature Reviews Drug Discovery.The current market for pain drugs is expected to continue to grow according to Global Industry Analysts Inc., a market research firm that believes the aging baby boomer population will continue to trigger growth in this market resulting in a $35.5 billionUSmarket size by 2015.
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Our Products
Cobroxin®
We offer Cobroxin®, our over-the-counter pain reliever that has been clinically proven to treat moderate to severe (Stage 2) chronic pain. Cobroxin®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.not currently being marketed. In August 2009, we completed an agreement with XenaCare Holdings (“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, www.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. On April 1, 2011, we notified our Cobroxin Distributor, XenaCare that they were in breach of our agreement. As a result of this, the distribution agreement was terminated effective April 10, 2011. XenaCare had a large stock of the product that they had ordered from us and we have allowed them to continue to market their existing inventory of Cobroxin. In October 2011 we discontinued their website at www.Cobroxin.com. All current traffic to that website is now redirected to www.Nyloxin.com. We plan to begin manufacturing, marketing and distributing Cobroxin again when funding is available.
Cobroxin®
is available at the following| · | Overstock.com |
| · |
| · | Amazon.com |
| · |
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:
| · | safe and effective; |
| · | all natural; |
| · | long-acting; |
| · | easy to use; |
| · | non-narcotic; |
| · | non-addictive; and |
| · | analgesic and anti-inflammatory. |
Potential side effects from the use of Cobroxin® are rare, but may include headache, nausea, vomiting, sore throat, allergic rhinitis and coughing.
Nyloxin™/Nyloxin™ Extra Strength
Nyloxin™ and Nyloxin™ Extra Strength are similar to Cobroxin® because 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:
Nyloxin™
| · | Topical Gel: 30 mcg/mL |
| · | Oral Spray: 70 mcg/mL |
Nyloxin™ Extra Strength
| · | Topical Gel: 60 mcg/mL |
| · | Oral Spray: 140 mcg/mL |
Cobroxin
®| · | Topical Gel: 20 mcg/mL |
| · | Oral Spray: 35 mcg/mL |
In December 2009, we began marketing Nyloxin™ and Nyloxin™ Extra Strength at www.nyloxin.com. Both Nyloxin™ and Nyloxin™ Extra Strength are packaged in a roll-on container, squeeze bottle and as an oral spray. Additionally, Nyloxin™ topical gel is available in an 8 ounce pump bottle.
In September of 2012 we began distributing Nyloxin™ through TCN International, a Network Marketing Company. TCN distributes products and software applications to approximately 400,000 independent agents in more than 30 countries, including more than 40,000 agents in the United States.
We sellare currently marketing Nyloxin™ and Nyloxin™ Extra Strength as treatments for moderate to severe chronic pain. Nyloxin™ is 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 is 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.
In December 2012, we announced the availability of Nyloxin™ ExtraMilitary Strength in the form of topical gel and oral spray products outside offor sale to the United States upon completionMilitary and Veteran's Administration.Over the past few years, the U.S. Department of Defense has been reporting an increase in the use and abuse of prescription medications, particularly opiates. In 2009, close to 3.8 million prescriptions for pain relievers were written in the military. This staggering number was more than a 400% increase from the number of prescriptions written in the military in 2001. But prescription drugs are not the only issue. The most common and seemingly harmless way to treat pain is with non steroidal, anti-inflammatory drugs (NSAIDS). But there are risks. Overuse can cause nausea, vomiting, diarrhea, heartburn, ulcers and internal bleeding. In severe cases chest pain, heart failure, kidney dysfunction and life-threatening allergic reactions can occur. It is reported that approximately 7,600 people in America die from NSAID use and some 78,000 are hospitalized. Ibuprofen, also an NSAID has been of particular concern in the military. The terms “Ranger Candy” and “Military Candy” refer to the service men and women who are said to use 800mg doses of Ibuprofen to control their pain. But when taking anti-inflammatory Ibuprofen in high doses for chronic pain, there is potential for critical health risks; abuse can lead to serious stomach problems, internal bleeding and even kidney failure. There are significantly greater health risks when abuse of this drug is combined with alcohol intake. Our goal is that with Nyloxin, we can greatly reduce the instances of opiate abuse and overuse of NSAIDS in high risk groups like the US military. The new Nyloxin™ Military Strength represents the strongest version of Nyloxin™ available and is approximately twice as strong as Nyloxin™ Extra Strength. We are working with outside consultants to register Nyloxin™ Military Strength and the other Nyloxin™ products for sale to the US government and the various arms of the military as well as the Veteran's Administration. We expect to complete this registration process by the end of the third quarter of 2013.
We are pursuing international drug registrations whichin Canada, Mexico, Central and South America and Europe. Since European rules for homeopathic drugs are different than the rules in the US, we cannot estimate when this process will be completed during the second quarter of 2011.completed. Additionally, we plan to complete two human clinical studies aimed at comparing the ability of Nyloxin™Nyloxin Extra Strength to replace prescription pain relievers. We originally believed that these studies would begin during the second quarter of 2010; however, ourthese studies have been delayed because of lack of funding has delayed these studies.funding. We expect thatcannot provide any timeline for these studies willuntil adequate financing is available.
To date, our marketing efforts have been limited due to lack of funding. As sales increase, we plan to begin inmarketing more aggressively to increase the second quarter of 2011.
Regulation
The active pharmaceutical ingredient (API) in Cobroxin®, Nyloxin™ and Nyloxin™ Extra Strength, Asian cobra venom, has an approved United States monograph under the Homeopathic Pharmacopoeia of the United States (HPUS), which allowed us to register them with the FDA as homeopathic drugs. A United States monograph is a prescribed formulation for the production of any drug or product that is recognized by law for a specific application and that may be introduced into commerce. The FDA requires this registration process to maintain full compliance of companies marketing and selling medicines classified as homeopathic. In August 2009, we successfully completed submission of final packaging and labeling to the FDA to begin selling our over-the-counter pain reliever, Cobroxin®. In December 2009, we completed our submission of final packaging and labeling to the FDA of Nyloxin™ and Nyloxin™ Extra Strength.
Manufacturing
ReceptoPharm oversees Cobroxin® and Nyloxin™’s manufacturing activities, both at its Good Manufacturing Practice ("GMP") certified facility and at a third-party manufacturing and bottling facility. ReceptoPharm is also responsible for acquiring appropriate amounts of Asian cobra venom required to manufacture Cobroxin® and Nyloxin™.
Subject to availability of funds, ReceptoPharm also plans to begin additional clinical studies for our pain relievers. These studies will be designed to compare the efficacy of Nyloxin™ Extra Strength to other prescription strength pain relievers. A ReceptoPharm study published in Toxicon, which is the journal of the International Society of Toxinology, showed that ReceptoPharm’s leading drug product for the treatment of pain (RPI-78) had pain-reducing effects that lasted four times as long as morphine without the negative side effects associated with opioid-based pain relievers.
The FDA requires those companies manufacturing homeopathic medicines to have their facilities certified as GMP. As of October 2005, ReceptoPharm’s manufacturing and laboratory facility has been fully compliant with its GMP certification. In March 2009, ReceptoPharm received an ISO Class 5 certification for its clean room facility. An ISO Class 5 certification is a type of classification granted for a clean room facility according to the number and size of particles permitted per volume of air. An ISO Class 5 clean room has at most, 3,500 particles per square meter.
Manufacturing Cobroxin® and Nyloxin™ entails a two-step process, the first of which consists of ReceptoPharm manufacturing the bulk raw materials and completing the dilution levels of Cobroxin®’s and Nyloxin™’s active pharmaceutical ingredient ("API") as provided for in the Homeopathic Pharmacopeia of the United States, which is a compilation of continuously updated statements of Homeopathic Pharmacopoeia standards and monographs as recognized by that organization. Once this process is completed, the second step entails transport of raw materials to a third-party manufacturer that completes the final mixing, bottling and shipping processes.
We began limited manufacturing of Nyloxin™ in November 2010 and have2010. We scaled up manufacturing in the first quarter of 2011. Our production level is contingent upon product demand level.
Marketing and Distribution
We currently have no distributor for Cobroxin®. We plan to begin marketing and distributing Cobroxin® subject to the availability of funds through financing and/or revenues. If we reach an agreement with a new distributor, we would be dependent on that distributor for Cobroxin® sales.
In August 2009, we completed an agreement with XenaCare granting them the exclusive license to market and distribute Cobroxin® within the United States. To maintain this market exclusivity, XenaCare iswas required to meet certain minimum performance requirements;requirements. On April 1, 2011, we will considernotified our Cobroxin® Distributor, XenaCare to have breached its agreement with us ifHoldings that they fail to meet their minimum distribution requirements of Cobroxin®. If XenaCare is declaredwere in breach we may seek an alternative distribution partner to actively market Cobroxin® in the US.
In December 2009, we began marketing Nyloxin™ and Nyloxin™ Extra Strength at www.Nyloxin.com.
We are continuing our efforts to find strategic partnerships for the promotion, marketing, registration, licensing and sales of its products domestically and internationally.
Dependence on one or a Few Major Customers
With respect to Cobroxin®, Nyloxin™ and Nyloxin™ Extra Strength, we have only two customers, our distributors, XenaCare and Nutritional Alliance that distribute our productbeen distributing the products online and to various retailers. We are seeking both domestic and international distributors for these products. It may be that a larger distributor may require exclusivity in the US or any particular foreign market. If so, we would be dependent on that distributor for those Nyloxin™ sales.
International Drug Registrations
We are continuing our efforts to begincomplete the registration process in other countries.internationally. While many countries adopt similar regulation to the United States for registering homeopathic drugs, the international application process is more complex and may be lengthier. We will continue to seek qualified, well-funded distributors for the international distribution of Cobroxin®Cobroxin® and Nyloxin™.
ReceptoPharm’s Homeopathic Drug Pain Relief Studies
MS Neuropathic Pain Phase IV
Pending adequate financing or revenues, we will continue our research and development into this area, with the ultimate goal of improving product claims for Nyloxin™ Extra Strength, which is a treatment for stage 3 pain. Our original start and completion dates were March 2010 and September 2010, respectively, which includes a 10-week patient trial period. We have thus far incurred costs of $5,000 with a total estimated budget of $130,000.
Chronic Back Pain Phase I
Pending adequate financing or revenues, we will continue our research and development in this area, with the ultimate goal of completing development of our future product, Recet, which is an injectable version of Cobratoxin. Our original start and completion dates were April 2010 and November 2011, respectively, which includes a 4-week patient trial period. We have thus far incurred costs of $25,000 with a total estimated budget of $250,000.
Chr
onic Back Pain Phase IVPending adequate financing or revenues, we will continue our research and development, with this ultimate goal of improving product claims for Nyloxin™ Extra Strength, which is a treatment for stage 3 pain. Our original start and completion dates were April 2010 and November 2010, respectively, which includes a 4-week patient trial period. We have an estimated budget of $250,000. We have not yet incurred any costs associated with the Chronic Back Pain Phase IV project.
All of these studies have been delayed since June of 2010 due to our lack of revenues.revenues and funding. We will reassess our start and completion dates upon generating a sufficient amount of revenues, if ever.
ReceptoPharm – Research and Development
ReceptoPharm iswas engaged in the research and development of novel anticholinergic therapeutic protein products for the treatment of autoimmune and neurologic disorders, including Human Immunodeficiency Virus (HIV), Multiple Sclerosis (MS) Adrenomyeloneuropathy (AMN), Rheumatoid Arthritis (RA) and pain.
Drug Applications
We have set forth below a summary of ReceptoPharm’s proposed drugs and their potential applications.
| Drug | Potential Applications | |
| RPI-78M | MS, AMN, Myasthenia Gravis (MG) and Amyotrophic Lateral Sclerosis (ALS) | |
| RPI-MN | HIV, general anti-viral applications | |
| RPI-78 | Pain, Arthritis | |
| RPI-70 | Pain |
We believe that ReceptoPharm’s pharmaceutical products have a wide range of applications in a number of chronic, inherited and/or life-threatening viral, autoimmune and neuromuscular degenerative diseases, even though none of these products have FDA or other approval for the treatment of such diseases. These disorders target nerve cells, especially one specific type of cell receptor that is sensitive to the neurotransmitter,acetylcholine, which plays an important role in the transmission of nerve impulses at synapses and myoneural (muscle-nerve) junctions.
Primary Disease Targets
Through ReceptoPharm’s research program, our goal is to obtain required regulatory approvals of ReceptoPharm’s HIV, MS, and AMN products, so that they can be marketed. We plan to apply for Orphan drug status with the FDA to expedite approval for our AMN product; however there is no assurance we will obtain such status. ReceptoPharm secures confidentiality agreements prior to initiating contract research in order to protect any patentable opportunities.
Human Immunodeficiency Virus (HIV) Infection
TechNavio, a research and advisory firms focusing on pharmaceutical and health care issues, forecasts that the Global HIV drugDrugs market will grow to more than $8reach US$15.5 billion by 2013.2014. According to UNAIDS, an estimated 33.4 million people were living with HIV in 2009 with two-thirds of all HIV sufferers in sub-Saharan Africa. There were 2.2 million new infections in 2009 and 1.8 million people died of AIDS-related illnesses. Growth in the HIV therapy market will continue to be driven by the rapidly growing HIV and AIDS population. In the absence of therapeutic intervention, the vast majority of individuals infected with HIV will ultimately develop AIDS, on average in about 10 years, which has a mortality rate approaching 100%. Experts say that the drugs currently available only extend life on average 1.8 years. The foregoing information was obtained from the World Health Organization website at www.who.int and the UNAIDS website at www.unaids.org.
To cause infection, HIV needs to gain entry into cells through the attachment to receptors on the cell membrane. These receptors are called chemokine receptors. There are two principal types, CCR5 and CXCR4. Different HIV strains use one of these types. A single drug that would block all of the chemokine receptors ("tropism-independent") could be more useful, for several reasons, than a mixture of molecules that would have to be used to do the same.
HIV infection therapy currently uses antiviral drug therapies that are associated with the virus’s attachment, fusion with and entry into the host cell. At the present time, there are 27-licensed antiretroviral drugs employed to combat HIV-1 infection and two licensed by the FDA that act as binding/entry inhibitory drugs.
New drugs and adjunct therapies with novel mechanisms of action or unique resistance profiles are needed in the fight against HIV. Constant innovation, in terms of efficacy, side effect profile and dosing are occurring. Current research and development for HIV is focused on adjunctive therapy, which when combined with existing HAART (Highly Active Anti-Retroviral Therapy) regimens reduce side effects, enhance the efficacy of existing treatments and delay the progression of the HIV virus.
Both of ReceptoPharm’s drugs inhibited HIV replication in MAGI cells by 50-60% and peripheral mononuclear cells by 90% in testing conducted by Dr. Juan Lama of the La Jolla Institute for Molecular Medicine in San Diego, California. Separate Phase I studies by Cure Aids Now of Miami, Florida, were conducted by Dr. Jamal with orally and parentally administered RPI-78M in HIV patients confirmed safety, tolerability and provided preliminary evidence of efficacy.
RPI-MN demonstrated the ability to inhibit the replication of highly drug-resistant strains of HIV isolates. Drug resistance has become a critical factor in long-term management of HIV infection with some viral strains developing resistance in as little as 3 weeks.
Multiple Sclerosis (MS)
Multiple Sclerosis (MS) is thought to be an autoimmune disease that primarily causes central nervous system problems. In MS, the insulating fatty material surrounding the nerve fibers, also known as myelin, which functions to speed signaling from one end of the nerve cell to the other, is attacked by cells of the immune system causing problems in signal transduction. MS is the most common of demyelinating disorders, having a prevalence of approximately 1 per 1,000 persons in most of the United States and Europe. According to the Accelerated Cure Project for Multiple Sclerosis, a national nonprofit organization, 400,000 people in the US are affected by MS and another 2 million globally.
People with MS may experience diverse signs and symptoms. MS symptoms may include pain, fatigue, cognitive impairment, tremors, loss of coordination and muscle control, loss of touch sensation, slurred speech and vision impairment. The course of the disease is unpredictable and for most MS patients, the disease initially manifests a "relapsing-remitting" pattern. Periods of apparent stability are punctuated by acute exacerbations that are sudden unpredictable episodes that might involve impaired vision, diminished ability to control a limb, loss of bladder control, or a great variety of other possible neurologic deficits. In relapsing-remitting MS, some or all of the lost function returns, however, the patient sustains an unceasing, often insidious, accumulation of neuronal damage. As the burden of neural damage grows, new lesions are more likely to produce irreversible impairment of function. Typically, about eight to fifteen years after onset, MS patients enter the secondary-progressive phase. Eventually, progressive MS sufferers become wheelchair-bound, and may become blind and even incapable of speech. There is currently no FDA approved drug that reverses the course of the progressive form of MS.
RPI-78M has shown efficacy in animal models (EAE) for MS and ReceptoPharm is planning new animal studies to gain more insight into the levels of protection that the drugs afford. In one study conducted in August 2007, all members of an untreated animal control group developed signs of disease with different levels of paralysis/muscle weakness. A similar group in the August 2007 study treated with RPI-78M showed no disease in 90% of the animals in both acute and chronic applications of the test. Moreover, there were no toxicities reported though the animals received doses the equivalent of 280 times a human dose.
Furthermore, we believe that the ability to modulate the host immunostimulatory environment could form the basis of an effective strategy for the long-term control of autoimmunity in diseases like MS and Myasthenia gravis (MG) and is being studied as a therapeutic model for other neuromuscular diseases. Also, we believe our data suggest that it is possible that our novel therapeutic proteins could have a general application in autoimmune diseases based on human studies in Rheumatoid Arthritis and anecdotal reports from patients with Multiple Sclerosis.
In August of 1984, Biogenix applied for and received an Intrastate Investigational Drug (FSDHRS Protocol RA-1 (002)) from the Department of Health and Rehabilitation (HRS) in Florida that permitted the 4-week study of RPI-MN in 13 patients with Rheumatoid arthritis ranging in age from 49 to 81. Patients were enrolled for a period of 4 weeks; the results showed 30% to 49% improvement in range of joint motion, early morning stiffness and stamina (this data, along with other supporting intellectual property was acquired by ReceptoPharm from Biogenix). We believe that the data obtained from the examination of clinical efficacy in these three diseases can augment information from prior clinical studies and lead to the future investigation of treatments for other chronic conditions.
Adrenomyeloneuropathy (AMN) and Orphan Indications
Adrenoleukodystrophy, or ALD, is a genetically determined neurological disorder that, according to the Adrenoleukodystrophy Foundation, affects 1 in every 17,900 boys worldwide. The presentation of symptoms occurs between the ages of 4 and 10, and affects the brain with demyelination, which is the stripping away of the fatty coating that keeps nerve pulses confined and maintains the integrity of nerve signals. This process inhibits the nerves’ ability to conduct properly, which causes neurological deficits, including visual disturbances, auditory discrimination, impaired coordination, dementia and seizures. Demyelination is an inflammatory response and nerve cells throughout the brain are destroyed.
Adrenomyeloneuropathy (AMN) is the most common form of X-ALD, a maternally inherited type of ALD. AMN affects about 40-45% of X-ALD patients and usually presents itself in adolescence or adult life and may be preceded by hypoadrenalism. It is characterized by spastic paraplegia and a peripheral neuropathy, often being diagnosed as Multiple Sclerosis (MS). Nerve conduction studies in AMN show a predominant axonal neuropathy and show a loss of all axons. Lorenzo’s oil, a mixture of glyceryltrioleate and glyceryltrierucate, has been used for over a decade in an open, unblinded fashion with mixed results.
RPI-78M has been utilized in two clinical studies, which were completed at the Charles Dent Metabolic Unit located in London, England. The last trial was classified as a Phase IIb/IIIa study. These studies provided important safety data, showing RPI-78M to be well tolerated by the patients. Further study is warranted to provide data on the potential efficacy of RPI-78M to treat the symptoms of AMN.
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Pain and Arthritis
Protein or peptide-based drugs are penetrating the pain market with neurotoxins taking the lead. Botox (Allergan) and Prialt (Elan) have the potential to substitute over the long-term for morphine and other opiates in chronic pain indications. Opiates, though potent painkillers, suffer from drawbacks because they are addictive, short acting, and drug-resistance inducing. We plan to assess the effects of several peptides in animal models of pain in association with Soochow University in China. Several peptides have demonstrated positive effects and the research and development continues.
August 2007 studies at Soochow University proved the potential of ReceptoPharm’s drug candidates, RPI-78 and RPI-70. When compared to Dolantin, an opiate-based drug subordinate to morphine, the effects were very encouraging. While Dolantin provided immediate pain relief it began wearing off just as RPI-70 began to take effect. The effects of RPI-70 do not seem dramatic in contrast to Dolantin, considering the quantity of drug employed in this animal model. The concentration of RPI-70 was approximately 100 times less than the opiate product. Also, RPI-70 showed real potential for combining with other pain killing medications. RPI-78 was calculated to be 150,000 times more potent than aspirin. This product can be injected systemically providing evidence of a more practical application than Prialt, which must be administered intrathecally (into the spinal cord). Opiate drugs induce tolerance and dependence. This problem is not encountered with RPI-70 and RPI-78.
In February 2009, ReceptoPharm filed a patent application with the United States Patent and Trademark Office for the use of RPI-78 as a novel method for treating arthritis in humans. Also in February 2009, ReceptoPharm, in collaboration with Soochow University in China published positive data from its recent animal studies on the use of RPI-78 (Cobratoxin) as a method for treating arthritis. In March of 2011, ReceptoPharm was issued a patent for the use of cobratoxin as an analgesic (US patent #7,902,152)#7,902,152).
Market Values
Human Immunodeficiency Virus (HIV)
The World Health Organization estimates that 33.434.2 million people worldwide are HIV positive with the majority of these occurring in third world countries. In the United States alone, an estimated 1,000,0001,200,000 people are infected with an estimated 56,300 Americans becoming infected with HIV each year. The majority undergoes treatment for HIV-related conditions at an individual cost of $14,000 (HAART) to $34,000 (AIDS patients). According to DataMonitor; the HIV market, worth $9.3 billion in 2007, is expected to grow to $15.1 billion by 2017, driven by the increasing prevalence of HIV worldwide and the longer life expectancy of patients receiving treatment.
Multiple Sclerosis (MS)
MS affects an estimated 2.5 million people globally.globally with approximately 400,000 sufferers in the United States. There are 5 approved drugs for the treatment of this disease. The average annual cost of these drugs is $12,000 per person. In 2010, sales by one manufacturer, Biogen-Idec, were reported to be $2.5 billion for its drug, Avonex. According to a report by Piribo (Pharmaceutical Market Research), the total worldwide market for MS disease-modifying therapies is expected to grow at an 8.1% compound annual growth rate (CAGR) from 2010 through 2015, with sales reaching nearly $16.7 billion by the end of 2015 from $11.3 billion in 2010. ReceptoPharm’s MS drug, RPI-78M is considered to be a ‘Biologic’. Biologics represent the largest class of MS disease-modifying therapies by sales and by number of approved therapies. This sector is valued at $7.8 billion in 2010 and is expected to increase at a 2.5% compound annual growth rate (CAGR) to reach a value of $8.8 billion in 2015.
Adrenomyeloneuropathy (AMN)
AMN/ALD affects an estimated 30,000 people in the US with some estimates exceeding this number.
Current Technologies
ReceptoPharm, operating in its capacity as a clinical stage biotechnology company, hascreated a process that safely modifies proteins derived from cobra venom. ReceptoPharm also has rights to a drug delivery method that uses an aerosol formulation, which is administered under the tongue. Bytongue.By using this shared aerosol delivery technology, oral delivery is attainable, an important step for a biologic product. Theproduct.The system is 50% efficient and affects drug delivery in approximately 40% of patients in which it was tested. Topical preparations are being examined for future applications in treatment of such conditions as pain and Rheumatoid Arthritis (RA).
Business Strategy
Pending adequate financing or revenues, ReceptoPharm seeks to develop proprietary pharmaceutical products for human illnesses that qualify for “Fast-Track” or “Orphan Drug” status under FDA regulations, which can expedite regulatory review. For some conditions, the FDA has created the “two animal rule” which permits ReceptoPharm to collect data from ongoing animal research for human treatment applications.
We believe the results from ReceptoPharm’s research will assist in getting its applications processed through the FDA’s “Fast-Track” approval process and enable ReceptoPharm to plan the commercialization of each product independently and/or through joint ventures, partnerships and licensing arrangements. “Fast-Track”“Fast-Track” denotes life-threatening illnesses, while “Orphan” status refers to serious ailments affecting less than 200,000 individuals nationwide. AMN qualifies under both labels because it is considered an orphan disease and has no known cure.
In the areas of HIV and MS, ReceptoPharm plans to conduct clinical studies of its HIV and MS drugs under development. These "Phase II" studies will either prove or disprove the preliminary efficacy of ReceptoPharm's HIV and MS drugs under development. ReceptoPharm is in the process of attempting to secure agreements with third parties to conduct such clinical studies.
We believe that ReceptoPharm’s proposed unique pharmaceutical products can be used alone or licensed for use in combination with other therapeutic products and may be of interest to other established pharmaceutical companies as a means of extending the patent life of their proprietary products.
Short-term Goal
Although we focused our drug development efforts from 2006 to 2008 on clinical trials for ReceptoPharm’s HIV drug, RPI-MN, our primary focus now is on RPI-78M for the treatment of AMN and MS. In January of 2007, ReceptoPharm began their clinical study in AMN. The clinical study, which was completed at the Charles Dent Metabolic Unit located in London, England, is classified as a Phase IIb/IIIa study. The study provided important safety data, showing RPI-78M to be well tolerated by the patients. Further study is warranted to provide data on the potential efficacy of RPI-78M to treat the symptoms of AMN.
Mid-term Goal
Our midterm strategy for the past three years has been to license ReceptoPharm’s AMN, MS and HIV technologies in our attempt to bring these technologies to market within 5 years, should we obtain adequate financing.
Long-Term Goal
Our long-term goal is the use of drugs developed by ReceptoPharm in the field of neurological diseases, infectious diseases and autoimmune disorders. Due to our limited financial and operational resources, this goal will require us to establish strategic partners or alliances with pharmaceutical companies, academic institutions, biotechnology companies, and clinical diagnostic laboratories, which will: (a) complement ReceptoPharm’s research and development efforts; (b) reduce the risks associated with undertaking the entire process of drug development and marketing; and (c) generate licensing based revenue streams. Additionally, we plan to continue identifying intellectual property and companies in the biotechnology arena as potential acquisition candidates.
Compassionate Release Programs
Certain countries, such as Canada and the United Kingdom permit their citizens to have access to investigational medications without being approved for any applications by their respective “FDA type” agencies, and permit physicians to prescribe drugs they believe are of possible benefits to the patients. Through these “Compassionate Release Programs” ReceptoPharm has supplied RPI-78M, its drug under investigation for MS and AMN, to physicians in the United Kingdom. The FDA does not offer this program.
Clinical Trial Applications
ReceptoPharm has developed Common Technical Documents (CTD) for both RPI-78M and RPI-MN that are used to support any clinical trial application. The CTD is a complete history of the individual drug, including all of the in-vitro and in-vivo work accomplished to date, as well as pre-clinical development work on the drug. Having these completed documents allows for expedited due diligence from regulatory bodies reviewing ReceptoPharm’s applications for trials and approvals. With these documents, ReceptoPharm has successfully applied for approval to conduct a clinical investigation in the United Kingdom under the regulation of the Medicines Health and Regulatory Agency (MHRA), which is the British equivalent of the US-FDA.
Current Research and Development Projects
Neurological Studies
Pain Studies
In an effort to further support Nyloxin™ Extra Strength, ReceptoPharm planshad planned to complete two human clinical studies aimed at comparing the ability of Nyloxin™ Extra Strength to replace prescription pain relievers. ReceptoPharm originally estimated that these studies would begin during the second quarter of 2010; however, these studies have been delayed because of lack of funding.
AMN Phase II
ReceptoPharm has been conducting research and development in this area since February 2006 with an original expected completion date of September 2010, which includes a 12-month patient trial period that has already been completed. We have thus far expended approximately $400,000. Because ReceptoPharm has completed its AMN Phase II project, there is no further budget for this project.
AMN Phase III
ReceptoPharm willhad planned to continue research and development, with the ultimate goal of completing development of its future drug, RPI-78M. ReceptoPharm’s originally estimated start and completion dates are July 2010 and December 2011, respectively, which includes a 12-month patient trial period. ReceptoPharm has thus far incurred costs of $5,000. ReceptoPharm has an estimated budget of $500,000. We have no way of knowing at this time, if or when we will have adequate funding to reinitiate these trials.
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MS Phase II
Pending adequate financing or revenues, ReceptoPharm will continue its research and development, with the ultimate goal of completing development of its future drug, RPI-78M. ReceptoPharm’s originally estimated start and completion dates are October 2010 and October 2012, respectively, which includes a 12-month patient trial period. ReceptoPharm has thus far incurred costs of $40,000. ReceptoPharm has an estimated budget of $2,000,000.
Currently, ReceptoPharm’s total estimated costs for all of the above projects are approximately $3,000,000.
All of these studies have been delayed due to a lack of revenues.revenues and funding. Upon obtaining sufficient revenues, if ever, ReceptoPharm will provide updated estimates of start and completion dates.
Research and Development
During 20092012 and 2010,2011, we had research and development costs of $222,558$3,046 and $191,786,$90,865, respectively.
We have no customers with respect to our research and development projects since we have not received FDA approval for our drug candidates
Marketing
We currently do not have a marketing program for our drug candidates because none of ReceptoPharm’s products have received FDA approval. Our lack of financing has hampered our efforts to navigate the regulatory process in a timely fashion; however, if and when we have FDA approvedFDA-approved drug treatments, we plan to develop a marketing strategy to market ReceptoPharm’s products through pharmaceutical companies, other biotechnology companies, and diagnostic laboratories. Our Chief Executive Officer will market the treatments to licensing and development officers of those companies and will otherwise direct our marketing program. Additionally, we will attempt to secure consulting agreements with marketing consultants who will actively market our products to such companies and/or provide our Chief Executive Officer with marketing guidance.
Potential Revenue Segments
Our potential revenue segments are composed of our attempt to generate revenues from license agreements, joint ventures in foreign countries and drug sales.
To date, we have not earned any revenues regarding any FDA drug candidate
Product Liability
We havemaintain product liability insurance for our commercial products. Even so, product liability claims may result in significant legal costs related to our defense of such actions if damage amounts exceed our product liability insurance coverage. The design, development, and manufacture of drug products or diagnostic tests involves an inherent risk of product liability claims and corresponding damage to our brand name reputation, including claims of product failure or harm caused by the drug product. ReceptoPharm has product liability insurance for purpose of manufacturing the drugs currently under clinical trials; however, there is no assurance that such insurance would protect us against any product liability claims.
Sources and Availability of Raw Materials
ReceptoPharm uses the raw material, cobra venom, for the drugs that it studies and in Cobroxin® and Nyloxin™ production. We currently have twoone US supplierssupplier of cobra venom that we use according to product demand. In addition, there are other suppliers in China, Thailand and India. Paul Reid, ReceptoPharm’s Chief Executive Officer,management is responsible for locating cobra venom suppliers on an as-needed basis, which involves obtaining a small test amount from a supplier for scientific validation of that raw material prior to purchase. Apart from cobra venom, we do not currently use raw materials in our business.
Compliance with Government Regulations and Need for Government Approval
The production and marketing of potential drug products as well as research and development activities generally are subject to regulation by numerous governmental authorities in the United States and other countries. In the United States, vaccines, drugs and certain diagnostic products are subject to FDA review of safety and efficacy. The Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations govern or influence the testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of such products. Noncompliance with applicable requirements can result in criminal prosecution and fines, recall or seizure of products, total or partial suspension of production, or refusal of the government to approve Biological License Applications ("BLAs"), Product License Applications ("PLAs"), New Drug Applications ("NDAs") or refusal to allow a company to enter into supply contracts. The FDA also has the authority to revoke product licenses and establishment licenses previously granted.
In order to obtain FDA approval to market a new biological or pharmaceutical product, proof of product safety, purity, potency and efficacy, and reliable manufacturing capability must be submitted. This requires companies to conduct extensive laboratory, pre clinical and clinical tests. This testing, as well as preparation and processing of necessary applications, is expensive, time-consuming and often takes several years to complete. There is no assurance that the FDA will act favorably in making such reviews. Our potential partners, or we, may encounter significant difficulties or costs in their efforts to obtain FDA approvals, which could delay or preclude from marketing any products that may be developed. The FDA may also require post-marketing testing and surveillance to monitor the effects of marketed products or place conditions on any approvals that could restrict the commercial applications of such products. Product approvals may be withdrawn if problems occur following initial marketing, such as, compliance with regulatory standards is not maintained. Delays imposed by governmental marketing approval processes may materially reduce the period during which a company will have the exclusive right to exploit patented products or technologies. Refusals or delays in the regulatory process in one country may make it more difficult and time consuming to obtain marketing approvals in other countries.
The FDA approval process for a new biological or pharmaceutical drug involves completion of preclinical studies and the submission of the results of these studies to the FDA in an Initial New Drug application, which must be approved before human clinical trials may be conducted. The results of preclinical and clinical studies on biological or pharmaceutical drugs are submitted to the FDA in the form of a BLA, PLA or NDA for product approval to commence commercial sales. In responding to a BLA, PLA or NDA, the FDA may require additional testing or information, or may deny the application. In addition to obtaining FDA approval for each biological or chemical product, an Establishment License Application ("ELA") must be filed and the FDA must inspect and license the manufacturing facilities for each product. Product sales may commence only when both BLA/ PLA/ NDA and ELA are approved. In certain instances in which a treatment for a rare disease or condition is concerned, the manufacturer may request the FDA to grant the drug product Orphan Drug status for a particular use. "Orphan Drug" status refers to serious ailments affecting less than 250,000 individuals. In this event, the developer of the drug may request grants from the government to defray the costs of certain expenses related to the clinical testing of such drug and be entitled to marketing exclusivity and certain tax credits.
In order to gain broad acceptance in the marketplace of a medical device, our partners or we will need to receive approval from the FDA and other equivalent regulatory bodies outside of the United States. This approval will be based upon clinical testing programs at major medical centers. Data obtained from these institutions will enable us, or our partners, to apply to the FDA for acceptance of its technology as a "device" through a 510(k) application or exemption process. Once the data have been fully gleaned, it is expected that this process would take ninety days.
According to the FDA, a "device" is: "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes."
The FDA classifies devices as either Class I/II-exempt, Class II, or Class III.
Class III: Pre-Marketing Approval, or PMA: A Pre-Marketing Approval or PMA is the most stringent type of device marketing application required by FDA. A PMA is an application submitted to FDA to request clearance to market, or to continue marketing of a Class III medical device. A PMA is usually required for products with which FDA has little previous experience and in such cases where the safety and efficacy must be fully demonstrated on the product. The level of documentation is more extensive than for a 510(k) application and the review timeline is usually longer. Under this level of FDA approval, the manufacturing facility will be inspected as well as the clinical sites where the clinical trials are being or have been conducted. All the appropriate documents have to be compiled and available on demand by the FDA. The manufacturing facility is registered with the FDA and the product or device is registered with the FDA.
Class II: 510(k). This is one level down from the PMA and it is applied to devices with which the FDA has had previous experience. A 510(k) is a pre-marketing submission made to FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to pre-market approval. Applicants must compare their 510(k) device to one or more similar devices currently on the U.S. market and make and support their substantial equivalency claims. The legally marketed device to which equivalence is drawn is known as the "predicate" device. Applicants must submit descriptive data and, when necessary, performance data to establish that their device is SE to a predicate device. Again, the data in a 510(k) is to show comparability, that is, substantial equivalency (SE) of a new device to a predicate device. Under this level of approval, the manufacturing facility is registered with the FDA and the product or device is registered with the FDA. Inspections under this classification are possible. All the appropriate cGMP and clinical data backing the claims made must be on file and available on demand by the FDA.
Class I/II Exemption: This is the lowest level of scrutiny. Most Class I devices and a few Class II devices are exempt from the pre-marketing notification requirements subject to the limitations on exemptions. However, these devices are not exempt from other general controls. All medical devices must be manufactured under a quality assurance program, be suitable for the intended use, be adequately packaged and properly labeled, and have establishment registration and device listing forms on file with the FDA. However, as described above, all the appropriate documentation including cGMP and clinical data supporting the claims being made has to be on hand and available on demand by the FDA. The data must be available to support all the product claims.
Sales of biological and pharmaceutical products and medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product or a device by a comparable regulatory authority of a foreign country must generally be obtained prior to the commencement of marketing in that country.
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Effect of Compliance with Federal, State, and Local Provisions for the Protection of the Environment
We have no present or anticipated direct future costs associated with environmental compliance, since we are not and will not be directly involved in manufacturing drug products as result of our research and development; however, we may be affected in the percentage licensing fees we receive, since a company may consider the environmental expense as an offset to a determination of the percentage amount we receive. ReceptoPharm produces a drug that has limited waste issues and related costs, but handles environmentally related matters through the FDA's Good Manufacturing Practices, the FDA mandated guidelines pertaining to the production of drugs in the United States.
Ability to Compete
The biotechnology research and development field is extremely competitive and is characterized by rapid change. Our competitors have substantially greater financial, scientific, and human resources, and as a result greater research and product development capabilities. Our competitors have competitive advantages with greater potential to develop revenue streams. Our competitors are located in the United States as well as around the world. We will attempt to compete by establishing strategic partners or alliances with pharmaceutical companies, academic institutions, biotechnology companies, and clinical diagnostic laboratories, which will enter into joint ventures, emphasizing that the drugs RPI-MN and RPI-78M possess the following properties:
· | They lack measurable toxicity but are still capable of attaching to and affecting the target site on the nerve cells. This means that patients cannot overdose. |
| · | They display no significant adverse side effects following years of investigations in humans and animals. |
| · | The products are stable and resistant to heat, which gives the drug a long shelf life. The drugs’ stability has been determined to be over 4 years at room temperature. |
RPI-78M can be administered orally; however, ReceptoPharm has not yet developed an orally administered RPI-78M. RPI-78M has been routinely delivered by injection in a manner similar to insulin, but research over the past two years has given rise to administration by mouth. Oral delivery presents patients with additional “quality of life” benefits by eliminating or decreasing the requirements for routine injections. Should we receive adequate funding, ReceptoPharm plans to develop an orally administered RPI-78M by initiating new trials with an oral version of that drug.
Main Competitors (Biologics)
Competition is intense among companies that develop and market products based on advanced cellular and molecular biology. ReceptoPharm’s competitors, including Amgen, Sanofi-Aventis, Biogen-Idec, Cephalon, Genetech, Genzyme, Novartis, Regeneron and Bayer, which have far superior financial, technological and operational resources. We face significant competition from these and other biotechnology and pharmaceutical firms in the United States, Europe and elsewhere. Certain specialized biotechnology firms have also entered into cooperative arrangements with major companies for development and commercialization of products, creating an additional source of competition.
Any products or technologies that successfully address viral or neurological indications could negatively impact the market potential for RPI-78M or RPI-MN. These include products that could receive approval for indications similar to those for which RPI-78M or RPI-MN seeks approval, development of biologic or pharmaceutical treatments that are more effective than existing treatments and the development of other modalities with reduced toxicity and side effects.
Interferon-based drugs and their indications represent target markets for ReceptoPharm. Sales of interferon-based drugs annually exceed $6 billion and have attracted the participation of several major drug companies, including Bayer and Roche. Currently, there are five interferon-based drugs licensed in Canada and the U.S.; three for the treatment of the milder Relapsing-Remitting form of MS and two for Hepatitis C. These interferons are also used in the treatment of other conditions where treatment options are limited. The interferons for MS are Betaseron (Bayer), Avonex (Biogen-Idec) and Rebif (Serono and Pfizer). Since the launch of these drugs, the number of patients undergoing treatment has stabilized at current levels, indicating that there is a high turnover rate of patients in the administration of these individual drugs due to cost and side effects. Biogen developed Avonex in the early 1990’s and has been shipping the drug since late 1996. In the United Kingdom, the National Institute for Clinical Efficiency (NICE) has called for the withdrawal of Betaseron and another unrelated drug, Copaxone (Teva), from the market based on poor cost/effectiveness.
Schering (a Merck subsidiary) manufactures alpha-interferon (Intron-A) and Roche produces Roferon as the only treatments for Hepatitis C. Schering-Plough also developed the drug Ribavirin as a general antiviral agent which, when combined, with Intron-A, is a treatment for Hepatitis C. This combination is called Ribitron. Treatment with Intron-A costs $19,000 per year though initial treatment periods are usually for 12 months. It is the high cost and significant side effects that prevents the widespread uptake of this drug by the 4 million Hepatitis C sufferers in the US. Other companies producing interferon-based products include Amgen (INFERGEN) and Viragen.
Main Competitors (Venom-Based Drugs)
We view our main competitors as those who also engage in the development of protein-based neurotoxins as therapeutics. Employing venoms as therapeutics is not new. A large number of well-known pharmaceutical companies are developing novel therapies derived from snake venoms and other reptiles. Most of those using snake venoms employ the anticoagulant enzymes usually from viperids (adders and rattlesnakes) though elapids (cobra family) are also being investigated.
We have set forth below a summary of venom-based drugs and their potential applications.
| Company | Drug | Application |
| Knoll Pharmaceutical | Ancrod | Anticoagulant from rattlesnakes |
| Medicure | Aggrastat | Antiplatelet drug from vipers |
| Millennium Pharmaceutical | Integrilin | Antiplatelet drug from rattlesnakes |
| Amylin Pharmaceuticals | Extendin-4 | Treatment for type 2 diabetes and obesity from Gila Monster |
| Elan Pharmaceuticals | Prialt | Intrathecal drug from cone snails for intractable pain |
Current cobra venom-based therapies include Keluoqu, a pain-killing drug on the market in China since 1978. Keluoque contains cobrotoxin as its primary ingredient and is used to control severe pain in advanced cancer patients and for post-operative pain.
Designer Diagnostics
Designer Diagnostics developed diagnostic test kits designed to be used for the rapid identification of infectious diseases, such as Nontuberculous Mycobacteria (NTM). Currently, these test kits are being tested by National Jewish Hospital in Denver, Colorado. We will reassess our business plan with respect to Designer Diagnostics upon completion of testing at National Jewish Hospital.
Nanologix
On January 24, 2006, we entered into an Agreementagreement with NanoLogix whereby we exchanged our holding of NanoLogix common stock for the intellectual property pertaining to the manufacture of test kits for the rapid isolation, detection and antibiotic sensitivity testing of certain microbacteria. Designer Diagnostics owns 11 issued patents and has licensing rights to 18 issued patents related to the rapid isolation, growth, identification and antibiotic sensitivity of disease causing pathogens such as Tuberculosis ("TB") and Mycobacterium avium-intracellulare ("MAI"). The patented technologies are related to a technique known as "paraffin baiting". The researchers discovered that certain grades of paraffin wax, when used in conjunction with a microscope slide, and combined with a nutrient broth, provides for the rapid isolation, growth and identification of various disease causing pathogens. Designer Diagnostics marketsmarketed a diagnostic test kit based on this technology. Designer Diagnostics plans to market its products to hospitals, clinical laboratories, medical research institutions, medical schools, physician's offices,technology in 2006 and even pharmaceutical companies, as the antibiotic sensitivity testing methodology may be useful in creating new drugs to treat paraffinophilic microorganisms.
Bio-Therapeutics, Inc.
On October 3, 2003, we entered into a non-assignable license agreement between Bio-Therapeutics, Inc. and us, which was then amended to make the license agreement assignable. This agreement was in settlement of a lawsuit that we filed against Bio-Therapeutics alleging that Bio-Therapeutics owed us $850,000 in connection with a merger agreement between usBio-Therapeutics and Bio-Therapeuticsus that was cancelled.
The 2003 license agreement provides that for a non-exclusive license to certain intellectual property of Bio-Therapeutics, Inc,Inc., which consists of the following two distinct technology platforms:
· | Alteration of Proteins and Peptides - These include patented methods for altering the 3-Dimensional structure of certain proteins and peptides. The natural peptides bind to receptors in the body with toxic effects. This technology allows us to alter the structure of these peptides, preserving their receptor-binding characteristics, while making them non-toxic and therapeutic. Different receptors have various functions in many disease states. By the peptides binding to these receptors in a controlled fashion, certain disease symptoms may be treated. In connection with MS, binding to the acetylcholine receptor on the nerves allows for more efficient nerve conduction. With HIV, binding to chemokine receptors may prevent the virus from entering and infecting new cells. |
| · | Non- Exclusive License for “Buccal Delivery System”(“Buccal”) – An innovative aerosolized drug delivery system that is patent pending. Many therapeutic agents cannot be effectively delivered by aerosol formulation due to their large size and/or irregular shapes. Since these therapeutic agents cannot be ingested orally without being degraded by the digestive system, patients have no alternative but to directly inject these drugs. We have a non-exclusive license to the Buccal patent pending proprietary aerosol formulation, which greatly enhances the permeability of the mucous membranes found on the roof of the mouth and the back of the throat. This allows for the easy and efficient systemic delivery into the bloodstream of a much wider variety of proteins and peptides. This non-exclusive license for "Buccal Delivery System" and patent pending application includes claims that identify the active mucosal enhancer, its combination with therapeutic agents and the mode of delivery through aerosol. This may allow for the effective and pain-free delivery of peptide and protein therapeutics for the treatment of HIV and MS. |
We have the following patents expiring at various dates indicated below:
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Bio-Therapeutics Patents
We hold the license to certain intellectual property belonging to Bio-Therapeutics that has either been granted a patent or is in the patent application process as follows:
U.S. Patent No. 5,989,857, Polypeptide compositions and methods was granted in November 1999 with 10 claims. The patent outlines a method of preparing a bioactive polypeptide in a stable, inactivated form, the method comprising the step of treating the polypeptide with ozonated water in order to oxidize and/or stabilize the cysteine residues, and in turn, prevent the formation of disulfide bridges necessary for bioactivity. This patent expires on May 10, 2016.
U.S. Patent No. 6,670,148, Compositions comprising bioactive peptides prepared without formation of native disulfide bonds was granted in December 2003, with 9 claims. The patent further describes a method of preparing a bioactive polypeptide in a stable, inactivated form, the method comprising the step of treating the polypeptide with ozonated water in order to oxidize and/or stabilize the cysteine residues, and in turn, prevent the formation of disulfide bridges necessary for bioactivity. The method can involve the use of ozonated water to both oxidize the disulfide bridges in a bioactive polypeptide, and to then stabilize the resultant cysteine residues. Optionally, and preferably, the method can involve the use of ozonated water to stabilize the cysteine residues, and thereby prevent the formation of disulfide bridges, in a polypeptide produced by recombinant means in a manner that allows the polypeptide to be recovered with the disulfide bridges unformed. This Patent expires on May 10, 2016.
U.S. Patent Application Number 11/415377, Buccal Delivery System, with 20 claims. The patent describes a delivery formulation and system for delivering inactivated bioactive peptides to the body. The formulation includes effective amounts of the peptide as well as a mucosal permeation enhancer selected from the group consisting of quaternary ammonium salts. The system can be used by spraying the formulation into the buccal cavity, e.g., to the roof of the mouth. This application is currently listed as abandoned as of December 2009.
U.S. Patent Application Number 11/431126, Immunokine composition and method with 31 claims. The patent describes a composition and method for preventing HIV infection of mammalian cells. One aspect of the invention relates to an anti-immunodeficiency virus immunokine capable of binding to a cellular protein in a manner that prevents HIV infection of that cell. The compositions can include either an active bioactive polypeptide, such as native cobratoxin, and/or an inactivated bioactive polypeptide, such as cobratoxin in which one or more of the native disulfide bridges have been prevented from forming. The term "immunokine" is used to refer to an inactivated bioactive polypeptide, whether inactivated by chemical, genetic, and/or synthetic means as described herein, with the proviso that a corresponding active bioactive polypeptides can be included where applicable (e.g., for in vitro use). This application is currently listed as abandoned as of June 2009.
ReceptoPharm Patents
ReceptoPharm has twothree issued and several patents pending with the United States Patent and Trademark Office. These patents include:
U.S. Patent No. 8,034,777, Modified Anticholinergic Neurotoxins as Modulators of the Autoimmune Reaction was granted in October 2011with 7 claims. The patent describes a method of treatment of a human patient suffering from Multiple Sclerosis comprising the administration of a disease-mitigating amount of a composition consisting of detoxified and modified alpha-cobratoxin in a saline solution. This patent is meant to protect and support our work in the production of drugs for the treatment of auto-immune diseases.
U.S. Patent No. 7,902,152, Use of cobratoxin as an analgesic was granted in March 2011 with 16 claims. The patent describes a composition of matter for an analgesic and its method of use is disclosed. The method of use is for the treatment of chronic pain, especially to the treatment of heretofore intractable pain as associated with advanced cancer. The pain associated with neurological conditions, rheumatoid arthritis, viral infections and lesions is also contemplated. The method includes administering to a host an alpha-neurotoxin that is characterized by its ability to blocking of the action of acetylcholine at nicotinic acetylcholine receptors. Currently, this would be applied to the Company's current and future drugs for the treatment of pain.
U.S. Patent No. 7,758,894, Modified elapid venoms as stimulators of the immune reaction was granted in July, 2010 with 14 claims. The patent describes a method of protection from infections by administering a detoxified and neurotropically active modified venom containing alpha-cobratoxin. Protection includes bacterial, viral and parasitic infections. This patent is meant to protect and support our work in our production of anti-infective treatments. Currently, this would be applied to RPI-MN and RPI-78.
U.S. Patent Application Number 11/217,713, Modified venom and venom components as anti-retroviral agents with 10 claims was filed in September 2005. The present invention describes a method of treatment of human subject suffering from infection with HIV, comprising administering a disease mitigating amount of a detoxified, modified cobra venom composition in an amount effective to ameliorate at least one symptom of said infection. This patent is meant to protect and support our work in the production of anti-viral treatments. Currently, this would be applied to RPI-MN and RPI-78.
U.S. Patent Application Number 11/784,607, Treatment of Autoimmune Disorders Using Detoxified Cobratoxin was filed in April 2007. The patent describes a method of treating patients suffering from autoimmune disorders comprising the administration of detoxified cobra venom. This patent is meant to protect and support our work in the production of drugs for the treatment of auto-immune diseases. Currently, this would be applied to RPI-78MN.
U.S. Patent Application Number 12/317,115, Alpha-neurotoxin Proteins with Anti-inflammatory Properties and Uses Thereof was filed in December 2008. The patent describes a method of treating an arthritic condition comprising the administration to a subject in need thereof an effective amount of a pharmaceutical composition comprising an isolated alpha-neurotoxin protein or an effective fragment thereof. This patent is meant to protect and support our work in the production of drugs for the treatment of inflammatory diseases.
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Patents Assigned to Us by Nanologix, Inc. and Used by Designer Diagnostics
Because we have focused on our drugs, we have not continued any activity in the Designer Diagnostics division since June, 2011. As results become available through the validation process taking place at National Jewish Hospital in Denver and funding becomes available, we may revisit the technology and re-engage our efforts in Designer Diagnostics.
On January 24, 2006 we entered into an Agreement with NanoLogix whereby we exchanged our entire holding of NanoLogix common stock for intellectual property pertaining to the manufacture of test kits for the rapid isolation, detection and antibiotic sensitivity testing of certain mycobacteria. The agreement provides that: (a) NanoLogix has reassigned to us 11 key patents protecting the diagnostics test kit technology in exchange for our entire holding of NanoLogix stock represented by 4,556,174 shares of that stock; (b) NanoLogix has licensed to us the remaining 18 patents that protect the diagnostics test kit technology in exchange for a 6% royalty on the gross sales of the products based on the licensed technology or escalating minimum payments starting at $20,000 annually; (c) we issued to NanoLogix 1 million options of our restricted common stock at $.20 per share; and (d) we will allow NanoLogix to continue their use of these patents for development of their hydrogen technology and other technologies unrelated to medical diagnostic test kits.
On or about July 2009, we ceased paying the minimum royalties to Nanologix for the licensed patents and have allowed full rights to those patents to revert back to Nanologix.
We own 11 issued U.S. patents covering technologies related to growing, detecting, identifying, defining antibiotic sensitivity and designing apparatus for the detection of 32 different paraffin-eating microorganisms that were assigned to us by Nanologix, Inc..Inc. These patents arewill be used by our wholly owned subsidiary, Designer Diagnostics.
U.S. Patent No. 5,989,902, Method for determining the antimicrobial agent sensitivity of a nonparaffinophilic hydrophobic microorganism and an associated apparatus was granted in November 1999 with 3 claims. The patent describes a method for determining a sensitivity of a nonparaffinophilic hydrophobic microorganism to an antimicrobial agent. The method includes providing at least one receptacle containing an aqueous broth including a carbon source and introducing the nonparaffinophilic hydrophobic microorganism into the receptacle. The method further includes placing into the receptacle (i) a slide coated with a hydrophobic material and (ii) a predetermined quantity of the antimicrobial agent to be tested. By observing the nonparaffinophilic hydrophobic microorganism growth or lack thereof on the slide, it can be determined whether the predetermined quantity of the antimicrobial agent is effective in inhibiting growth of the nonparaffinophilic hydrophobic microorganism on the slide. An associated apparatus is also disclosed. This Patent expires on November 13, 2017.
U.S. Patent No. 5,981,210, Method for determining a presence or absence of a nonparaffinophilic hydrophobic microorganism in a body specimen by using a DNA extraction procedure and a novel DNA extraction procedure was granted in November 1999 with 17 claims. The method of the invention involves providing a first receptacle and a second receptacle. The first receptacle contains a sterile aqueous broth and the second receptacle contains an aqueous broth including a carbon source. The method then includes placing into the first receptacle a first support surface having a paraffin wax coating thereon and placing into the second receptacle a second support surface having a hydrophobic material coating thereon. A body specimen, such as sputum, is then introduced into each of the first and second receptacles. The presence of a nonparaffinophilic hydrophobic microorganism in the body specimen is determined by observing (i) a lack of microorganism growth on the paraffin coated material of the first support surface and (ii) a presence of microorganism growth on the hydrophobic material coating of the second support surface. The presence of the nonparaffinophilic hydrophobic microorganism can be further confirmed by performing a DNA extraction. An associated DNA extraction procedure is also provided. This Patent expires on November 13, 2017.
U.S. Patent No. 5,935,806, Method and apparatus for speciating and identifying MAI (Mycobacterium Avium Intracellulare) and testing the same for antibiotic sensitivity was granted in August 1999 with 3 claims. The patent describes a method of speciating and identifying MAI in a specimen comprises placing a paraffin coated slide in a receptacle containing a sterile aqueous solution inoculated with the specimen, analyzing the slide after exposure to the specimen to determine the presence or absence of atypical Mycobacteria, and after the analysis step, if atypical Mycobacteria are determined to be present, performing at least one speciation assay to ascertain if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for speciating and identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous solution contained therein, the tube adapted to hold the slide, and at least one speciation assay means for performing an assay to determine the presence or absence of MAI in the specimen after the specimen is introduced into the tube holding the solution and the slide. An apparatus and method for determining the sensitivity of MAI to different antibiotics and dosages thereof is also provided. This Patent expired on October 24, 2009 for failure to timely pay maintenance fees.
U.S. Patent No. 5,882,920, Apparatus for determining the presence or absence of a paraffinophilic microorganism was granted in March 1999 with 4 claims. The patent describes a method of determining the presence of a paraffinophilic microorganism in a specimen taken from a patient. The method includes providing a receptacle containing an aqueous solution and adjusting the solution to mimic the in vivo clinical conditions of the patient. The method then further includes inoculating the solution with the specimen and then placing in the receptacle a paraffin coated slide to bait the paraffinophilic microorganism. The slide is then analyzed after exposure to the specimen to determine the presence or absence of the paraffinophilic microorganism. An associated apparatus is also disclosed. This Patent expires on November 9, 2015.
U.S. Patent No. 5,854,014, Apparatus for testing paraffinophilic microorganisms for antimicrobial sensitivity was granted in December 1998 with 2 claims. The patent describes an apparatus for determining the antimicrobial agent sensitivity of a paraffinophilic microorganism from a specimen obtained from a patient. The apparatus includes a receptacle containing an aqueous solution, an amount of antimicrobial agent to be tested and the specimen. The apparatus further consists of a paraffin coated slide placed into the receptacle. This Patent expired October 24, 2009 for failure to timely pay maintenance fees.
U.S. Patent No. 5,846,760, Method for determining a presence or absence of a nonparaffinophilic hydrophobic microorganism in a body specimen and an associated kit was granted in December 1998 with 15 claims. The method of the invention involves providing a first receptacle and a second receptacle. The first receptacle contains a sterile aqueous broth and the second receptacle contains an aqueous broth including a carbon source. The method then includes placing into the first receptacle a first support surface having a paraffin wax coating thereon and placing into the second receptacle a second support surface having a hydrophobic material coating thereon. A body specimen, such as sputum, is then introduced into each of the first and second receptacles. The presence of a nonparaffinophilic hydrophobic microorganism in the body specimen is determined by observing (i) a lack of microorganism growth on the paraffin coated material of the first support surface and (ii) a presence of microorganism growth on the hydrophobic material coating of the second support surface. An associated kit is also disclosed. This Patent expires on November 13, 2017.
U.S. Patent No. 5,776,722, Method of testing a body specimen taken from a patient for the presence or absence of a microorganism and a further associated method and associated apparatus was granted in July 1998 with 40 claims. The patent describes a method of testing a body specimen taken from a patient for the presence or absence of a microorganism. A transport/isolator assembly is provided which includes a receptacle and a baiting assembly including a baiting section having disposed thereon a coating material. A baiting liquid and the body specimen are then introduced into the receptacle. The method further comprises securing the baiting assembly to the receptacle so that at least a portion of the coated section is introduced into the baiting liquid. The transport/isolator assembly containing the baiting liquid and the body specimen are then transported to a laboratory for subsequent observation of the coated section for growth or lack thereof of the microorganism. A further method of processing the body specimen and an associated isolator/transport assembly kit as well as an associated isolator/transport assembly are also disclosed. This Patent expires on September 25, 2017.
U.S. Patent No. 5,569,592, Apparatus for testing MAI (Mycobacterium Avium Intracellulare) for antimicrobial agent sensitivity was granted in October 1996 with 3 claims. The patent describes an apparatus for determining the sensitivity of MAI to different antimicrobial agents and dosages thereof is provided. The apparatus comprises a plurality of test tubes adapted to contain an amount of an antimicrobial agent to be tested and MAI complex organisms to be assayed and a separate paraffin coated slide adapted for placement in each of the test tubes. The growth of the MAI complex organisms on the slide can be used to determine the concentration of the antimicrobial agent necessary to resist MAI complex organism growth on the slide. An associated method is also disclosed. This Patent expires on October 29, 2013.
U.S. Patent No. 5,472,877, Apparatus for determining the presence or absence of MAI (Mycobacterium Avium Intracellulare) was granted in December 1995 with 6 claims. The patent describes a method of speciating and identifying MAI in a specimen comprises placing a paraffin coated slide in a receptacle containing a sterile aqueous solution inoculated with the specimen, analyzing the slide after exposure to the specimen to determine the presence or absence of atypical Mycobacteria, and after the analysis step, if atypical Mycobacteria are determined to be present, performing at least one speciation assay to ascertain if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for speciating and identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous solution contained therein, the tube adapted to hold the slide, and at least one speciation assay means for performing an assay to determine the presence or absence of MAI in the specimen after the specimen is introduced into the tube holding the solution and the slide. An apparatus and method for determining the sensitivity of MAI to different antibiotics and dosages thereof is also provided. This Patent expiresexpired on December 5, 2012.
U.S. Patent No. 5,316,918, Method and apparatus for testing MAI (Mycobacterium Avium Intracellulare) for antimicrobial agent sensitivity was granted in May 1994 with 7 claims. The patent describes an apparatus and method for determining the sensitivity of MAI to different antimicrobial agents and dosages thereof is provided. The apparatus comprises a plurality of test tubes adapted to contain an amount of an antimicrobial agent to be tested and MAI complex organisms to be assayed and a separate paraffin coated slide adapted for placement in each of the test tubes. The growth of the MAI complex organisms on the slide can be used to determine the concentration of the antimicrobial agent necessary to resist MAI complex organism growth on the slide. An associated method is also disclosed. This Patent expiresexpired on May 31, 2011.
U.S. Patent No. 5,153,119, Method for speciating and identifying MAI (Mycobacterium Avium Intracellulare) was granted in October 1992 with 15 claims. The patent describes a method of speciating and identifying MAI in a specimen comprises placing a paraffin coated slide in a receptacle containing a sterile aqueous solution inoculated with the specimen, analyzing the slide after exposure to the specimen to determine the presence or absence of atypical Mycobacteria, and after the analysis step, if atypical Mycobacteria are determined to be present, performing at least one speciation assay to ascertain if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for speciating and identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous solution contained therein, the tube adapted to hold the slide, and at least one speciation assay means for performing an assay to determine the presence or absence of MAI in the specimen after the specimen is introduced into the tube holding the solution and the slide. An apparatus and method for determining the sensitivity of MAI to different antibiotics and dosages thereof is also provided. This Patent expired on October 24, 2009.
Our business is dependent upon our ability to protect our proprietary technologies and processes. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain and use proprietary information. We will rely on patent and trade secret law and nondisclosure and other contractual arrangements to protect such proprietary information. We will file patent applications for our proprietary methods and devices for patient treatments. Our efforts to protect our proprietary technologies and processes are subject to significant risks, including that others may independently develop equivalent proprietary information and techniques, gain access to our proprietary information, our proprietary information being improperly disclosed, or that we may ineffectively protect our rights to unpatented trade secrets or other proprietary information.
Employees
We employ a total of 10 employees.
Report to Security Holders
We are subject to the informational requirements of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities and Exchange Commission. You may read and copy these reports in Washington, D.C. Our filings are also available to the public from commercial document retrieval services and the Internet world wide website maintained by the Securities and Exchange Commission at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the risks described below regarding our operations, financial condition, financing, our common stock and other matters. If any of the following or other material risks actually occur, our business, financial condition, or results or operations could be materially adversely affected.
Our ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
We incurred net losses of $3,061,464 for$3,612,351for the 12 months ended December 31, 20102012 and $2,301,641$4,397,198 in fiscal 2009.2011. We anticipate that these losses will continue for the foreseeable future. We have a significant working capital deficiency, and have not reached a profitable level of operations, which raises substantial doubt about our ability to continue as a going concern. Our continued existence is dependent upon our achieving sufficient sales levels of our Cobroxin® and Nyloxin™ products and obtaining adequate financing. Unless we can begin to generate material revenue, we may not be able to remain in business. We cannot assure you that we will raise enough money or generate sufficient sales to meet our future working capital needs.
We have a limited revenue producing history with significant losses and expect losses to continue for the foreseeable future.
We have yet to establish any history of profitable operations. We have incurred annual operating losses of $4,162,108, $2,301,641$3,612,351 and $3,061,464$4,397,198 and during the previous fiscal years of operations ending December 31, 2008, 20092012 and 20102011 respectively. As a result, at December 31, 20102012 we had an accumulated deficit of $29,634,307.$37,643,856. Our revenues have been insufficient to sustain our operations and we expect our revenues will be insufficient to sustain our operations for the foreseeable future. Our potential profitability will require the successful commercialization of our Cobroxin® and Nyloxin™ products.
We will require additional financing to sustain our operations and without it will be unable to continue operations.
At December 31, 20102012 we had a working capital deficit of $2,417,415.$3,632,479. Our independent auditor’s report for the year ended December 31, 2010 includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We have a negative cash flow from operations of $876,094, $1,956,102approximately $0.7 million and $1,358,173for$1.9 million for the years ended December 31, 2008, 2009,2012 and 20102011, respectively. We have insufficient financial resources to fund our operations.
As of December 31, 20102012 we have borrowed $1,099,238 fromowe $606,168 to our Chief Executive Officer.
Our Chief Executive Officer may be unwilling or unable to continue funding our operations.
Our Chief Executive Officer has historically funded our operations by providing loans to us. As of December 31, 2010,2012, we owe Mr. Deitsch $1,099,238.$606,168. Mr. Deitsch may be unwilling or unable to fund our operations in the future. If we have no other source of funding and we are unable to secure additional loans from Mr. Deitsch, our operations will be negatively affected.
To date, none of our prescription drug candidates have received FDA drug orphan status approval.
To date, none of our prescription drug candidates have received FDA drug orphan status, which would otherwise place our drug candidates on a “fast track” with the FDA application process. If none of our drug candidates can achieve that status, our operations and financial condition will be negatively affected.
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We have a history of failed distributors, which has negatively affected our revenues and may continue to do so if we fail to locate a successful distributor.
Due to poor performance, we cancelled our distribution agreement with our Cobroxin® distributor, XenaCare continues toin April, 2011. We have not yet found a new distributor for Cobroxin®. To date, we have only limited sales of Nyloxin™ through outside distributors. Most of the current sales are direct from the company or through the www.Nyloxin.net website. If we fail to accomplish the domestic advertising campaign for Cobroxin® ,improve our revenuesown marketing and distribution or fail to find a competent outside distributor our operations and financial condition will be negatively affected.
If we cannot sell a sufficient volume of our products, we will be unable to continue in business.
To date, sales of Cobroxin® have been limited and inconsistent. During our fourth quarter of 2009, we sold $583,955 of Cobroxin®. During 2010, we sold $864,424, $150,158 and $311,701 of Cobroxin® during the first, second and third quarters,quarter, respectively. We had no sale of Cobroxin® during the last quarter of 2010. During 2011 we sold $78,888 of Cobroxin®during the first quarter and $189 during the fourth quarter. We had no sale of Cobroxin® during the second and third quarter of 2011. During 2012, we sold $4,059 of Cobroxin®.
To date, sales of Nyloxin™ have been limited and inconsistent. During 2011, we sold $66,568 of Nyloxin™. During 2012, we sold $199,231 of Nyloxin™. If we cannot achieve sufficient sales levels of our Cobroxin® and Nyloxin™ products or we are unable to secure financing our operations will be negatively affected.
We have a limited history of generating revenues on which to evaluate our potential for future success and to determine if we will be able to execute our business plan; accordingly, it is difficult to evaluate our future prospects and the risk of success or failure of our business.
Our total sales of Cobroxin®from November 2009 until December 31, 20102012 are $1,910,238. During our fourth quarter$1,993,373. Our total sales of 2010, we had no sales.Nyloxin™ from January 1, 2011 to December 31, 2012 are $265,799. You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage revenue producing company. These risks include:
| · | our ability to effectively and efficiently market and distribute our products; |
| · | our ability to obtain market acceptance of our current products and future products that may be developed by us; and |
| · | our ability to sell our products at competitive prices which exceed our per unit costs. |
We may be unable to address these risks and difficulties, which could materially and adversely affect our revenue, operating results and our ability to continue to operate our business.
Our growth strategy reflected in our business plan may be unachievable or may not result in profitability.
We may be unable to implement our growth strategy reflected in our business plan rapidly enough for us to achieve profitability. Our growth strategy is dependent on a number of factors, including market acceptance of our Cobroxin® and Nyloxin™ products and the acceptance by the public of using these products as pain relievers. We cannot assure you that our products will be purchased in amounts sufficient to attain profitability.
Among other things, our efforts to expand our sales of Cobroxin® and Nyloxin™ will be adversely affected if:
| · | we are unable to attract sufficient customers to the products we offer in light of the price and other terms required in order for us to attain the level of profitability that will enable us to continue to pursue our growth strategy; |
| · | adequate penetration of new markets at reasonable cost becomes impossible limiting the future demand for our products below the level assumed by our business plan; |
| · | we are unable to scale up manufacturing to meet product demand, which would negatively affect our revenues and brand name recognition; |
| · | we are unable to meet regulatory requirements in the intellectual marketplace that would otherwise allow us for wider distribution; and |
| · | we are unable to meet FDA regulatory requirements that would potentially expand our product base and potential revenues. |
If we cannot manage our growth effectively, we may not become profitable.
Businesses, which grow rapidly often, have difficulty managing their growth. If we grow rapidly, we will need to expand our management by recruiting and employing experienced executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able to manage our growth effectively or successfully.
Among other things, implementation of our growth strategy would be adversely affected if we were not able to attract sufficient customers to the products and services we offer or plan to offer in light of the price and other terms required in order for us to attain the necessary profitability.
If we are unable to protect our proprietary technology, our business could be harmed.
Our intellectual property, including patents, is our key asset. We currently have 21 patents that we either own or have the rights to from third parties. 1516 of these patents have been approved and 65 are pending. Competitors may be able to design around our patents for our Cobroxin® and Nyloxin™ products and compete effectively with us. The cost to prosecute infringements of our intellectual property or the cost to defend our products against patent infringement or other intellectual property litigation by others could be substantial. We cannot assure you that:
| · | pending and future patent applications will result in issued patents, |
| · | patents licensed by us will not be challenged by competitors, |
| · | our patents, licensed and other proprietary rights from third parties will not result in costly litigation; |
| · | pending and future patent applications will result in issued patents, |
| · | the patents or our other intellectual property will be found to be valid or sufficiently broad to protect these technologies or provide us with a competitive advantage, |
| · | if we are sued for patent infringement, whether we will have sufficient funds to defend our patents, and |
| · | we will be successful in defending against future patent infringement claims asserted against our products. |
Should any risks pertaining to the foregoing occur, our brand name reputation, results of operation and revenues will be negatively affected.
We are subject to substantial FDA regulations pertaining to Cobroxin® and Nyloxin™, which may increase our costs or otherwise adversely affect our operations.
Our Cobroxin®and Nyloxin™ products are subject to FDA regulations, including manufacturing and labeling, approval of ingredients, advertising and other claims made regarding Cobroxin® or Nyloxin™, and product ingredients disclosure. If we fail to comply with current or future regulations, the FDA could force us to stop selling Cobroxin®or Nyloxin™ or require us to incur substantial costs from adopting measures to maintain FDA compliance.
The inability to provide scientific proof for product claims may adversely affect our sales.
The marketing of Cobroxin® and Nyloxin���Nyloxin™ involves claims that they assist in reducing Stage 2 chronic pain, while Nyloxin™ Extra Strength and Nyloxin™ Military Strength involves claims that it assiststhey assist in reducing Stage 3 chronic pain. Under FDA and Federal Trade Commission (“FTC”) rules, we are required to have adequate data to support any claims we make concerning Cobroxin®, Nyloxin™ and Nyloxin™ Extra Strength. We have scientific data for our Cobroxin®and Nyloxin™ product claims; however, we cannot be certain that these scientific data will be deemed acceptable to the FDA or FTC. If the FDA or FTC requests supporting information and we are unable to provide support that it finds acceptable, the FDA or FTC could force us to stop making the claims in question or restrict us from selling the products.
None of our ethical drug candidates have received FDA approval.
Our non-homeopathic or ethical products require a complex and costly FDA regulation process that takes several years for drug approval, if ever. None of the drug applications we have submitted to the FDA have received FDA approval. If we do not receive FDA approval for our drug applications, our operations and financial condition will be negatively affected.
If we are unable to secure sufficient cobra venom from available suppliers, our operating results will be negatively affected.
We secure cobra venom on an as-needed basis according to customer orders for Cobroxin® and Nyloxin™ received by our distributor. If we do not have an available supplier to fill customer orders, there will be distribution delays and/or our failure to fulfill purchase orders, either of which will negatively affect our brand name reputation and operating results.
Our Cobroxin®and Nyloxin™ products may be unable to compete against our competitors in the pain relief market.
The pain relief market is highly competitive. We compete with companies that have already achieved product acceptance and brand recognition, including multi-billion dollar private label manufacturers and more established pharmaceutical and health products companies, or low cost generic drug manufacturers. Most such companies have far greater financial and technical resources and production and marketing capabilities than we do. Additionally, if consumers prefer our competitors’ products, or if these products have better safety, efficacy, or pricing characteristics, our results could be negatively impacted. If we fail to develop and actualize strategies to compete against our competitors we may fail to compete effectively, which will negatively affect our operations and operating results.
If we incur costs resulting from product liability claims, our operating results will be negatively affected.
If we become subject to product liability claims for Cobroxin®and Nyloxin™ that exceed our product liability policy limits, we may be subject to substantial litigation costs or judgments against us, which will negatively impact upon our financial and operating results.
Should we become dependent upon a small group of large national retailers for distribution of Cobroxin® and any such retailer ceases to purchase our product, our sales, operating margins and income will be negatively affected.
Our distributor has attempted and will continue to attempt to secure large national retailers for Cobroxin®. Should we secure such retailers, but they stop carrying Cobroxin®, our financial results will be adversely affected.
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Loss of any of our key personnel could have a material adverse effect on our operations and financial results.
We are dependent upon a limited number of our employees: (a) our Chief Executive Officer who directs our operations; and (b) ReceptoPharm’s employees who conduct our research and development activities. Our success depends on the continued services of our senior management and key research and development employees as well as our ability to attract additional members to our management and research and development teams. The unexpected loss of the services of any of our management or other key personnel could have a material adverse effect upon our operations and financial results.
We may be unable to maintain and expand our business if we are not able to retain, hire and integrate key management and operating personnel.
Our success depends in large part on the continued services and efforts of key management personnel. Competition for such employees is intense and the process of locating key personnel with the combination of skills and attributes required to execute our business strategies may be lengthy. The loss of key personnel could have a material adverse impact on our ability to execute our business objectives. We do not have any key man life insurance on the lives of any of our executive officers.
Risks Related to Our Common Stock
Because the market for our common stock is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by them.
Our common stock trades on the OTC Bulletin Board, or the Bulletin Board,OTCQB, which is not a liquid market. There is currently only a limited public market for our common stock. We cannot assure you that an active public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not develop or is not sustained, the price may decline.
Because we are subject to the “penny stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and market price.
The SEC has adopted regulations, which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the Bulletin BoardOTCQB has been substantially less than $5.00 per share and therefore we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.
Because the majority of our outstanding shares are freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even if our business is performing well.
As of March 18, 2011,December 31, 2012, we had 522,194,676 outstanding 285,194,335 shares of common stock, of which our principal shareholder/executive officer owns 54,500,000, which arethat were subject to the limitations of Rule 144 under the Securities Act of 1933. In general, Rule 144 provides that any our non-affiliates, who have held restricted common stock for at least six-months, are entitled to sell their restricted stock freely, provided that we stay current in our SEC filings. After one year, a non-affiliate may sell without any restrictions.
An affiliate may sell after six monthsone year with the following restrictions: (i) we are current in ours filings, (ii) certain manner of sale provisions, (iii) filing of Form 144, and (iv) volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed 1% of the total number of outstanding shares. A person who has ceased to be an affiliate at least three months immediately preceding the sale and who has owned such shares of common stock for at least one year is entitled to sell the shares under Rule 144 without regard to any of the limitations described above.
An investment in our common stock may be diluted in the future as a result of the issuance of additional securities or the exercise of options or warrants.
In order to raise additional capital to fund our strategic plan, we may issue additional shares of common stock or securities convertible, exchangeable or exercisable into common stock from time to time, which could result in substantial dilution to any person who purchases our common stock. Because we have a negative net tangible book value, purchasers will suffer substantial dilution. We cannot assure you that we will be successful in raising funds from the sale of common stock or other equity securities.
Since we intend to retain any earnings for development of our business for the foreseeable future, you will likely not receive any dividends for the foreseeable future.
We have not and do not intend to pay any dividends in the foreseeable future, as we intend to retain any earnings for development and expansion of our business operations. As a result, you will not receive any dividends on your investment for an indefinite period of time.
Due to factors beyond our control, our stock price may continue to be volatile.
The market price of our common stock has been and is expected to be highly volatile. Any of the following factors could affect the market price of our common stock:
| · | our failure to generate revenue, |
| · | our failure to achieve and maintain profitability, |
| · | short selling activities, |
| · | the sale of a large amount of common stock by our shareholders including those who invested prior to commencement of trading, |
| · | actual or anticipated variations in our quarterly results of operations, |
| · | announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments, |
| · | the loss of major customers or product or component suppliers, |
| · | the loss of significant business relationships, |
| · | our failure to meet financial analysts’ performance expectations, |
| · | changes in earnings estimates and recommendations by financial analysts, or |
| · | changes in market valuations of similar companies. |
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
As of February 1, 2010,2013, we leaseleased approximately 3,2352,000 square feet at 2776 University Drive,12502 West Atlantic Blvd, Coral Springs, Florida. Our offices are comprised of a reception area, conference room, 3 offices, 2 restrooms and 5 offices.2 cubicle workstations. Our offices are adequate for our current needs. Our lease term is for a period of 3 years with renewable lease options to extend the lease term.years. We pay monthly rent of $8,287, withapproximately $3,500 for the first two monthscurrent year 2013. We formerly leased approximately 3,235 square feet of our second year rent being free.
Since May 13, 2004, ReceptoPharm has leased their office space at 1537 NW 65th Avenue, Plantation, Florida for three consecutive two-year terms, most recently having renewed for a two year lease term beginning on June 1, 2010.terms. ReceptoPharm's 5,500 square foot facilities include a reception area, conference room and five offices, a warehouse and a laboratory. ReceptoPharm'sOn May 10, 2010 ReceptoPharm renewed the lease with Shelter Developers of America (“Shelter”) for the last two-year term beginning on June 1, 2010 and ending May 31, 2012. On June 7, 2012 Shelter enforced a Writ of Possession against ReceptoPharm as a result of ReceptoPharm’s failure to pay its obligations under the lease agreement dated May 10, 2010. On July 9, 2012, we issued a bank draft in the amount of $38,934.90 in satisfaction of all amounts owed under the lease, including legal fees. On July 9, 2012 ReceptoPharm entered into a new lease agreement for a five year period beginning on August 1, 2012. The lease calls for monthly rentpayments for year 1 in the amount of $5,410$5,617, which includes base rent, common area expenses, rentreal estate taxes and insurance.
Item 3. Legal Proceedings
OTC: BB Delinquency Notification
On May 7, 2012, our securities were removed from quotation on the OTC Bulletin Board (“OTCBB”) as a result of our failure to file our annual report, Form 10-K, by the due date of May 17, 2012, which included the 30-day grace period allowed. We were also delinquent in the filing of our first quarter 10-Q report for the three months ended March 31, 2012, which was due on May 22, 2012, including the 5-day extension. Pursuant to National Association of Securities Dealers (“NASD”) Rule 6530, OTCBB issuers that are cited for filing delinquency three times in a 24-month period and those removed for failure to file two times in a 24-month period will be ineligible for quotation by an NASD member andshall not be eligible for quotation until the issuer has timely filed in a complete form all required annual and quarterly reports due in a one-year period. As of December 5, 2012 we have been current in all of our filing requirements. As such, we are now listed on the OTC Markets as an OTCQB company. If we continue to file on a timely basis, we may request to be re-listed on the OTCBB in December 2013.
Federal Tax Liens – State of Florida
On December 19, 2011 the Internal Revenue Service filed a Notice of Federal Tax Lien with the State of Florida in the amount of $30,267.12 representing the unpaid balance of payroll taxes for the first quarter ending March 31, 2011. On February 1, 2012 the Internal Revenue Service filed a Notice of Federal Tax Lien with the State of Florida in the amount of $56,228.31 representing the unpaid balance of payroll taxes for the second quarter ending June 30, 2011 and third quarter ending September 30, 2011. On June 26, 2012 the Internal Revenue Service filed a Notice of Federal Tax Lien with the State of Florida in the amount of $16,505.87 representing the unpaid balance of payroll taxes for the fourth quarter ending December 31, 2011.
The total amount of the above federal liens filed by the Internal Revenue Service against us was $103,001.
As of October 18, 2012, the total amount due to the IRS has been paid, and accordingly the related liens and levies have been released.
Internal Revenue Service Notice of Levy – HSBC Bank USA, N.A.
We maintain an operating bank account with HSBC Bank USA, N.A. On June 15, 2012, we were notified by HSBC Bank USA, N.A. that it had been served a Notice of Levy by the Internal Revenue Service against our account in the amount of $69,831, representing the balance due of unpaid payroll taxes for the tax periods ending March 31, June 30 and September 30 of 2011. As of October 18, 2012, the levy has been released.
Internal Revenue Service Notice of Levy – Wells Fargo Bank
We maintain an operating bank account with Wells Fargo Bank. On June 13, 2012 the Company was notified by Wells Fargo Bank that it had been served a Notice of Levy by the Internal Revenue Service against our account in the amount of $69,826, representing the balance due of unpaid payroll taxes for the tax periods ending March 31, June 30 and September 30 of 2011. As of October 18, 2012, the related levy has been released.
Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.
On August 18, 2006, ReceptoPharm was named as a defendant inPatricia 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$118,928.15 plus interest and counsel fees on a series of 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 cancelled 1,750,000canceling certain of their purported ReceptoPharm share certificates.
In late 2010, Plaintiffs further amended their complaint alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights by cancelling
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. Plaintiffs have moved for partial summary judgment on their claims regarding the additional 1,214,800 shares, but not on their claims regarding the alleged promissory notes or the 1,750,000 alleged shares. In August of 2011, the Plaintiff's motion was partially granted. In September 2012, ReceptoPharm's attorneys filed a Motion to be removed as counsel. Their motion is currently being considered. ReceptoPharm willis seeking new counsel to oppose the partial summary judgment motion, and wejudgment. We intend to vigorously contest this matter.
Liquid Packaging Resources, Inc. v. Nutra Pharma Corp. and Erik "Rik" Deitsch
On April 21, 2011, Nutra Pharma Corp. and its CEO, Erik Deitsch, were named as defendants inLiquid Packaging Resources, Inc. v. Nutra Pharma Corp. and Erik "Rik" Deitsch, Superior Court of Fulton County, Georgia, Civil Action No. 2011-CV-199562. Liquid Packaging Resources, Inc. ("LPR") claimed that Nutra Pharma Corp. and Mr. Deitsch, directly or through other companies, placed orders with LPR that required LPR to purchase components from third parties. LPR sought reimbursement for those third party expenses in the amount of not less than $359,826.85 plus interest. LPR also sought punitive damages in the amount of not less than $500,000 and attorney's fees.
Mr. Deitsch and we then removed the action to the United States District Court, Northern District of Georgia, Civil Action No. 11-CV-01663-ODE. After removal, LPR amended the Complaint to assert that Nutra Pharma Corp. and Mr. Deitsch were the alter egos of the alleged other companies through whom the subject orders were placed and therefore should be considered one and the same. Mr. Deitsch and we moved to dismiss the Complaint on several grounds including statute of frauds, failure to state a claim, and jurisdiction (only for Mr. Deitsch). Mr. Deitsch and we believe the suit is without merit.
After June 30, 2011, at LPR's request, the parties mediated the dispute before LPR responded to the Motion To Dismiss. At the mediation, the parties worked out an agreement whereby we would purchase from LPR the components LPR purchased from third parties at an amount slightly less than the principal amount of the suit and on terms acceptable to us. The agreed price was $350,000.00 payable over 7 months in equal $50,000.00 amounts. This agreement was reached by us because it provided tangible value in exchange for the purchase price rather than incurring the expense of litigation, which would likely be substantial and not recouped. While we had counterclaims we could assert, we believe this was a practical resolution. The settlement allowed us to take possession of the components prior to full payment and, in exchange, provided security to LPR in the form of our stock valued at $400,000 at the time of issuance. The stock can only be sold in event of a default of the payment schedule. The litigation was dismissed in August of 2011. We made the August, September and November payments (totaling $150,000) in a timely fashion. We were late for the payment due October 15, 2011 and requested an accommodation from LPR, eventually paying an extra $5,000 towards that payment. At December 31, 2011, we had made total payments of $205,000 with an additional $150,000 owed. In order to allow us to skip the December payment, LPR agreed to another accommodation whereby we would pay both the December and January payment with an additional $10,000 on or before January 16, 2012. We were unable to make this payment and on January 26, 2012 signed an amended payment schedule adding an additional $15,000 for a total of $175,000 owed. Our CEO, Rik Deitsch, added additional collateral stock in a separate company that he held personally. $25,000 was paid in January, with subsequent payments of $30,000 due monthly on the 15th of March through the 15th of July, 2012. We failed to make the March payment and was subsequently called in default of the Agreement. Under the original agreement, if we are in default of the agreement, LPR has the right to sell shares of our free trading stock held in escrow by their attorney and receive cash settlements for a total amount of $450,000 representing the new total cash amount due to LPR by the Company.
On June 11, 2012, LPR sold their debt to Southridge Partners, LLP in an agreement to be paid out over time. Once satisfied, LPR will return all of our collateral shares currently held by LPR's attorney. We are currently negotiating with Southridge Partners to arrange a settlement of the debt.
Laurence N. Raymond v. Receptopharm, Inc. et al.
On December 30, 2011 Laurence N. Raymond ("Raymond") brought the case against Receptopharm, Inc. ("Receptopharm") and Nutra Pharma to recover approximately $300,000 that was allegedly either loaned to Receptopharm or owing to Raymond pursuant to an oral employment agreement. The Complaint alleges that we are jointly liable for Raymond's damages because Receptopharm was allegedly merged into us. The parties have engaged in settlement discussions.
Paul F. Reid v, Harold H. Rumph et al.
On December 28, 2011 Paul F. Reid ("Reid") brought the case against Harold H. Rumph ("Rumph"), Receptopharm, and us to recover approximately $330,000 that was allegedly either loaned to Receptopharm or owing to Reid pursuant to an oral employment agreement, The Complaint alleges that we are jointly liable for Reid's damages because Receptopharm was allegedly merged into us. We have answered the Complaint and specifically denied the validity of several promissory notes forming the basis of Reid's damages. Additionally, we have answered that Reid may have a claim for approximately $140,000, but any amounts above that are not supported by the record. The parties have engaged in limited discovery to date, including the June 2012 deposition of Rumph. We will vigorously defend against this action and, in so doing, will attempt to settle this case favorably.
Dustin Travers v, XenaCare Holdings, Inc., et al.
On March 7, 2012 XenaCare Holdings and Nutra Pharma were named as Defendants in the proposed Class Action filed in the Superior Court of California. Travers alleges that the marketing of the Homeopathic drug, Cobroxin included false and misleading statements regarding the product's efficacy for the relief of chronic pain. Most of the suit is a diatribe against the entire concept of homeopathy and states, incorrectly, that cobra venom has never been proven scientifically as a pain reliever. On August 10, 2012 the parties reached a settlement whereby the suit would be dismissed against us in return for $16,500 payable in 6 monthly payments of $2,750 beginning on August 20, 2012 with the last payment due on January 20, 2013. As part of the settlement, we will also make certain label changes to the Cobroxin packaging that better explain the product as a Homeopathic drug. We were dismissed as a Defendant with prejudice on August 14, 2012.
Involuntary Petition of Bankruptcy
On August 31, 2012, former ReceptoPharm employees and a former ReceptoPharm consultant filed a Petition for Involuntary Bankruptcy against us in the United States Bankruptcy Court, Southern District of Florida. The Petitioners are claiming a total of $990,927 due them in the form of accrued wages and a Note. On October 12, 2012 the Plaintiffs filed an amended Petition, in effect lowering their claims to $816,662. We believe that the petition is frivolous and that their claims lack merit. We will vigorously defend against this action.
Shelter Developers of America vs. ReceptoPharm, Inc.
On June 7, 2012 Shelter Developers of America enforced a Writ of Possession against ReceptoPharm as a result of ReceptoPharm’s failure to pay its obligations under the lease agreement dated May 10, 2010 between ReceptoPharm and Shelter Developers of America. On July 9, 2012 the Company issued a bank draft in the amount of $38,934.90 in satisfaction of all amounts owed under the lease, including legal fees. On July 9, 2012 ReceptoPharm entered into a new lease agreement with Shelter Developers of America for a five year period beginning on August 1, 2012. The lease calls for payments for year 1 in the amount of $5,616.87.
Item 4.
None
PART II
Item 5. Market for Registrant’s Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted on the over-the-counter bulletin board(“OTCQB”) under the trading symbol "NPHC.""NPHC". The following table sets forth the high and low bid prices for each quarter within the last two fiscal years.
| 2009 Fiscal Year | ||||||||
| High Bid | Low Bid | |||||||
| First Quarter | $ | 0.03 | $ | 0.01 | ||||
| Second Quarter | $ | 0.05 | $ | 0.02 | ||||
| Third Quarter | $ | 0.99 | $ | 0.02 | ||||
| Fourth Quarter | $ | 0.85 | $ | 0.27 | ||||
| 2010 Fiscal Year | ||||||||
| High Bid | Low Bid | |||||||
| First Quarter | $ | 0.67 | $ | 0.30 | ||||
| Second Quarter | $ | 0.43 | $ | 0.18 | ||||
| Third Quarter | $ | 0.26 | $ | 0.14 | ||||
| Fourth Quarter | $ | 0.17 | $ | 0.08 | ||||
| 2011 Fiscal Year | ||||||||
| High Bid | Low Bid | |||||||
| First Quarter | $ | 0.179 | $ | 0.0716 | ||||
| Second Quarter | $ | 0.108 | $ | 0.0672 | ||||
| Third Quarter | $ | 0.0875 | $ | 0.05 | ||||
| Fourth Quarter | $ | 0.0625 | $ | 0.024 | ||||
| 2012 Fiscal Year | ||||||||
| High Bid | Low Bid | |||||||
| First Quarter | $ | 0.04 | $ | 0.121 | ||||
| Second Quarter | $ | 0.0185 | $ | 0.009 | ||||
| Third Quarter | $ | 0.018 | $ | 0.006 | ||||
| Fourth Quarter | $ | 0.041 | $ | 0.0125 | ||||
The above quotations reflect inter-dealer prices, without retail mark-up, markdown or commission and may not represent actual transactions.
Penny Stock Considerations
Our shares of common stock are "penny stocks" as that term is generally defined in the Securities Exchange Act of 1934 as equity securities with a price of less than $5.00. Our shares are subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or "accredited investor" must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required to:
· | Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; |
· | Disclose commission payable to the broker-dealer and its registered representatives and current bid and offer quotations for the securities; |
· | Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks; and |
· | Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account. |
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of shareholders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity for our securities may be adversely affected, with a corresponding decrease in the price of our securities. Our shares are subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.
Holders
As of March 18, 2011,April 15, 2013, based upon records obtained from our transfer agent, there were 259252 holders of record of our common stock. Our transfer agent records does not account for other holders of our common stock that are held in street name or by broker dealers as custodian for individual holders of our stock. We have one class of common stock outstanding.
Dividends
We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors as our Board of Directors deems relevant. There are no restrictions contained in our bylaws or otherwise pertaining to our issuing dividends.
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Equity Compensation Plans
Securities authorized per issuance under Equity Compensation Plans as of December 31, 20102012 are as follows:
Equity Compensation Plan Information
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
| Equity compensation plans approved by security holders | 0 | N/A | N/A | |||||||||
| Equity compensation plans not approved by security holders | 1,000,000 | $ | 0.20 | 8,755,000 | ||||||||
| Total | 1,000,000 | $ | 0.20 | 8,755,000 | ||||||||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| Plan category | (a) | (b) | (c) | |||||||||
| Equity compensation plans approved by security holders | 0 | N/A | N/A | |||||||||
| Equity compensation plans not approved by security holders | 0 | $ | 0.10 | 255,000 | ||||||||
| Total | 0 | $ | 0.10 | 255,000 | ||||||||
Securities authorized per issuance under Equity Compensation Plans as of December 31, 2011 are as follows:
Equity Compensation Plan Information
| Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||||||
| Plan category | (a) | (b) | (c) | |||||||||
| Equity compensation plans approved by security holders | 0 | N/A | N/A | |||||||||
| Equity compensation plans not approved by security holders | 0 | $ | 0.10 | 3,040,714 | ||||||||
| Total | 0 | $ | 0.10 | 3,040,714 | ||||||||
The figures contained in the above chart are composed of our 2003 and 2007 Employee /Consultant Stock Compensation Plans and two (2) option agreements we have with a corporate entity and our former Chairman of the Board/Executive Chairman, as follows:
2003 Plan
On December 3, 2003, our Board of Directors approved the Employee/Consultant Stock Compensation Plan (the "2003 Plan"). The purpose of the 2003 Plan is to further our growth by allowing us to compensate employees and consultants who have provided bona fide services to us through the award of our common stock. The maximum number of shares of common stock that may be issued under the 2003 Plan is 2,500,000. As of December 31, 2010,2012, we had issued a total of 2,495,000 shares under the 2003 Plan.
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2007 Plan
On June 6, 2007, our Board of Directors approved the 2007 Employee/Consultant Stock Compensation Plan (the "2007 Plan"). The purpose of the 2007 Plan is to further our growth by allowing us to compensate employees and consultants who have provided bona fide services to us through the award of our common stock. The maximum number of shares of common stock that may be issued under the 2007 Plan is 25,000,000. As of December 31, 2010,2012, we had issued a total of 16,250,00024,750,000 shares under the 2007 Plan.
Our Board of Directors is responsible for the administration of the 2003 and 2007 Plans and has full authority to grant awards under the Plans. Awards may take the form of stock grants, options or warrants to purchase common stock. The Board of Directors has the authority to determine: (a) the employees and consultants that will receive awards under the Plan, (b) the number of shares, options or warrants to be granted to each employee or consultant, (c) the exercise price, term and vesting periods, if any, in connection with an option grant, and (d) the purchase price and vesting period, if any, in connection with the granting of a warrant to purchase shares of our common stock.
Recent Sales of Unregistered Securities
Private Placements of Common Stock
In the third quarter 2012, the Company sold an aggregate of 27,000,000 shares of restricted common stock to Nanologix Inc.
In the date offourth quarter 2012, the grant. The option expired on January 25, 2011.
Shares Issued to Employees and Directors
On February 3, 2012 the Board of Directors approved a resolution for the issuance of a total of 15,720,000 shares of
the Company’s restricted common stock to the Directors and Employees of the Company. The issuance was valued at $0.0165 per share, which was the fair market value of the Company’s common stock on the date of issuance.
During October and December 2012 the second quarterBoard of 2010 we received $300,000Directors approved resolutions for the issuance of a total of 26,875,000 shares of the Company’s restricted common stock to the Directors and Employees of the Company. The shares were valued at $0.022 and $0.014 per share, which was the fair market value of the Company’s common stock on the date of issuance.
Common Stock Issued for Services
On December 14, 2012 the Company issued a total of 1,000,000 shares of the Company’s restricted common stock to Roetzell & Andress for legal services for a one year term. The share was valued at $0.014 per share. The Company recorded an equity compensation charge of $14,000 during the year ended December 31, 2012. The unrecognized compensation cost of $14,000 related to non-vested equity-based compensation to be recognized by the Company over the vesting period of one year.
During October and December, 2012 the Company issued a total of 16,250,000 shares of the Company’s restricted common stock to five vendors as satisfaction for 2012 services and materials. The shares were valued between $0.015 and $0.030 per share, which was the fair market value of the Company’s common stock on the date of the agreement.
During October, 2012 the Company issued a total of 15,100,000 shares of the Company’s restricted common stock to five consultants for marketing services for six months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $80,216 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $108,534 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of three and half months.
During December, 2012 the Company issued 500,000 shares of the Company’s restricted common stock to a consultants for real estate consulting services for three months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $1,042 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $5,208 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of two and half months.
During March and August, 2012 the Company issued 3,000,000 shares of the Company’s restricted common stock to JPU Ventures, Inc. under each agreement dated March 19, 2012 and August 13, 2012 for a total of $6,000,000 shares. The agreement was for investor relations services for a six months term. The shares were valued at $0.0132 and $0.0125 per share. The Company recorded an equity compensation charge of $39,600 and $21,875 for each agreement during the year ended December 31, 2012. The remaining unrecognized compensation cost of $15,625 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of two and half months. The Company issued them an additional 500,000 restricted shares for additional services rendered during December 2012. The shares were valued at $0.0179 per share.
On March 16, 2012 the Company entered into an agreement with Mark Bergman, a consultant. The contract is for an initial six months term. The shares were valued at $0.02 per share, which was the fair market value of the Company’s common stock on the date of issuance. Under the agreement the consultant’s services include the identification of international markets, funding sources for targeted companies and assistance with overall strategic planning and execution. As compensation under this agreement the Company issued 3,000,000 free trading, unrestricted shares on March 16, 2012. The Company issued them an additional 5,500,000 restricted shares under the amended agreement during December 2012. The Company recorded an equity compensation charge of $40,104 for agreement during the year ended December 31, 2012. The remaining unrecognized compensation cost of $28,646 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of five months.
On December 20, 2011 the Company entered into an agreement for investor relations services with a Consultant. The contract was for a six months term and calls for the issuance of 1,000,000 shares of restricted common stock payable in connectionfour tranches of 250,000 each as follows: (I) January 10, 2012 (II) February 10, 2012 (III) March 10, 2012 (IV) April 10, 2012. The shares were valued and charged to operations on the dates they were issued. At each issuance date, the fair market value of the shares was adjusted to the actual price on those dates with any adjustments made through our consolidated statements of operations. During October, the Company issued them an additional total of 1,000,000 restricted shares under a new agreement for a six months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $8,697 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $3,533 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of three and half months. The Company issued an additional 200,000 restricted shares for additional services rendered during December 2012.
On February 22, 2012 the Company engaged Capital Path Securities, LLC (“CPS”) as its exclusive advisor on a proposed placement by way of an equity line of approximately $10,000,000 of the Company’s equity or equity linked securities. All upfront fees have been waived by CPS. The Company will pay CPS a cash placement fee equal to 5% of all principal amounts invested from the source originated by CPS. In addition, 10,000,000 restricted shares were issued on October 26, 2012, and valued at $0.0125 per share. The Company recorded an equity compensation charge of $151,375 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $21,625 related to non-vested equity-based compensation and 125,000 non-vested shares to be recognized by the Company over the remaining vesting period of two and half months.
On July 27, 2011 the Company signed an agreement for investor relations services with Synergy Financial, LLC. The contract was for a three months term beginning August 1, 2011 and continuing through November 1, 2011 and was renewable by the Company for an additional three months period. The agreement called for a monthly payment for each of the first three months of $5,000 beginning on August 1, 2011 plus the issuance of 300,000 shares of the Company’s restricted common stock on the signing of the agreement. The shares were valued at $0.06 per share, which was the fair market value of the Company’s common stock on the date of issuance. On October 15, 2011 the Company signed a contract extension agreeing to extend the original contract signed on July 27, 2011 for an additional three (3) months under the same terms. Under this extension the Company agreed to pay Synergy Financial, LLC $5,000 monthly on the first of each month starting in November 2011, plus the issuance of 300,000 shares of the company’s restricted common stock upon the signing of the extension agreement. The Company recorded a charge to operations on October 15, 2011 of $15,000, representing the exerciseshares to be issued valued at $0.05 per share, which was the fair market value of 3,000,000the Company’s common stock on October 15, 2011. The shares were issued on January 12, 2012. On February 8, 2012, the Company further extended the Agreement for an additional 3 months beginning on Feb 9, 2012 and continuing until May 9, 2012. The new extension required the Company to pay Synergy Financial 500,000 shares of restricted common stock. On March 23, 2012 both parties agreed that Nutra Pharma would issue Synergy Financial 1,000,000 shares of restricted common stock in lieu of $10,000 cash ($5,000 that was due on November 1, 2011 and $5,000 that was due on December 1, 2011). Both parties agree that all monthly compensation included in the contact dated on July 27, 2011 and all additional contract extensions have been satisfied in full. The shares were value between $0.014 and $0.020 per share.
On July 25, 2011 the Company signed an agreement for investor relations services with DRC Partners, LLC. The contract was on a month to month basis and calls for monthly payments of $5,000 in cash and 100,000 shares of restricted stock on the first day of each month of service, beginning August 1, 2011. The Company issued 100,000 shares of restricted common stock on August 22, 2011. The shares were valued at $0.06 per share, which was the fair market value of the Company’s common stock on the date of issuance. The Company did not issue additional shares under this contract. The Company entered into a separate agreement in January of 2012 for the settlement of the outstanding shares owed to DRC Partners, LLC for 400,000 shares. We issued them an additional 1,500,000 restricted shares for additional services rendered during December 2012. The shares were valued at $0.041 per share.
Common Stock Issued for Debt Modification
On October 19, 2012 the Company amended the notes $250,000 each (aggregating $500,000) from two non-related parties originated in September and October 2011to include a conversion feature that would allow the holders to convert some or all of their outstanding notes into restricted Company stock at a 15% discount to the average closing market price of the Company's stock traded over the previous 5 days. The Company issued a total of 4,000,000 restricted shares to the note holders per the amendment. The shares were valued at $0.025 per share. .
Common Stock Issued for Debt
During December 2012, the Board of Directors approved resolutions for the issuance of a total of 10,000,000 shares of the Company’s restricted common stock to Mr. Deitsch to discharge $100,000 of his outstanding loan the Company. The shares were valued at the note payable amount due to the fact that it was a related party transaction. 10,000,000 warrants to purchase stock at thean exercise price of $0.10 per share.
Common Stock Issued for Settlement of restrictedAccounts Payable & Debt
Following the agreement with Coventry Enterprises, LLC , the conversions for 8,672,090 and 2,564,102 shares of ourthe Company’s restricted common stock whereby we sold an aggregatesatisfying the notes in full were made on March 29, 2012 and December 20, 2012, and issued in April 2012 and 2013, respectively. The shares were valued at $168,889 and 33,720, respectively, which was the fair value of 34,948,750convertible debts on the date of conversion.
Following the agreement with Southridge , the conversion for a total of 6,416,733 shares of the Company’s restricted common stock satisfying the note in full was made in October 2012. The shares were valued at $157,179, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Asher Enterprises, LLC , the conversion for a total of 20,000,000 shares of the Company’s restricted common stock satisfying the note in full was made in October 2012. The shares were valued at $356,779, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Redwood and TCN , the conversion for a total of 7,500,000 shares of the Company’s restricted common stock satisfying the note in full was made in October 2012. The shares were valued at $273,144, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Redwood , conversions were made for a total of 18,737,894 shares of the Company’s restricted stock, satisfying the note in full. The shares were valued at a price per sharetotal amount of $0.08. We received proceeds$320,531, which was the fair value of $2,795,900 in connection withconvertible debts on the saledate of these shares.
Item 6. Selected Financial Data
As a Smaller Reporting Company, we are not required to provide information required by Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
Critical Accounting Policies and Estimates
In preparing the 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. of America (U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires managementus to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities,in the disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to the reported amountsability to continue as going concern, legal proceedings, the recoverability of revenuesinventory, long-lived assets, the fair value of stock-based compensation and expenses during the reporting periods.
Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, by management underand (2) other materially different and/estimates could have been reasonably made or future circumstances.
Revenue Recognition:
In general, we record 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. Provision for sales returns will be estimated based on the Company's historical return experience.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.Inventory Obsolescence:
Inventories are valued at the lower of average cost or marketLong-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.Derivative Financial Instrument:We diddo not record any impairmentuse derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges duringor credits to income. For option-based simple derivative financial instruments, we use the year ended December 31, 2010. AsBlack-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. For complex embedded derivatives, we use a Dilution-Adjusted Black-Scholes method to value the derivative instruments at inception and subsequent valuation dates. The classification of December 31, 2009, we recorded an impairment charge of $150,000 related to a note receivable from an unrelated corporation. The note and interest on the note were paid in full in 2010 and the charge to impairment was reversed andderivative instruments, including whether such instruments should be recorded as a credit to general and administrative expenses.
Share-Based Compensation:
We recordAccomplishments During 2012
In March of 2012, we engaged LWR Partners, a select team experienced in branding, advertising and media deployment. LWR connects brands to customers through a suite of digital products that includes SMS Mobile, Email, Social Media, Online Video, Web Advertising and Point of Decision media. LWR Partners have created and guided traditional brands like The Die Hard Battery, Taster’s Choice Coffee, Jimmy Dean Sausage and currently works with The “Seeds of Freedom” Foundation, Commerce Science Corporation and many new top quality Brands. LWR Partners is headquartered in Boca Raton, Florida. LWR will be working with us to create a unified brand strategy for Nyloxin™ and work to build on-line sales of the product.
In October of 2012, we purchased an advertisement for Nyloxin™ inMusculoskeletal Health– a special section of theWashington Post.The advertisement ranalongside an article featuring Jeff Gottfurcht, the first Rheumatoid Arthritis sufferer to conquer Everest. Mr. Gottfurcht began using Nyloxin™ while training for his Everest expedition and found it so effective in relieving the pain from his Rheumatoid Arthritis that he was able to stop using other medications with potentially serious side effects. He began his Everest climb in late March, 2011 and despite adverse weather conditions, reached the summit on May 14, 2011 using Nyloxin™ every day to manage his RA symptoms.
In October of 2012, we purchased an advertisement for Nyloxin™ in theUSA Today Sports, World Series 2012 Collector's Edition Magazine.
In September of 2012 we began distributing Nyloxin™ through TCN International, a Network Marketing Company. TCN distributes products and software applications to approximately 400,000 independent agents in more than 30 countries, including more than 40,000 agents in the United States.
On December 19, 2012 we introduced Nyloxin™ Military Strength, a stronger version of Nyloxin™, to be marketed to the US Military and the US Veteran's Administration. We also announced that we had begun the process of registration with the United States government for sales into the military.
Results of Operations
Status of Operations
Due to our poor cash position, lack of significant sales and inability to obtain financing, we have been unable to fully fund our operations since October, 2011. This has included salaries for Nutra Pharma and ReceptoPharm employees. Paul Reid, PhD resigned as ReceptoPharm’s Chief Executive Officer in November 2011. Since that time our Director, Harold Rumph, has filled the role in handling ReceptoPharm's day-to-day operations, which presently are limited to accepting venom samples for validation, maintaining records for quality control, quality assurance and administrative duties consisting of paying ReceptoPharms bills. As noted in previous filings, we have been unable to proceed with ReceptoPharm’s studies since June, 2010; therefore, until we receive adequate financing or increased sales revenue, we have placed our drug development activities on hold and will focus all of our efforts on promoting our products that are already available in the marketplace.
We estimate that we will require approximately $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 three (3) full-time employees; (ii) compensation for various 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.
We began generating revenues from the sale of Cobroxin® in the fourth quarter of 2009 and from the sale of Nyloxin™ and Nyloxin™ Extra Strength in January of 2011. Sales have been limited and inconsistent. Our ability to meet our future operating expenses is highly dependent on the amount of such future revenues. To the extent that future revenues from the sale of Cobroxin® and Nyloxin™ are insufficient to cover our operating expenses we may need to raise additional equity capital, which could result in substantial dilution to existing shareholders. There can be no assurance that we will be able to raise sufficient equity capital to fund our working capital requirements on terms acceptable to us, or at all. 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.
Comparison of Years Ended December 31, 20092012 and 2010
Sales for the year ended December 31, 20102012 were $1,432,056$203,290 compared to $618,010$159,599 for the comparable period in 2009.2011. All of the sales in 2012 were related to product sales. Of the total sales in 2010, $1,326,2832011, $145,644 was related to sales of Cobroxin®. We have had no sales since August 2010. As discussed in “Marketing and Distribution”, XenaCare is required to meet certain minimum performance requirements of sales of Cobroxin. We have not received any orders or recorded any sales of Cobroxin through March 31, 2011.
Cost of sales for the year ended December 31, 20102012 was $616,612.$147,647. Cost of sales includes the direct costs associated with manufacturing. This cost also includes the manufacturingwrite offs of Cobroxin®. Our gross profit marginvenom of $117,800. Cost of sales for the year ended December 31, 20102011 was $815,444 or 56.9%$879,587. This cost also includes the write offs of revenues.
General and administrative expenses increased $1,746,672decreased $386,099 or 79.4%12.7% from $2,199,146$3,039,795 for the year ended December 31, 20092011 to $3,945,818$2,653,696 for the year ended December 31, 2010.2012. Our general and administrative expenses include stock based compensation, which increased $765,750$945,294 or 125%110.7% from $613,250$854,167 for the year ended December 31, 20092011 to $1,379,000$1,799,461 for the year ended December 31, 2010.2012. The remaining increase in general and administrative expenses is attributable tostock based compensation was offset by overall increasesdecrease in payroll, marketing and promotional expenses, rentconsulting and legal fees.
Research and development expenses incurred by ReceptoPharm decreased $30,772$87,819 or 13.8%96.7% from $222,558$90,865 for the year ended December 31, 20092011 to $191,786$3,046 for the year ended December 31, 2010.2012. Our research expenses are related to ongoing research activities pertaining to ReceptoPharm’s leading drug compound, RPI-78. Also included in research and development expenses are certain costs related to the commercialization of our Cobroxin® products as well as development expenses related to the breeding of cobra snakes for the production of cobra venom.
Interest expense increased $5,280decreased $270,566 or 7.7%63.8% from $69,003$424,038 for the year ended December 31, 20092011 to $74,283$153,472 for the comparable period in 2010.2012. This increasedecrease was primarily attributable to an increasea onetime expense of $300,000 incurred in new short term loans.
We carry certain of our debentures and common stock warrants at fair value. For the year ended December 31, 2012 and 2011, the liability related to these hybrid instruments fluctuated, resulting in a loss of $400,488 and $22,577, respectively.
We had a one-time loss on the settlement and modification of debt $550,327 offset by other income of $93,035 during 2012.
We incurred a net loss of $3,061,464$3,612,351 for the year ended December 31, 20102012 compared to a net loss of $2,301,641$4,397,198 for the comparable period in 2009.2011. The increasedecrease in net loss of $759,823$784,847 or 33.0%17.9% is primarily attributable to an overall increase indecrease of general and administrative expenses, research and stock based compensation as discussed above.
Liquidity and Capital Resources
During December 31, 2010 that our2012 and 2011, respectively, we have negative cash from operations of approximately $0.7 million and $1.9 million. Our lack of cash, significant losses from operating 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 consolidated financial statements forFor the yearyears ended December 31, 2010,2012 and December 31, 2011, we have experienced significant losses from operations totaling $2,301,641 and $3,061,464 for the years ended December 31, 2009 and 2010,$3,612,351and $4,397,198, respectively and had an accumulated deficit of $29,634,307 for$37,643,856for the period from our inception to December 31, 2010. We2012. In addition, we had working capital and stockholders’ deficits at December 31, 20102012 of $2,417,415$3,632,479 and $2,526,914,$3,576,343, respectively.
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.
As of December 31, 2010,2012, we had no cash.$7,559 in cash and as of April 15, 2013, we had approximately $1,162 in cash and we owed approximately $486,250 in vendor payables. We currently do not have sufficient cash to sustain our operations for the next month and will require additional financing or an increase in sales in order to execute our operating plan and continue as a going concern. Our plan is to attempt to secure adequate funding to bridge the commercialization of our Cobroxin® and NyloxinNyloxin™ products. We cannot predict whether 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. In the event that these 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 J 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 2010 ,the year ended December 31, 2012, we borrowed $309,700a total of $164,779 from Mr. Deitsch and repaid a total of $149,478 to him $407,400 and at December 31, 2010, we owedincluding the $100,000 repayment through exchange of the 10 million shares of Company’s stocks. In addition Mr. Deitsch $1,099,238. Includedsold $175,000 of the Company’s debt in this amount is $256,696 of accrued interest.
In addition, during the year ended December 31, 2010,2012, we raised a total of $725,000an additional $613,500 of which $300,000 we$454,500 was received through the sale of outstanding warrants, $225,000restricted stock and $159,000 through the issuance of short-term notes and $200,000 from the common stock purchase agreement with LPC.
Uncertainties and Trends
Our operations and possible revenues are dependent now and in the future upon the following factors:
| · | Whether we successfully develop and commercialize products from our research and development activities. |
| · | If we fail to compete effectively in the intensely competitive biotechnology area, our operations and market position will be negatively impacted. |
| · | If we fail to successfully execute our planned partnering and out-licensing of products or technologies, our future performance will be adversely affected. |
| · | The recent economic downturn and related credit and financial market crisis may adversely affect our ability to obtain financing, conduct our operations and realize opportunities to successfully bring our technologies to market. |
| · | Biotechnology industry related litigation is substantial and may continue to rise, leading to greater costs and unpredictable litigation. |
| · | If we fail to comply with extensive legal/regulatory requirements affecting the healthcare industry, we will face increased costs, and possibly penalties and business losses. |
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:
| · | An obligation under a guarantee contract. |
| · | 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. |
| · | Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument. |
| · | 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, other than those which may be disclosed in this Management’s Discussion and Analysis of Financial Condition and the audited Consolidated Financial Statements and related notes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable. We have no investments in market risk sensitive instruments or in any other type securities.
Item 8. Financial Statements and Supplementary Data
The information required by this item begins on page F-1 and is attached hereto and incorporated herein by reference. The index to our annual financial statements as of and for the years ended December 31, 20102012 and 20092011 can be found under Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On December 12, 2012, the Board approved the dismissal of Kingery & Crouse, P.A. (“Kingery”) as the Company’s independent registered public accounting firm and the engagement of Liggett, Vogt & Webb, P.A. (“LVW”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2012.
Item 9A. Controls and Procedures
Section 1.
Evaluation of Disclosure Controls and Procedures:
As of December 31, 2010,2012, we carried out an evaluation under the supervision and the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2010,2012, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”). Based on that evaluation, our management, including our Chief Executive Officer/Chief Financial Officer, concluded that, because of the material weaknesses in internal control over financial reporting discussed in Management’s Report on Internal Control Over Financial Reporting below, our disclosure controls and procedures were not effective, at a reasonable assurance level, as of December 31, 2010.2012. In light of this, we performed additional post-closing procedures and analyses in order to prepare the Consolidated Financial Statements included in this report. As a result of these procedures, we believe our Consolidated Financial Statements included in this report present fairly, in all material respects, our financial condition, results of operations and cash flows for the periods presented. A control system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the company have been detected.
Section 2.
Management’s Annual Report on Internal Control over Financial Reporting
During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2010,2012, our management concluded that its material weaknesses in its internal controls over financial reporting include matters pertaining to: (a) lack of separation of function in the roles of a Chief Executive Officer and Chief Financial Officer; and (b) the need to enhance the supervision, monitoring and reviewing of financial statement preparation processes.
We have taken the following initial steps and will continue to take more steps to strengthen our internal controls over financial reporting, to evaluate and to remedy deficiencies and to test these internal controls on an ongoing basis.
| . | ||
| The Board approved the Audit Committee Charter on March 14, 2012 to improve oversight of the organization’s audit and control functions and strengthen the accounting controls and | ||
| On September 6, 2012, our Board of Directors unanimously approved the | ||
On September 6, 2012, our Board of Directors unanimously approved the appointment of Rik Deitsch, our Chief Executive Officer since November 2002, as our Chief Financial Officer. Mr. Deitsch’s appointment as our Chief Financial Officer has not and will not result in any material changes to his compensation. We recognize this does not remediate the lack of separation of functions. We will be |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process designed by and under the supervision of our Chief Executive Officer/Chief Financial Officer, or the persons performing similar functions, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external reporting in accordance with accounting principles generally accepted in the United States of America. Management has evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies. Under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer, or the persons performing similar functions, our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20102012 and concluded that it is ineffective because of the material weaknesses in our internal control over financial reporting described above.
Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the year ended December 31, 20102012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
In conjunction with Item 9A above (Evaluation of Internal Controls over Financial Reporting), since March 2008 we have interviewed several qualified candidates for and following our management’ assessment and conclusion that our internal control over financial reporting as of December 31, 2012 is ineffective, because of the positionmaterial weaknesses described above, our Board approved the election of Chief Financial Officer; however, we have been unable to come to acceptable terms with any such candidate to become ourBruno Sartori as Chief Financial Officer. We will continue our effortsPursuant to hirethe termination of Mr. Sartori, we are actively seeking a qualifiednew Chief Financial Officer on acceptable terms.
PART III
Item 10. Directors and Executive Officers and Corporate Governance
Paul Reid, PhD resigned as ReceptoPharm’s Chief Executive Officer in November 2011. Since that time our Director, Harold Rumph, has filled the role in running ReceptoPharm operations.
Directors and Executive Officers
Our Board of Directors elects our executive officers annually. Directors are elected to hold office until the next annual meeting. A majority vote of the directors who are in office is required to fill vacancies of our Board of Directors not caused by removal. Each director, including a Director elected to fill a vacancy, will hold office until the expiration of the term for which the Director was elected and until a successor has been elected. Our directors and executive officers are as follows:
Listed below are our executive officers and directors as of December 31, 2010
| Name | Age | Position with the Company | Director Since | |||
| Rik J. Deitsch | 43 | Chairman, President, Chief Executive Officer, and Chief Financial Officer | 2002 | |||
| Stewart Lonky, M.D. | 64 | Director (1) | 2004 | |||
| Harold H. Rumph | 80 | Director | April 2008 | |||
| Garry R. Pottruck | 55 | Director (1) | July 2009 |
| Name | Age | Position with the Company | Director Since | |||
| Rik J. Deitsch | 45 | Chairman, President and Chief Executive Officer* | 2002 | |||
| Stewart Lonky, M.D. | 66 | Director (1) | 2004 | |||
| Harold H. Rumph | 82 | Director | April 2008 | |||
| Garry R. Pottruck | 56 | Director (1) | July 2009 |
| (1) | Dr. Lonky and Garry R. Pottruck are members of our Audit Committee and Compensation Committee. |
| * | Rik Deitsch also served as Chief Financial Officer until the appointment of Bruno Sartori in March, 2012 Upon the termination of Mr. Sartori, Mr. Deitsch resumed the role of Chief Financial Officer in September, 2012 |
Rik J. Deitsch
has been our President, Chief Executive| 34 |
Dr. Stewart Lonky
has been our director since November 5, 2004. Dr. Lonky was a co-founder of the Trylon Corporation, a medical device firm located in Torrance, California, and served as its Chief Medical Officer from 1990-2005. Trylon Corporation developed diagnostic products for the early diagnosis of cervical and oral cancer, and in connection with that Dr. Lonky's responsibilities included product development, the direction of clinical research and interacting with regulatory agencies, including the U.S. Food and Drug Administration (FDA). In these roles he has been instrumental in successfully bringing a number of products to the medical marketplace. He has continued to be engaged in both clinical and biochemical research, and has published research articles in the peer-reviewed literature in the areas of cervical cancer and cellular pathophysiology. Since 2005, Dr. Lonky has held a similar position with another device company, Histologics, LLC. Dr. Lonky has been a practicing physician in the Los Angeles Area since 1982. He is Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care Medicine. Prior to entering practice, Dr. Lonky served as a full-time faculty member at the University of California, San Diego in the Department of Medicine, Pulmonary Division, where he was engaged in research in the biochemistry of lung injury. He was a National Institutes of Health (NIH) Postdoctoral Fellow from 1974-77. He has published over twenty articles and abstracts in the peer-reviewed literature during that time, and authored two book chapters.Harold H. Rumph
became our Director on April 10, 2008 when ReceptoPharm became our wholly owned subsidiary. Since November of 2011, Mr. Rumph has acted in the capacity as Interim President of ReceptoPharm. From May 2003 to present, Harold H. Rumph has been the President/Director of ReceptoPharm, Inc., a biotechnology company located in Plantation, Florida. From September 1988 to April 2003, Mr. Rumph was the President/Founder of Project Scheduling Services, Inc., a computerized scheduling services company to the construction industry, located in Pompano Beach, Florida. From 1962 to 1988, Mr. Rumph held managerial, marketing , and other positions with IBM, RCA, Xerox , Harris Corporation and was a founder and President of Biogenix, Inc., a biotechnology company located in Boca Raton, Florida. From 1953 to 1962, Mr. Rumph served on active duty with various responsibilities including Tactical Fighter Pilot and at Headquarters United States Air Force Intelligence with the United States Air Force. In 1953, Mr. Rumph received a Bachelor of Science Degree in Military Science from the United States Naval Academy in Annapolis Maryland.Garry Pottruck
became ourAppointment of Bruno Sartori as Chief Financial Officer
On March 9, 2012, we appointed Bruno Sartori as Chief Financial Officer, replacing Rik Deitsch.Mr. Sartori is 56 years of age. From August 2010 to March 6, 2012, Mr. Sartori acted as our full-time consultant regarding accounting matters. From April 1995 to November 2005 and from January 2008 to July 2010, Mr. Sartori operated his own accounting practice. From December 2005 to December 2007, Mr. Sartori was the Chief Financial Officer of Trend USA, Ltd and affiliates, a subsidiary of Trend Group, S.P.A, an international manufacturer, seller and distributor of agglomerates, glass mosaics and tiles. Mr. Sartori has a total of 27 years of accounting experience and has been licensed as a Certified Public Accountant in Florida since October 1985. In May 1983, Mr. Sartori graduated from Florida Atlantic University with an accounting degree.
Removal of Bruno Sartori as our Chief Financial Officer
On September 4, 2009,6, 2012, our former Director, Paul Reid, filed for personal bankruptcy under Chapter 13Board of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida. The CourtDirectors unanimously approved the bankruptcy plan on January 13, 2010.
Appointment of Rik Deitsch as our Chief Financial Officer
On September 6, 2012, our Board of Directors unanimously approved the appointment of Rik Deitsch, our Chief Executive Officer since November 2002, as our Chief Financial Officer. Mr. Deitsch’s appointment as our Chief Financial Officer has not and control persons havewill not been involvedresult in any material changes to his compensation as our Officer.
We will be interviewing other candidates to assume the Chief Financial Officer position to separate the functions of the following events during the past five years:
Section 16(a) Compliance of Officers and Directors
As of March 18, 2011,April 15, 2013, based on our review of Forms 3, 4, 5, and Schedule 13D furnished to us during the last fiscal year, all of our officers and directors filed the required reports.
Corporate Governance
a. Committees
(i) Audit Committee
On November 5, 2004, our Board of Directors established an Audit Committee. We do not have anAn audit committee charter.charter was approved by the Board on March 14, 2012. Mr. Pottruck became the Chairman/Member of the Audit Committee as of July 29, 2009. Dr. Lonky also serves on the Audit Committee. During our 20102012 Fiscal Year, our Audit Committee met one time, on March 302 times in October 2012 in connection with our 20092011 Fiscal Year audit, at which time the audit committee reviewed the audited financial statements and related notes. In addition, the audit committee met prior to the filing of each of the 2012 quarterly reports to review such reports. The Audit Committee addresses any questions it has to our Board members and officers, and our principal independent accountants.
(ii) Compensation Committee
On November 5, 2004, our Board of Directors established a Compensation Committee. We do not have a Compensation Committee Charter. Dr. Lonky serves on our Compensation Committee and Mr. Pottruck became our Compensation Committee’s Chairman as of July 29, 2009. During our 20102012 fiscal year, our Compensation Committee met four2 times. Our Compensation Committee reviews all salaries, expenses, stock plans, and other compensation paid to our officers, directors, consultants, and others. Our Compensation Committee has not adopted any specific processes or procedures for considering executive and director compensation.
(iii) Nominating Committee
We do not have a Nominating Committee or similar committee performing similar functions nor a written Nominating Committee Charter. Our Board of Directors as a whole decides such matters, including those that would be performed by a standing nominating committee. We have not yet adopted a nominating committee because we have not sufficiently developed revenue-generating operations. We do not currently have any specific or minimum criteria for the election of nominees to our Board of Directors nor do we have any process or procedure for evaluating such nominees.
b. Shareholder Communications
Our Board of Directors does not have any defined policy or procedure requirements for our stockholders to send communications to our Board of Directors, including submission of recommendations for nominating directors. We have not yet adopted a process for our security holders to communicate with our Board of Directors because we have not sufficiently developed our operations and corporate governance structure. We have a toll-free number at (877) 895-5647 available on our website for our shareholders to contact us as well as a dedicated email address at investor.relations@nutrapharma.com.
c. Board of Director Meetings
We had 6seven Board of Directors meetings during our 20102012 Fiscal Year. Our corporate actions that were subject to Board approval were accomplished by Board resolutions. We request that all of our Directors attend our Board of Director meetings; however, we have no formal policy regarding their attendance.
d. Annual Shareholder Meetings
We held no annual shareholder meeting during 2010.
We request that all of our Directors attend our Annual Shareholder Meetings; however, we have no formal policy regarding their attendance.
e. Code of Ethics
We have a code of ethics that applies to all of our employees including its principal executive officer, principal financial officer and principal accounting officer. A copy of this code is available without charge on our website at www.nutrapharma.com. We intend to disclose any changes in or waivers from our code of ethics by posting such information on our website or by filing a Form 8-K.
Item 11.Executive Compensation
The following table summarizes compensation information for the last two fiscal years for (i) our Chief Executive Officer and (ii) the four most highly compensated executive officers other than the Chief Executive Officer who were serving as our executive officers at the end of the fiscal year (collectively, the "Named Executive Officers").
The following executive compensation disclosure reflects all compensation awarded to, earned by or paid to the executive officers below, for the fiscal years ended December 31, 20102012 and 2009.
SUMMARY COMPENSATION TABLE
Name and principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||
| Rik Deitsch | 2010 | 217,692 | — | — | — | — | — | — | ||||||||||||||||||||||||
Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board | 2009 | 130,000 | — | — | — | — | — | |||||||||||||||||||||||||
| David Isserman | 2010 | $ | 120,000 | |||||||||||||||||||||||||||||
| Chief Marketing | ||||||||||||||||||||||||||||||||
| Officer * | ||||||||||||||||||||||||||||||||
| Name and principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non- Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||
| Rik Deitsch | 2012 | 130,000 | — | 517,200 | — | — | — | — | 647,200 | ||||||||||||||||||||||||
| Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board | 2011 | 220,673 | — | — | — | — | — | 220,673 | |||||||||||||||||||||||||
The following director compensation disclosure reflects all compensation awarded to, earned by or paid to the directors below for the fiscal year ended December 31, 2010.
DIRECTOR COMPENSATION
Fees Earned or Paid in | Stock | Option | Non-Equity IncentivePlan | Nonqualified DeferredCompensation | All Other | |||||||||||||||||||||||
| Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||
| Name | ($) | ($)(1) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Rik Deitsch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Stewart Lonky | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Garry Pottruck | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Harold H. Rumph | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
| Fees Earned | Non-Equity | Nonqualified | ||||||||||||||||||||||||||
| or Paid in | Stock | Option | Incentive Plan | Deferred Compensation | All Other | |||||||||||||||||||||||
| Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||
| Name | ($)(1) | ($)(2) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Rik Deitsch | 130,000 | 457,200 | 0 | 0 | 0 | 0 | 587,200 | |||||||||||||||||||||
| Stewart Lonky | 0 | 182,600 | 0 | 0 | 0 | 0 | 182,600 | |||||||||||||||||||||
| Garry Pottruck | 0 | 162,400 | 0 | 0 | 0 | 0 | 162,400 | |||||||||||||||||||||
| Harold H. Rumph | 0 | 176,000 | 0 | 0 | 0 | 0 | 176,000 | |||||||||||||||||||||
| (1) | Represents salary paid and accrued during 2012 |
| (2) | Represents stocks issued for services at a price per share of $0.0165, $0.022 and $0.014 per share during February, October and December 2012, respectively. |
Director Compensation
There are no standard arrangements to which directors are compensated for services provided to us. Should we obtain adequate funding or sufficient revenues to justify standard arrangements for director compensation, we will consider whether to adopt such a compensation plan.
Stock Option Grants in Last Fiscal Year
We did not grant incentive and non-qualified stock options in 20102012 to any executive officer or director.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables sets forth, as of MarchDecember 31, 2011,2012, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days.
Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. We are unaware of any contract or arrangement that could result in a change in control of our company.
The following table assumes based on our stock records, that there are 285,194,335561,773,778 shares issued and outstanding as of March 18, 2011
Security Ownership of Management and Beneficial Owners
Name and Address of Director or Executive Officer | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | ||||||
Rik J. Deitsch Chief Executive Officer/President 2776 University Drive Coral Springs, Florida 33065 | 54,500,000 | 19.1 | ||||||
Dr. Stewart Lonky Director 1158 Chautaqua Boulevard Pacific Palisades, California 90272 | 3,000,000 | 1.1 | ||||||
Harold Rumph Director 1537 NW 65th Ave Plantation, FL 33313 | 4,400,000 | 1.5 | ||||||
Garry Pottruck Director 10768 NW 18 Court Coral Springs, Florida 33071 | 2,550,000 | 0.9 | ||||||
| All executive officers and directors as a group (4) persons | 64,450,000 | 22.6 | ||||||
| Name and Address of Director or Executive Officer | Shares of Common Stock Beneficially Owned | Percent of Common Stock Outstanding | ||||||
| Rik J. Deitsch Chief Executive Officer/President 12502 W. Atlantic Blvd Coral Springs, Florida 33071 | 79,351,700 | 14 | % | |||||
| Dr. Stewart Lonky Director 12936 Discovery Creek Playa Vista, CA 90094 | 12,420,000 | 2 | % | |||||
| Harold Rumph Director 1537 NW 65th Ave Plantation, FL 33313 | 13,400,000 | 2 | % | |||||
| Garry Pottruck Director 10768 NW 18 Court Coral Springs, Florida 33071 | 10,925,000 | 2 | % | |||||
| All executive officers and directors as a group (4) persons | 116,096,700 | 20 | % | |||||
Item 13. Certain Relationships and Related Transactions, and Director Independence
Loans by our Chief Executive Officer
During the year ended December 31, 2011, we borrowed a total of $702,220 from Mr. Deitsch and repaid a total of $803,749 to him. In addition Mr. Deitsch sold $300,000 of our debt in a private transaction. The balance owed to our President, Rik Deitsch, at December 31, 20102011 was $1,099,238,$738,993, which includes accrued interest of $256,695.$297,980. This demand loan is unsecured and bears interest at a rate of 4.0%.
During the year ended December 31, 2009, the Company2012, we borrowed $546,530a total of $164,779 from Mr. Deitsch and repaid him $709,663, bringinga total of $149,478 to him. In addition Mr. Deitsch transferred $175,000 of our debt in a private transaction. The balance owed to our President, Rik Deitsch, at December 31, 2012 was $606,168, which includes accrued interest of $324,853. This demand loan is unsecured and bears interest at a rate of 4.0%.
Subsequent to December 31, 2012 we received additional advances from Mr. Deitsch in the totalamount of $45,079 and repaid Mr. Deitsch $1,200. The amount owed to Mr. Deitsch to $1,151,361 at December 31, 2009. Included in the amount owed to Mr. Deitsch is $256,696as of April 12, 2013 was $656,534, which includes $331,407 of accrued interest.
Debt owed to our Directors
At December 31, 20102012, we owed Garry Pottruck, a Director of Nutra Pharma, $225,834, which includes
Debt owed to ReceptoPharm’s Former President as of December 31, 2010
In addition, at December 31, 2010,2012, we were indebted to Paul Reid, the former President of our wholly owned subsidiary, ReceptoPharm, in the amount of $106,144.$117,218. This amount includes accrued interest of $26,317.$37,392. 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.
Director Independence
Our common stock is quoted on the OTC Bulletin Board;OTCQB; that trading medium does not have director independence requirements. Under Item 407(a) of Regulation S-K,we have adopted the definition of independence used by the American Stock Exchange, which may be found in the American Stock Exchange Company guide at (s) 121(A)(2) (2007). This definition states that our Board of Directors must affirmatively determine whether any of our directors have a relationship that would interfere with the exercise of independent judgment in carrying out their responsibilities of a director. Based on this definitional standard, our Board of Directors has determined that none of our Directors are independent.
| 38 |
Item 14. Principal Accountant Fees and Services
Audit Fees
The aggregate fees billed to us for fiscal years ended December 31, 2012 and 2011 by our current auditors, Liggett, Vogt & Co.Webb, P.A., as our new principal independent accountant to audit our financial statements until December 18, 2009, at which time we engagedand former auditors, Kingery & Crouse P.A. Duringwere approximately $88,436 and $71,500 for professional services rendered for the audit of our 2009annual financial statements and reviews of our interim consolidated financial statements included in quarterly reports and other services related to statutory and regulatory filings or engagements.
Audit-Related Fees
Audit-related fees represent review of registration statements or services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal year, we paid Stark Winter Schenkein & Co. $11,000years, and the aggregate fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our Forms 10-Q and financial statements contained therein. During 2009 we also paid Stark Winter Schenkein & Co., $14,000 in audit fees related to our subsidiary ReceptoPharm, Inc. During 2010 we paid Kingery & Crouse, P.A. $31,500 in audit fees for our 2009 audit and $13,800 for review of our forms 10Q.
Tax Fees
No such fees were paid to Stark Winter SchenkeinLiggett, Vogt & Co. orWebb, P.A and Kingery & Crouse, P.A. in 20092011 or 2010.
All Other Fees
No such fees were paid to Liggett, Vogt & Webb, P.A and Kingery & Crouse, P.A. in 2011 or 2012.
As of December 31, 2012, the Company did not have a formal documented pre-approval policy for the fees of the principal accountant. The Company does not have an audit committee. The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following Financial Statements are filed as part of this report under Item 7.
| Report of Independent Registered Certified Public Accounting Firm | |
| Consolidated Balance Sheets | F-2 |
| Consolidated Statements of Operations | F-3 |
| Consolidated Statement of Changes in Stockholders' Deficit | F-4 |
| Consolidated Statements of Cash Flows | F-5 |
| Notes to Consolidated Financial Statements | F-6 |
(b) The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the SEC:
Exhibit Number/Description
| 3.1 | Certificate of Incorporation dated February 1, 2000 (incorporated by reference to the Company’s Registration Statement on Form SB-2/A, Registration No. 33-44398, filed on April 6, 2001) |
| 3.2 | Certificate of Amendment to Articles of Incorporation dated July 5, 2000 (incorporated by reference to the Company’s Registration Statement on Form SB-2/A, Registration No. 33-44398, filed on April 6, 2001) |
| 3.3 | Certificate of Amendment to Articles of Incorporation dated October 31, 2001 (incorporated by reference to the Company’s Registration Statement on Form SB-2/A, Registration No. 33-44398, filed on April 6, 2001) |
| 10.1 | Agreement and Plan of Merger dated April 9, 2008 by and among Nutra Pharma Corp., a California corporation (“Nutra Pharma”), NP Acquisition Corporation, a Nevada corporation wholly owned by Nutra Pharma (“Acquisition”), |
| 10.18 | Patent Assignment Agreement dated January 24, 2006 between Nanologix, Inc. and Nutra Pharma Corp. (incorporated by reference from Form 10-K for period ending December 31, 2006) |
| 10.19 | International License Agreement between NanoLogix, Inc. and Nutra Pharma Corp. (incorporated by reference from Form 10-K for period ending December 31, 2006) |
| 20.3 License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp (incorporated by reference from Form 10-KSB for the period ending December 31, 2003) | ||
| 20.4 Amendment to License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp (incorporated by reference from Form 10-KSB for the period ending December 31, 2003) | ||
| 14.1 | Code of Ethics (incorporated by reference from Report on Form 10-K/A filed on May 7, 2004). |
| 20.3 | License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp (incorporated by reference from Form 10-KSB for the period ending December 31, 2003) |
| 20.4 | Amendment to License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp (incorporated by reference from Form 10-KSB for the period ending December 31, 2003) |
| 21.1 | Subsidiaries of the Registrant, Nutra Pharma Corp. |
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | 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. |
| 99.1 | Form 8-K filed on April 14, 2008 under Item 1.01 regarding acquisition of ReceptoPharm, Inc. as Nutra Pharma Corp.'s wholly owned subsidiary and Exhibit 10.1 (April 10, 2008 Agreement and Plan of Merger) attached thereto (incorporated by reference to this Form 10-K for the period ending December 31, 2008). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NUTRA PHARMA CORP. | |
| /s/ Rik J. Deitsch | |
Rik J. Deitsch, Chairman, President, Chief | |
| Executive Officer, Principal Financial | |
| Officer, and Principal Accounting Officer |
Dated: March 31, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
| Signature | Title | Date | ||
| /s/ Rik J. Deitsch | Chairman of the Board, President, Chief Executive Officer, Principal Financial Officer, | |||
| Principal Accounting Officer | ||||
| /s/ Garry R. Pottruck | Director | |||
| /s/ Stewart Lonky | Director | |||
| April 16, 2013 | ||||
| /s/ Harold H. Rumph | Director | |||
| April 16, 2013 |
| 432 Park Avenue South , 10 Floor New York , NY 10016 (212) 481-3490 1500 Gateway Boulevard, Suite 202 Boynton Beach , FL 334 26 (561) 752 -1721 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of:
Nutra Pharma Corp.
We have audited the accompanying consolidated balance sheetof Nutra Pharma Corp. and Subsidiaries (the “Company”) as of December 31, 2012 and the related consolidated statement of operations, changes in stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly in all material respects, the financial position of Nutra Pharma Corp. as of December 31, 2012 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidatedfinancial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidatedfinancial statements, for the year endedDecember 31, 2012, the Company has a net loss of $3,612,351, a working capital deficiency of $3,632,479 and a negative cash flow from operations of $721,242. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Liggett, Vogt & Webb, P.A.
LIGGETT, VOGT & WEBB, P.A.
Certified Public Accountants
Boynton Beach, Florida
April 16, 2013
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Nutra Pharma Corp.:
We have audited the accompanying consolidated balance sheetssheet of Nutra Pharma Corp. (the “Company”), as of December 31, 2009 and 2010,2011, and the related consolidated statementsstatement of operations, stockholders’ deficit and cash flows for the yearsyear then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our auditsaudit included consideration of internal control overfinancial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2010,2011, and the results of its operations and its cash flows for the yearsyear then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to such financial statements, the Company has no cash as of December 31, 2010, has suffered recurring losses from operations and has ongoing requirements for additional capital investment. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Kingery & Crouse, P.A.
Certified Public Accountants
Tampa, FL
November 9, 2012
2801 WEST BUSCH BOULEVARD, SUITE 200, TAMPA, FLORIDA 33618
PHONE: 813.874.1280 ■ FAX: 813.874.1292 ■ WWW.TAMPACPA.COM
NUTRA PHARMA CORP.
Consolidated Balance Sheets
| 2009 | 2010 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 802,875 | $ | - | ||||
| Accounts receivable | 239,583 | - | ||||||
| Research grant receivable | - | 244,479 | ||||||
| Inventory | 165,786 | 253,042 | ||||||
| Prepaid inventory | - | 100,000 | ||||||
| Prepaid expenses | 23,290 | 40,081 | ||||||
| Total current assets | 1,231,534 | 637,602 | ||||||
| Property and equipment, net | 12,369 | 69,207 | ||||||
| Other assets | 8,803 | 46,621 | ||||||
| TOTAL ASSETS | $ | 1,252,706 | $ | 753,430 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 104,223 | $ | 710,638 | ||||
| Accrued expenses | 960,548 | 920,583 | ||||||
| Due to officers | 1,252,385 | 1,205,382 | ||||||
| Other loans payable | 80,000 | 334,241 | ||||||
| Total current liabilities | 2,397,156 | 3,170,844 | ||||||
| Derivative Warrant Liability | - | 109,500 | ||||||
| Stockholders' deficit: | ||||||||
| Common stock, $0.001 par value, 2,000,000,000 shares authorized; | ||||||||
| 270,425,232 and 280,091,899 shares issued and outstanding, respectively | 270,426 | 280,092 | ||||||
| Additional paid-in capital | 25,157,967 | 27,039,801 | ||||||
| Deferred compensation | - | (212,500 | ) | |||||
| Accumulated deficit | (26,572,843 | ) | (29,634,307 | ) | ||||
| Total stockholders' deficit | (1,144,450 | ) | (2,526,914 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 1,252,706 | $ | 753,430 | ||||
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 7,559 | $ | - | ||||
| Accounts receivable, net of allowances for doubtful accounts of $0 and $603,893, respectively | 38,314 | - | ||||||
| Subscription receivable | - | 8,000 | ||||||
| Inventory,net | - | 117,800 | ||||||
| Prepaid expenses and other current assets | 200,868 | 32,375 | ||||||
| Total current assets | 246,741 | 158,175 | ||||||
| Property and equipment, net | 39,515 | 54,509 | ||||||
| Other assets | 16,621 | 16,621 | ||||||
| Total assets | $ | 302,877 | $ | 229,305 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 800,860 | $ | 1,098,452 | ||||
| Accrued expenses | 964,673 | 951,073 | ||||||
| Due to officers | 723,386 | 850,529 | ||||||
| Derivative Warrant Liability | 18,727 | 28,833 | ||||||
| Other debt | 1,371,574 | 1,211,863 | ||||||
| Total current liabilities | 3,879,220 | 4,140,750 | ||||||
| Commitments and Contingencies (See Note 9) | - | - | ||||||
| Stockholders' deficit: | ||||||||
| Common stock, $0.001 par value, 2,000,000,000 shares authorized; 561,773,778 shares issued and outstanding at December 31, 2012, 321,027,959 shares issued and 326,337,959 shares outstanding at December 31, 2011 | 561,774 | 326,337 | ||||||
| Additional paid-in capital | 33,505,739 | 29,793,723 | ||||||
| Accumulated deficit | (37,643,856 | ) | (34,031,505 | ) | ||||
| Total stockholders' deficit | (3,576,343 | ) | (3,911,445 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 302,877 | $ | 229,305 | ||||
See the accompanying notes to the consolidated financial statements.
NUTRA PHARMA CORP.
Consolidated Statements of Operations
| 2009 | 2010 | |||||||
| Sales | $ | 618,010 | $ | 1,432,056 | ||||
| Cost of sales | 278,944 | 616,612 | ||||||
| Gross profit | 339,066 | 815,444 | ||||||
| Costs and expenses: | ||||||||
| General and administrative - including stock based compensation of $613,250 and $1,379,000 | 2,199,146 | 3,945,818 | ||||||
| Research and development | 222,558 | 191,786 | ||||||
| Impairment of note receivable | 150,000 | - | ||||||
| Interest expense | 69,003 | 74,283 | ||||||
| Total costs and expenses | 2,640,707 | 4,211,887 | ||||||
| Net loss from Operations | (2,301,641 | ) | (3,396,443 | ) | ||||
| Other Revenues | ||||||||
| Derivative Gain | 90,500 | |||||||
| Research grant | - | 244,479 | ||||||
| Total other revenues | - | 334,979 | ||||||
| Net Loss | $ | (2,301,641 | ) | $ | (3,061,464 | ) | ||
| Per share information - basic and diluted: | ||||||||
| Loss per common share | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding | 230,479,684 | 275,145,004 | ||||||
| For the years ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Net sales | $ | 203,290 | $ | 159,599 | ||||
| Cost of sales | 147,647 | 879,587 | ||||||
| Gross profit (loss) | 55,643 | (719,988 | ) | |||||
| Operating expenses: | ||||||||
| Selling, general and administrative - including stock based compensation of $1,799,461 and $854,167, respectively | 2,653,696 | 3,039,795 | ||||||
| Research and development | 3,046 | 90,865 | ||||||
| Provision for bad debts | - | 99,935 | ||||||
| Total operating expenses | 2,656,742 | 3,230,595 | ||||||
| Net loss from operations | (2,601,099 | ) | (3,950,583 | ) | ||||
| Other income (loss) | ||||||||
| Interest expense | (153,472 | ) | (424,038 | ) | ||||
| Change in fair value of derivatives | (400,488 | ) | (22,577 | ) | ||||
| Loss on settlement of debt and accounts payable | (457,292 | ) | - | |||||
| (1,011,252 | ) | (446,615 | ) | |||||
| Net loss | $ | (3,612,351 | ) | $ | (4,397,198 | ) | ||
| Net loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average number of shares outstanding during the period - basic and diluted | 402,996,638 | 297,730,411 | ||||||
See the accompanying notes to the consolidated financial statements.
NUTRA PHARMA CORP.
Consolidated Statements of Changes in Stockholders' Deficit
| Additional | ||||||||||||||||||||||||
| Common Stock | Paid-in | Deferred | Accumulated | |||||||||||||||||||||
| Shares | Par Value | Capital | Compensation | Deficit | Total | |||||||||||||||||||
| Balance -January 1, 2009 | 211,276,482 | $ | 211,277 | $ | 21,503,591 | $ | - | $ | (24,271,202 | ) | $ | (2,556,334 | ) | |||||||||||
| Common shares issued for cash -$0.025 to $0.08 per share | 45,523,750 | 45,524 | 3,014,751 | - | - | 3,060,275 | ||||||||||||||||||
| Exercise of warrants at $0.10 | 400,000 | 400 | 39,600 | - | - | 40,000 | ||||||||||||||||||
| Issuance of common stock in exchange for services - $0.02 to $0.54 per share | 12,825,000 | 12,825 | 600,425 | - | - | 613,250 | ||||||||||||||||||
| Issuance of common stock in connection with acquisition of Receptopharm | 400,000 | 400 | (400 | ) | - | - | - | |||||||||||||||||
| Net loss | - | - | - | - | (2,301,641 | ) | (2,301,641 | ) | ||||||||||||||||
| Balance - December 31, 2009 | 270,425,232 | 270,426 | 25,157,967 | - | (26,572,843 | ) | (1,144,450 | ) | ||||||||||||||||
| Issuance of common stock in exchange for future services - $0.51 per share | 2,500,000 | 2,500 | 1,272,500 | (1,275,000 | ) | - | - | |||||||||||||||||
| Exercise of warrants at $0.10 per share | 3,000,000 | 3,000 | 297,000 | - | - | 300,000 | ||||||||||||||||||
| Common stock issued under purchase agreement | 2,066,667 | 2,066 | 197,934 | - | - | 200,000 | ||||||||||||||||||
| Fair value of warrants issued in connection with purchase agreement | - | - | (200,000 | ) | - | - | (200,000 | ) | ||||||||||||||||
| Issuance of common stock in exchange for services - $0.09 to $0.32 | 2,100,000 | 2,100 | 314,400 | - | - | 316,500 | ||||||||||||||||||
| Recognition of deferred stock based compensation | - | - | - | 1,062,500 | - | 1,062,500 | ||||||||||||||||||
| Net loss | - | - | - | - | (3,061,464 | ) | (3,061,464 | ) | ||||||||||||||||
| Balance - December 31, 2010 | 280,091,899 | $ | 280,092 | $ | 27,039,801 | $ | (212,500 | ) | $ | (29,634,307 | ) | $ | (2,526,914 | ) | ||||||||||
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Shareholder's | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance - December 31, 2010 | 280,091,899 | $ | 280,092 | $ | 27,039,801 | $ | (29,634,307 | ) | $ | (2,314,414 | ) | |||||||||
| Issuance of common stock in exchange for future services - $0.13 per share | 4,200,000 | 4,200 | 539,800 | 544,000 | ||||||||||||||||
| Issuance of common stock in exchange for services - $0.03 to $0.20 per share | 1,100,000 | 1,100 | 75,733 | 76,833 | ||||||||||||||||
| Common stock issued for cash - $0.05 per share | 3,190,000 | 3,190 | 156,310 | 159,500 | ||||||||||||||||
| Common stock issued under purchase agreement | 16,731,774 | 16,731 | 1,263,269 | 1,280,000 | ||||||||||||||||
| Common stock issued in exchange for debt - $0.06 per share | 10,000,000 | 10,000 | 590,000 | 600,000 | ||||||||||||||||
| Common stock placed in escro was security for note payable | 5,714,286 | 5,714 | (5,714 | ) | - | |||||||||||||||
| Common stock issuable for services | 550,000 | 550 | 20,284 | 20,834 | ||||||||||||||||
| Common stock issuable for cash -$0.025 per share | 4,760,000 | 4,760 | 114,240 | 119,000 | ||||||||||||||||
| Net loss | (4,397,198 | ) | (4,397,198 | ) | ||||||||||||||||
| Balance - December 31, 2011 | 326,337,959 | 326,337 | 29,793,723 | (34,031,505 | ) | (3,911,445 | ) | |||||||||||||
| Issuance of common stock in exchange for services to consultants | 63,300,000 | 63,300 | 907,381 | 970,681 | ||||||||||||||||
| Issuance of common stock in exchange for services to directors and employees | 42,595,000 | 42,595 | 786,185 | 828,780 | ||||||||||||||||
| Common stocks issued in private placement | 43,450,000 | 43,450 | 391,050 | 434,500 | ||||||||||||||||
| Common stock issued in exchange for related party debt | 17,000,000 | 17,000 | 237,700 | 254,700 | ||||||||||||||||
| Common stock issued for debt modification | 4,000,000 | 4,000 | 96,000 | 100,000 | ||||||||||||||||
| Common stock issued for conversion of debt | 63,890,819 | 63,892 | 1,282,900 | 1,346,792 | ||||||||||||||||
| Common stock issuable for private placement (1,200,000 shares) | 1,200,000 | 1,200 | 10,800 | 12,000 | ||||||||||||||||
| Net loss | (3,612,351 | ) | (3,612,351 | ) | ||||||||||||||||
| Balance -December 31, 2012 | 561,773,778 | $ | 561,774 | $ | 33,505,739 | $ | (37,643,856 | ) | $ | (3,576,343 | ) | |||||||||
See the accompanying notes to the consolidated financial statements.
NUTRA PHARMA CORP.
Consolidated Statements of Cash Flows
| 2009 | 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,301,641 | ) | $ | (3,061,464 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 5,818 | 15,165 | ||||||
| Stock-based compensation | 613,250 | 1,379,000 | ||||||
| Derivatives gain | - | (90,500 | ) | |||||
| Non cash interest expense | 59,046 | 79,937 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | (239,583 | ) | (4,896 | ) | ||||
| Decrease (increase) in inventory | (155,016 | ) | (87,256 | ) | ||||
| Decrease (increase) in prepaid expenses | 4,178 | (16,791 | ) | |||||
| Decrease (increase) in prepaid inventory | - | (100,000 | ) | |||||
| Decrease (increase) in other assets | (670 | ) | (37,818 | ) | ||||
| Increase (decrease) in accounts payable | (52,176 | ) | 606,415 | |||||
| Increase (decrease) in accrued expenses | 110,692 | (39,965 | ) | |||||
| Net cash used in operating activities | (1,956,102 | ) | (1,358,173 | ) | ||||
| Cash flows used in investing activities: | ||||||||
| Acquisition of property and equipment | (8,246 | ) | (72,002 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Common stock issued for cash | 3,100,275 | 300,000 | ||||||
| Repayment of notes payable | (20,000 | ) | - | |||||
| Repayment of stockholder loans | (910,492 | ) | (407,400 | ) | ||||
| Proceeds from notes payable | - | 225,000 | ||||||
| Proceeds from common stock purchase agreement | - | 200,000 | ||||||
| Loans from stockholders | 546,530 | 309,700 | ||||||
| Net cash provided by financing activities | 2,716,313 | 627,300 | ||||||
| Net increase (decrease) in cash | 751,965 | (802,875 | ) | |||||
| Cash - beginning of period | 50,910 | 802,875 | ||||||
| Cash - end of period | $ | 802,875 | $ | - | ||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for interest | $ | - | $ | 4,696 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Non cash Financing and Investing: | ||||||||
| Fair value of warrants issued | $ | - | $ | 200,000 | ||||
| For the years ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,612,351 | ) | $ | (4,397,198 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on settlement of accounts payable | 357,292 | - | ||||||
| Loss on loan modification | 100,000 | - | ||||||
| Loss on note payable default | 100,000 | - | ||||||
| Depreciation and amortization | 14,994 | 16,058 | ||||||
| Stock-based compensation | 1,799,461 | 854,167 | ||||||
| Change in fair value of derivative | 400,488 | 22,577 | ||||||
| Non-cash interest expense-shareholders | 33,055 | 359,795 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivables | (38,314 | ) | 244,479 | |||||
| Decrease in inventory | 117,800 | 135,242 | ||||||
| Increase in prepaid stock-based compensation | (205,161 | ) | - | |||||
| Decrease in prepaid expenses | 28,678 | 137,706 | ||||||
| Increase in accounts payable | 169,216 | 737,814 | ||||||
| Increase in accrued expense | 13,600 | 1,249 | ||||||
| Net cash used in operating activities: | (721,242 | ) | (1,888,111 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | - | (1,360 | ) | |||||
| Net cash used in investing activities: | - | (1,360 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Common stock sold for cash | 446,500 | 1,550,500 | ||||||
| Proceeds from payment of subscription receivable | 8,000 | - | ||||||
| Loans from officers | 164,779 | 702,220 | ||||||
| Repayment of officers loans | (49,478 | ) | (803,749 | ) | ||||
| Proceeds from convertible notes | 115,000 | 90,500 | ||||||
| Proceeds from notes payable | 79,000 | 575,000 | ||||||
| Repayments of notes payable | (35,000 | ) | (225,000 | ) | ||||
| Net cash provided by financing activities: | 728,801 | 1,889,471 | ||||||
| Net increase in cash | 7,559 | - | ||||||
| Cash - beginning of year | - | - | ||||||
| Cash - end of year | $ | 7,559 | $ | - | ||||
| Supplemental Cash Flow Information: | ||||||||
| Cash paid for interest | $ | 77,314 | $ | 64,243 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Non cash Financing and Investing: | ||||||||
| Note issued in settlement of payable | $ | 436,639 | $ | 350,000 | ||||
| Shares issued to satisfy debt | $ | 1,346,792 | $ | 300,000 | ||||
| Increase in subscriptions receivable and common stock issuable | $ | - | $ | 8,000 | ||||
| Stocks issued to satisfy debt-related party | $ | 254,700 | $ | - | ||||
See the accompanying notes to the consolidated financial statements.
NUTRA PHARMA CORP.
Notes to Consolidated Financial Statements
December 31, 20092012 and 2010
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Nutra Pharma Corp. ("Nutra Pharma"), “us”, “our” or "the Company") is a holding company that owns intellectual property and operationsoperates 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. We were in the development stage through September 30, 2009.
Through its wholly-owned subsidiariessubsidiary, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics Inc., we conductNutra Pharma conducts drug discovery research and development activities. In October 2009, weNutra Pharma launched its first consumer product called Cobroxin, an over-the-counter pain reliever designed to treat moderate to severe chronic pain.
Basis of Presentation
The accompanying consolidated financial statements include the results of Nutra Pharma and its wholly-owned subsidiaries Designer Diagnostics Inc. and ReceptoPharm (collectively "the Company", “us”, “we” or “our”). We operate as one reportable segment. All intercompany transactions and balances have been eliminated in consolidation.
Liquidity and Going Concern
Our consolidated financial statements are presented on a going concern basis, which contemplatescontemplate the realization of assets and satisfaction of liabilities in the normal course of business.
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.
As of December 31, 2010,2012, we had no cash. We currently do not have sufficient cash to sustain our operations for the next monthyear and will require additional financing in order to execute our operating plan and continue as a going concern. Since our sales are not currently adequate to fund our operations, we continue to rely principally on debt and equity funding; however proceeds from such funding have not been sufficient to execute our business plan. Our plan is to attempt to secure adequate funding to bridge the commercializationuntil sales of our Cobroxin and Nyloxin products.pain products are adequate to fund our operations. We cannot predict whether additional financing will be available, and/or whether any such funding 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.form. In the event that these financing sources do not materialize, or thatif we are unsuccessful in increasing our revenues and profits, we maywill be unable to implement our current plans for expansion, repay our obligations as they become due orand 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.
The items discussed above raise substantial doubt about our ability to continue as a going concern.
Use of Estimates
The preparation of the accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make 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 our ability to continue as going concern, the recoverability of inventories and long-lived assets, and the fair valuevaluation of stock-based compensation and the fair value ofcertain debt and warrant liabilities. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which arewould be recorded in the period in which they become known.
Revenue Recognition
In general, we record 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. The following policies reflect specific criteria for our various revenue streams:
Cash and Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
The Company grants credit without collateral to its customers based on the Company’s evaluation of a particular customer’s credit worthiness. In addition, allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of the Company’s periodic credit evaluations of its customers’ financial condition. Accounts receivable are written off after collection efforts have been deemed to be unsuccessful. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts, while subsequent recoveries are netted against the provision for doubtful accounts expense. The Company generally does not charge interest on 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
The activity in the allowance atfor doubtful accounts for the years ended December 31, 20092012 and 20102011 was as substantially all accounts receivable were collected subsequent to year end.
| 2012 | 2011 | |||||||
| Balances at January 1 | $ | 603,893 | $ | - | ||||
| Return allowance | - | 503,958 | ||||||
| Provision for bad debts | - | 99,935 | ||||||
| Write-offs | (603,893 | ) | - | |||||
| Balances at December 31 | $ | - | $ | 603,893 | ||||
Inventories
Inventories, which are valuedstated at the lower of average cost or market, on an average cost basis and consist primarilymostly of raw materials. We periodically performvenom that is utilized to make the API (active pharmaceutical ingredient). The raw unprocessed venom has an evaluation ofindefinite life for use. The Company regularly reviews inventory quantities on hand. If necessary it records a provision for excess and obsolete items. At December 31, 2010, our inventory consisted mostlybased primarily on its estimates of raw materials thatcomponent obsolescence, product demand and production requirements. Write-downs are utilized in the manufacturingcharged to cost of finished goods. These raw materials generally have expiration dates in excess of 10 years.goods sold. We performed an evaluationevaluations of our inventory and determined that atduring the year ended December 31, 2010, there were no obsolete or excess items.
Financial Instruments and Concentration of Credit Risk
Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and derivative financial instruments. WeOther than certain warrant and convertible instruments (derivative financial instruments) and liabilities to related parties (for which it was impracticable to estimate fair value due to uncertainty as to when they will be satisfied and a lack of similar type transaction in the marketplace), we believe the carrying values of cash, accounts and other receivable, accounts payable, accrued expenses, loans payable, due to officersour financial instruments approximate their fair values because they are short term in nature or payable on demand. Our derivative financial instrument isinstruments are carried at a measured fair value (see Note 2).
Balances in various operatingcash accounts exceededmay at times exceed federally insured limits. We have not experienced any losses in such accounts. We do not hold or issue financial instruments for trading purposes.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. For complex embedded derivatives, the Company uses a Dilution-Adjusted Black-Scholes method to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs which do not extend the useful lives are expensed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of 3 – 7 years.
Property and equipment consists of the following at December 31,
| 2009 | 2010 | |||||||
| Computer equipment | $ | 11,950 | $ | 21,918 | ||||
| Furniture & fixtures | 11,562 | 34,757 | ||||||
| Lab equipment | 14,682 | 42,129 | ||||||
| Telephone Equipment | - | 11,393 | ||||||
| Office equipment - other | 2,630 | 2,630 | ||||||
| Leasehold improvements | 67,417 | 67,417 | ||||||
| 108,241 | 180,244 | |||||||
| Less accumulated depreciation | (95,872 | ) | (111,037 | ) | ||||
| Net property and equipment | $ | 12,369 | $ | 69,207 | ||||
| 2012 | 2011 | |||||||
| Computer equipment | $ | 21,918 | $ | 21,918 | ||||
| Furniture and fixtures | 34,757 | 34,757 | ||||||
| Lab equipment | 42,129 | 42,129 | ||||||
| Telephone equipment | 12,421 | 12,421 | ||||||
| Office equipment – other | 2,629 | 2,629 | ||||||
| Leasehold improvements | 67,417 | 67,417 | ||||||
| Total | 181,271 | 181,271 | ||||||
| Less: Accumulated depreciation and amortization | (141,756 | ) | (126,762 | ) | ||||
| Property and equipment, net | $ | 39,515 | $ | 54,509 | ||||
We review our long-lived assets is reviewed annuallyfor recoverability if events or changes in circumstances indicate the assets may be impaired. At December 31, 2012 and on a regular basis for the existence of facts and circumstances that may suggest impairment. If indicators of impairment are present,2011, 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 from the impaired assets. We believe the carrying values of our long-lived assets were not impaired as ofare recoverable. Depreciation expense for the years ended December 31, 20092012 and 2010.2011 was $14,994 and $16,058, respectively.
Advertising
All advertising costs are expensed as incurred. Advertising costs were approximately $70,800 and $102,000 for the years ended December 31, 2012 and 2011, respectively.
| F-9 |
Research and Development
Research and development is charged to operations as incurred. For the years ended December 31, 2009 and 2010 weWe incurred research and development expenses of approximately $223,000$3,050 and $192,000, respectively.
Income Taxes
We compute income taxes in accordance with Financial Accounting StandardsStandard Board (“FASB”) Accounting StandardsStandard Codification (“ASC”) Topic 740,
On an annual basis, we evaluate tax positions that it is more likely than not that some portionhave been taken or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than notare expected to be realized. Future changestaken in such valuation allowanceour tax returns to determine if they are included inmore than likely to be sustained if the provision for deferred income taxes intaxing authority examines the period of change. We have recorded a 100% valuation allowance asrespective position. As of December 31, 20092012 and 2010.
Since inception, we have been subject to tax by both federal and state taxing authorities. Until the respective statutes of limitations expire (which may be as much as 20 years while we have unused net operation losses), we are subject to income tax audits in the jurisdictions in which we operate.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB ASC Topic 718,Stock Compensation(“ASC Topic 718). FASB ASC Topic 718, which 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. The Statementstatement 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 ASC Topic 260,Earnings per Share. Basic loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net 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.
| 2012 | 2011 | |||||||
| Options and warrants | 57,256,667 | 47,921,667 | ||||||
| Convertible notes payable | 44,642,858 | 5,838,710 | ||||||
| Total | 101,899,525 | 53,760,377 | ||||||
Reclassifications
Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
We have determined that all recently issued accounting standards have not and will not have a material impact on our consolidated financial statements, or do not apply to our operations.
2. FAIR VALUE MEASUREMENTS
Certain assets and liabilities that are measured at fair value on a recurring basis as of December 31, 20102011 are measured in accordance with FASB ASC Topic 820-10-05,Fair Value Measurements. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.
The statement requires fair value measurement be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following table summarizes our financial instruments measured at fair value as of December 31, 2010:
| December 31, 2010 | ||||||||||||||||
| Fair Value Measurements | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability (1) | $ | 109,500 | $ | – | $ | – | $ | 109,500 | ||||||||
| Fair Value Measurements at December 31, 2012 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Warrant liability | $ | 18,727 | $ | – | $ | – | $ | 18,727 | ||||||||
| Convertible Notes at Fair Value | $ | 588,091 | – | – | $ | 588,091 | ||||||||||
| Fair Value Measurements at December 31, 2011 | ||||||||||||||||
| Liabilities: | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Warrant liability | $ | 28,833 | $ | - | $ | - | $ | 28,833 | ||||||||
| Convertible notes at fair value | $ | 206,863 | $ | - | $ | - | $ | 206,863 | ||||||||
The following table shows the changes in fair value measurements using significant unobservable inputs (Level 3) during 2010:
| Year Ended | ||||
| December 31, | ||||
| Description | 2010 | |||
| Beginning balance | $ | - | ||
| Purchases, issuances, and settlements | 200,000 | |||
| Total gain included in earnings (2) | (90,500 | ) | ||
| Ending Balance | $ | 109,500 | ||
| Description | 2012 | 2011 | ||||||
| Beginning balance | $ | 28,833 | $ | 109,500 | ||||
| Purchases, issuances, and settlements | - | - | ||||||
| Total gain included in earnings (1) | (10,106 | ) | (80,667 | ) | ||||
| Ending balance | $ | 18,727 | $ | 28,833 | ||||
(1) The gain related to the revaluation of our warrant liability. liability is included in “Change in fair value of derivatives” in the accompanying consolidated statement of operations.
The gains were calculated fromCompany values its warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 0.36% to .51% risk-free rate, (2) warrant life is the dateremaining contractual life of the warrantwarrants, (3) expected volatility of 124% to 236% (4) zero expected dividends (5) exercise price set forth in the agreements (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.
The following table summarizes the significant terms of each issuance November 8, 2010 throughof the debentures for which the entire hybrid instrument is recorded during 2012 at fair value.
| Conversion Price - Lower of Fixed Price or Percentage of VWAP for Look-back Period | ||||||||||||||||||||
| Debenture Issuance | Face | Default Interest | Anti- Dilution Adjusted | Look-back | ||||||||||||||||
| Year | Amount | Interest Rate | Rate | Price | % | Period | ||||||||||||||
| 2011 | $ | 90,500 | 8.00 | % | 30 | % | $0.0055-$0.029 | 58 | % | 10 days | ||||||||||
| 2012 | 902,369 | 6%-12 | % | n/a | $0.0070-$0.0137 | 15%-70 | % | 5 to 20 Days | ||||||||||||
| Total | $ | 992,869 | ||||||||||||||||||
The following table shows the changes in fair value measurements using significant unobservable inputs (Level 3) during the year ended December 31, 2010. These gains2012 and losses are reflected in our consolidated statements2011 for the Convertible Notes
| Years ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Description | ||||||||
| Beginning balance | $ | 206,863 | $ | - | ||||
| Purchases, issuances, and settlements | 902,369 | 90,500 | ||||||
| Day one loss on value of hybrid instrument | 479,422 | 103,244 | ||||||
| (Gain) loss from change in fair value | 309,680 | 13,119 | ||||||
| Conversion to common stock | (1,310,243 | ) | - | |||||
| Ending balance | $ | 588,091 | $ | 206,863 | ||||
3. SETTLEMENT OF ACCOUNTS AND NOTE PAYABLE
Redwood Management Agreement – Bank of operations as a component of other income (expense). See Note 7.
At December 31, 2010, inventory2011 the Company owed Bank of $253,042 consisted $192,502America approximately $80,000 representing the balance of raw materialsa credit line originated on September 28, 2006. On January 4, 2012 Bank of America assigned and $60,540 of components. sold this debt to Great Plains Capital Corporation (“Great Plains”). On February 3, 2012 Great Plains assigned the debt to Redwood Management, LLC (“Redwood”).
At December 31, 2009, inventory2011 the Company owed Post Graduate Healthcare Education, LLC (“Post Graduate”) $109,500 representing the balance of $165,786 consisted entirelya total debt of raw materials. During 2010,$149,500. On February 3, 2012 Post Graduate assigned the debt to Redwood Management, LLC.
The total amount of the Company’s debt assigned to Redwood was $188,608. On February 3, 2012 under a Securities Settlement Agreement, the Company issued a Convertible Debenture to Redwood for $188,608 payable within six months with interest at 6% annum. The full amount of principal and interest was due at maturity unless the Debenture was converted to shares of common stock in accordance with the debenture agreement, whereby such debenture could be converted into shares of our common stock at a price equal to 75% of the lowest closing price (determined on the then current trading market for our common stock) during the 15 trading days prior to conversion. Following the agreement Redwood accepted 18,737,894 shares of our restricted stock as satisfaction for the note and we paid $100,000 toward certain componentsrecorded a loss of $42,958 on the settlement.
Coventry Enterprises, LLC – Alera Technologies, Inc.
At December 31, 2011, the Company owed Alera Technologies, Inc. (“Alera”) $65,040 representing the balance of a purchase order for the production of Nyloxin™ products. On March 22, 2012 Alera assigned the rights to be usedthe debt to Coventry Enterprises, LLC (“Coventry”).
On March 22, 2012 the Company issued a Convertible Redeemable Note in favor of Coventry in the bottling and packagingamount of our products. As$65,040 bearing interest of 8% annum. Coventry was entitled to convert all or any amount of the this note into shares of the Company's common stock (the "Common Stock") at a conversion price ("Conversion Price") for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common Stock for the 3 trading days with the lowest volume weighted average prices during the 20 trading days immediately preceding the Conversion Date. The note was satisfied on April 5, 2012 in exchange for 8,672,090 shares of restricted Common Stock.
Coventry Enterprises, LLC – Immunoclin, Ltd
At December 31, 2010, this2011, the Company owedImmunoclin, Ltd. (“Immunclin”) $80,389 representing the balance is reflected as prepaid inventoryof a purchase order for the production of Nyloxin™ products. On December 20, 2012, the Company issued an $80,000 note payable at 8% to Immunclin in our consolidated balance sheet.
On December 20, 2012, $20,000 of December 31, 2009, the note was fully reserved, resultingexchanged for a Convertible Redeemable Note in favor of Coventry bearing interest of 8% annum. Coventry was entitled to convert all or any amount of the this note into shares of the Company's common stock (the "Common Stock") at a conversion price ("Conversion Price") for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common Stock for the 3 trading days with the lowest volume weighted average prices during the 15 trading days immediately preceding the Conversion Date. In connection with the issuance of this convertible note payable, the Company encountered a day-one derivative loss of $13,720. Coventry made the conversion of 2,565,102 shares of Company’s common stock on December 20, 2012. The Company issued two Convertible Redeemable Notes for remaining amount of $40,000 and $20,000 on January 7, 2013, and March 13, 2013. Coventry made the conversion of a total of 15,119,481 shares of the company’s restricted stock satisfying the remaining notes in full. (See note 10)
The Companyelected to account for these hybrid contracts under the guidance of FASB ASC Topic 815 Derivatives & Hedging. The fair value has been defined as the common stock equivalent value, enhanced by the fair value of the default put plus the present value of the coupon.
In connection with the issuance of these convertible notes payable, the Company recognized the change in fair value of derivatives in the amount of $21,169 and loss on settlement of accounts payable of $213,090 during the year ended December 31, 2012.
Southridge Partners, LLP (“Southridge”) Agreement – Baker Donelson Bearman Caldwell & Berkowitz, PC, Liquid Packaging Resources, Inc. (“LPR”),University Centre West Ltd., and MacDonald Trust
At September 30, 2012, the Company owed Baker Donelson Bearman Caldwell & Berkowitz, PC. approximately $39,581, which was assigned and sold to Southridge (See note 5).
At September 30, 2012, the Company owedUniversity Centre West Ltd. approximately $55,410, which was assigned and sold to Southridge (See note 5).
At September 30, 2012, the Company owedLPR. approximately $250,000, which was assigned and sold to Southridge (See note 5).
At September 30, 2012, the Company owed McDonald Trust. approximately $75,000, which was assigned and sold to Southridge (See note 5).
4. DUE TO OFFICERS
At December 31, 2012 and 2011, the balance due to officers consisted of the following:
| 2012 | 2011 | |||||||
| An unsecured demand loan from our President and CEO, Rik Deitsch. The loan bears interest at 4%. The loan balance at December 31, 2012 and December 31, 2011, respectively, includes accrued interest payable of $324,853 and $297,980. | $ | 606,168 | $ | 738,993 | ||||
| A loan from Paul Reid, the President of ReceptoPharm bearing interest at a rate of 5% per annum, due on demand and secured by certain intellectual property of ReceptoPharm having a zero cost at December 31, 2012 and 2011. | 117,218 | 111,536 | ||||||
| Ending balances | $ | 723,386 | $ | 850,529 | ||||
During the year ended December 31, 2012, we borrowed $164,779 and repaid $324,478 to Mr. Deitsch. Included in this amount, Mr. Deitsch assigned $175,000 of the debt to a third party on January 2, 2012 and accepted a total of 10,000,000 shares of the Company’s restricted common stock as a repayment to discharge $100,000 of his outstanding loan the Company in December 2012(See note 6).
During the year ended December 31, 2011, we borrowed a total of $702,220 from Mr. Deitsch and repaid a total of $803,749 to him. In addition, Mr. Deitsch sold $300,000 of the Company’s debt in a $150,000 charge to operations. In 2010, we collected this note receivable in entirety and recorded a $150,000 reversal of expense to general and administrative expense in our consolidated statements of operations.
5. ACCRUED EXPENSES
Other debt (all short-term) consists of the following at December 31, 20092012 and 2010:
| 2009 | 2010 | |||||||
| Accrued payroll | $ | 656,690 | $ | 655,026 | ||||
| Accrued legal | 196,057 | 196,057 | ||||||
| Other accrued expenses | 107,801 | 69,500 | ||||||
| Total | $ | 960,548 | $ | 920,583 | ||||
| 2012 | 2011 | |||||||
| Note payable – Related Party (1) | $ | 190,000 | $ | 200,000 | ||||
| Notes payable – Non Related Parties (2) | 593,483 | 805,000 | ||||||
| Convertible notes payable, at fair value (3) | 588,091 | 206,863 | ||||||
| Ending balances | $ | 1,371,574 | $ | 1,211,863 | ||||
| (1) | During the third quarter of 2010 we borrowed $200,000 from one of our directors. We repaid $10,000 during the third quarter of 2012. Under the terms of the loan agreement, this loan was expected to be repaid in nine months to a year from the date of the loan along with interest calculated at 10% for the first month plus 12% after 30 days from funding. We are in default regarding this loan. At December 31, 2012 and 2011, we owed this director accrued interest of $86,387 and $54,423, respectively. |
| (2) | At December 31, 2012, the balance consisted of the following loans: |
| · | In May 2011, the Company received two loans for a total of $50,000 from non-related parties. These loans were expected to be repaid no later than December 31, 2011, along with interest calculated at 10% for the first month plus 12% after 30 days from funding. These loans are guaranteed by an officer of the Company.The Company was unable to repay the loans and they continue to accrue interest.At December 31, 2012 and 2011, the accrued interest payable was $16,369 and $8,899, respectively. |
| · | On December 20, 2012, the Company issued an $80,000 note payable at 8% to Immunclin in settlement of accounts payable (See note 3). $20,000 of the debt was assigned to Coventry on December 20, 2012. The remaining $60,000 was assigned to Coventry during the first quarter of 2013. |
| · | At December 31, 2012, the total amount of the Company’s debt assigned to Southridge was $483,483. In connection with the debt sales to Southridge, the Company recorded loss on settlement of accounts payable for $63,490 in statement of operations. The Company is currently negotiating with Southridge Partners to arrange a settlement of operations. The balance of $483,483 consisted of the following loans: |
| i. | On March 22, 2012 the Company issued a promissory note to the Michael McDonald Trust in the amount of $75,000.$25,000 of the funds was received during the first quarter of 2012. The remaining amount of $50,000 was received during the third quarter of 2012. The note is due and payable on the date that is six months from the execution and funding of the note.Interest is based on a rate of three (3%) percent per monthto be accrued from the later of the date of the note or receipt of funds until all principal has been paid.In August 2012, McDonald Trust sold their debt to Southridge Partners, LLP for consideration of $88,500(See note 10). |
| ii. | On August 2, 2011 under a settlement agreement with Liquid Packaging Resources, Inc. (“LPR”), the Company agreed to pay LPR a total of $350,000 in monthly installments of $50,000 beginning August 15, 2011 and ending on February 15, 2012. This settlement amount was recorded as general and administrative expenses on the date of the settlement. We did not make the December 2011 or January 2012 payments and on January 26, 2012, we signed the first amendment to the settlement agreement whereunder we agreed to pay $175,000 which was the balance outstanding at December 31, 2011(this includes a $25,000 penalty for non-payment). |
The Company repaid $25,000 during the three months ended March 31, 2012. The Company did not make all of the payments under such amendment and as a result pursuant to our Presidentthe original settlement agreement, LPR had the right to sell 5,714,326 shares of the Company’s free trading stock held in escrow by their attorney and CEO, Rik Deitsch.receive cash settlements for a total amount of $450,000 (the initial $350,000 plus total default penalties of $100,000). The loan bears interest$100,000 default was expensed during the quarter ended March 31, 2012. The balance due to LPR at 4%September 30, 2012 was $250,000. LPR sold the note to Southridge Partners, LLP (“Southridge”) for consideration of $281,772 in October 2012 (See note 3 and 10).
| iii. | At September 30, 2012, the Company owed Baker Donelson Bearman Caldwell & Berkowitz, PC. approximately $39,581, which was assigned and sold to Southridge for consideration of $57,800 (See note 3). |
| iv. | At September 30, 2012, the Company owedUniversity Centre West Ltd. approximately $55,410, which was assigned and sold to Southridge (See note 3). |
| (3) | In September and October 2011, the Company borrowed $250,000 each (aggregating $500,000) from two non-related parties. The principal of these loans were to be repaid with a balloon payment on or before October 1, 2012. On October 19, 2012 the parties amended the notes to extend the due date to May 1, 2013 and include a conversion feature that would allow the holders to convert some or all of their outstanding notes into restricted Company stock at a 15% discount to the average closing market price of the Company's stock traded over the previous 5 days. The Company issued a total of 4,000,000 restricted shares to the note holders per the amendment and recorded a loss on loan modification of $100,000 during the year ended December 31, 2012 (See note 6). Interest on these loans is payable monthly beginning in November 2011 with interest calculated at 20% and 12%, each, respectively. At December 31, 2012 and 2011, the accrued interest payable was $10,833 and $6,666, respectively. |
At December 31, 2010, we owed our President Rik Deitsch $1,099,238. Included in2012, this convertible note payable, at fair value, was recorded at $588,091.
On March 26, 2012, the amount owedCompany issued a promissory note to Mr. Deitsch is $256,696 of accrued interest.
Convertible Notes – At Fair Value
Convertible Note Payable Dated October 27, 2011 at Fair Value
On October 27, 2011 the Company entered into a convertible note payable with a corporation. The convertible note payable, with a face value of $53,000, bears interest at 8.0% per annum and was due on July 31, 2012. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at a variable conversion price which is 58% multiplied by the average of the lowest three (3) trading prices for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price. The holder has the option to redeem the convertible note payable for cash in the event of defaults or certain other contingent events (the “Default Put”).
Convertible Note Payable Dated December 5, 2011 at Fair Value
On December 5, 2011 the Company entered into a convertible note payable with a corporation which had a face value of $37,500, a coupon rate of 8.0% per annum and maturity date of September 5, 2012. The convertible note payable is convertible, at the holder’s option, into the Company’s common shares at a variable conversion price which is 58% multiplied by the average of the lowest three (3) trading prices for the Common Stock during the ten (10) Trading Day period ending one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower. The conversion feature is subject to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion price. The holder has the option to redeem the convertible note payable for cash in the event of defaults or certain other contingent events (the “Default Put”).
During October 2012, both of these notes were acquired by a third party from Asher Enterprises for an aggregate amount of $100,000, and then converted into 20,000,000 restricted common shares (See note 6).
Convertible Note Payable Dated February 3, 2012 at Fair Value
On February 3, 2012, the Company issued a Convertible Debenture in the amount of $40,000 to Redwood Management, LLC. The note carries interest at 12% and is due on demandFebruary 13, 2013, unless converted into shares of restricted common stock. Redwood Management, LLC has the right to convert the note, until is no longer outstanding, into shares of Common Stock at a price of Fifty Percent (50%) of the lowest closing price, determined on the then current trading market for the Company’s common stock, during the 15 trading days prior to conversion (the “Set Price”). On September 12, 2012, TCN International (TCN) completed the purchase and bearstransfer of this note including penalties and unpaid interest, for the sum of $52,500. Redwood Management, LLC has acknowledged the full payment of the Note, in favor of Nutra Pharma Corporation and releases Nutra Pharma Corporation from all obligations under the Note. Upon the request of TCN, the Board of Directors of the Company approved the conversion of these notes into Restricted Common Stock of the Company,providing 7,500,000 (seven million, five hundred thousand) shares of Nutra Pharma common stock to relinquish the total debt of $52,500 (See note 6).
Convertible Note Payable Dated March 16, 2012 at Fair Value
On March 16, 2012 the Company signed a secured convertible Promissory Note in the amount of $75,000 in favor of Southridge Partners II, LLC. The note was due November 16, 2012 and carries interest at 8% annum. Southridge Partners II, LLC was entitled after nine months to convert all or a rateportion of 5% per annum.the principal and interest accrued into shares of common stock at a conversion price of each share equal to the Market Price multiplied times 70%. (the “conversion price”). The loanMarket Price is securedequal to the average of the two lowest bids closing prices for the five trading days ending before the conversion date. In the evaluation of these financing arrangements, the Company concluded that these conversion features did not meet the conditions set forth in current accounting standards for equity classification. Since equity classification is not available for the conversion feature, it requires bifurcation and liability classification, at fair value. The Company also concluded that the Default Put required bifurcation because, while puts on debt instruments are generally considered clearly and closely related to the host, the Default Put is indexed to certain events that are not associated with the convertible note payable.
On October 26, 2012, Southridge converted the note into 5,919,495 shares of the Company's restricted common stock (See note 6).
The Companyelected to account for these hybrid contracts under the guidance of ASC 815-15-25-4. The fair value has been defined as the common stock equivalent value, enhanced by certain intellectual propertythe fair value of ReceptoPharm.
In connection with the issuance of these convertible notes payable, the Company encountered a day-one derivative loss of $100,914 and $103,244, respectively at December 31, 2012 and 2011 related to the recognition of (i) the hybrid note and (ii) the derivative instrument arising from the fair value measurement due to the fair value of the hybrid note and embedded derivative exceeding the proceeds that the Company received from the arrangement. Therefore, the Company was required to record a loss on the derivative financial instrument. In addition, the fair value will change in future periods, based upon changes in the Company’s common stock price and changes in other assumptions and market indicators used in the valuation techniques. These future changes will be currently recognized in other expense or other income on the Company’s statement of operations. Accordingly, the Company recognized the change in fair value of derivative in the amount of $287,891 and $13,119 during the years ended December 31, 2009, ReceptoPharm paid off2012 and 2011.
The holder of this convertible note has substantial rights and protections regarding dilution if certain events, including a default were to occur. There are a number of events that could trigger a default, including but not limited to failure to pay principal or interest, failure to issue shares under the entire balanceconversion feature, breach of covenants, breach of representations and warranties, appointment of a loanreceiver or trustee, judgments, bankruptcy, delisting of common stock, failure to stockholdercomply with the exchange act, liquidation, cessation of $223,403. This payoff included $27,153operations, failure to maintain assets, material financial statement restatement, reverse split of accrued interest.
Furthermore, there are additional events that could cause the lender to be repaid in six monthsdue additional shares of common stock above and beyond the shares due from a conversion. Some of these events include, but are not limited to a year from the datemerger or consolidation of the loan along with interest calculated at 10% straight interestCompany, dividend distribution or spin off, dilutive issuances of the Company’s stock, etc. If the lender receives additional shares of the Company’s commons stock due to any of the foregoing events or for other reasons, then this may have an extremely dilutive effect on the first month plus 12% annum calculated after 30 days from funding.
6. STOCKHOLDERS' DEFICIT
Private Placements of Common Stock
In June 2011, the Company sold an aggregate of 10,575,0001,500,000 shares of restricted common stock to two investors at a price per share of $0.025. We$0.05 and received proceeds of $264,375$75,000.
In July 2011, the Company sold an aggregate of 1,690,000 shares of restricted common stock to eight investors at a price per share of $0.05 and received proceeds of $84,500.
In the third quarter 2011, the Company sold an aggregate of 4,760,000 shares of restricted common stock to six investors at a price of $0.025 per share and received $111,000 in connection withcash and a subscription receivable for $8,000 (collected in the salefirst quarter of these shares. We2012). As a result of administrative delays the shares were not issued until the first quarter of 2012 and are thus recorded as common stock issuable in the accompanying consolidated balance sheet. The investors also granted one (1) warrant for each share sold which gives the investor the rightreceived a total of 1,940,000 warrants to purchase one (1) additional share until December 31, 2012common stock at an exercise price of $0.10 per share.
In the third quarter 2012, the Company sold an aggregate of 34,948,75027,000,000 shares of restricted common stock to one investor at a price of $0.01 per share and received $270,000. The Company issued a total of $0.08. We received proceeds27,000,000 warrants to purchase common stock at an exercise price of $2,795,900$0.10 per share in connection with the sale of these shares.
In the fourth quarter 2012, the Company sold an aggregate of 12,825,00017,650,000 shares of restricted common stock in exchangeto investors at a price of $0.01 per share and received $176,500. The Company issued a total of 17,650,000 warrants to purchase common stock at an exercise price of $0.10 per share. The warrants expire on December 31, 2014.
Shares Issued to Employees and Directors
On February 3, 2012 the Board of Directors approved a resolution for services rendered. Thesethe issuance of a total of 15,720,000 shares wereof the Company’s restricted common stock to the Directors and Employees of the Company. The issuance was valued at their fair market value of $613,250 based on the trading price of our common shares, which was charged to operations.
During October and December 2012 the Board of Directors approved resolutions for the issuance of a total of 26,875,000 shares of the Company’s restricted common stock to the Directors and Employees of the Company. The expense is beingshares were valued at $0.022 and $0.014 per share, which was the fair market value of the Company’s common stock on the date of issuance.
Common Stock Issued for Services
On December 14, 2012 the Company issued a total of 1,000,000 shares of the Company’s restricted common stock to Roetzell & Andress for legal services for a one year term. The share was valued at $0.014 per share. The Company recorded in selling, general and administrative over the service perioda prepaid equity compensation charge of one year.
During October and December, 2012 the Company issued an aggregatea total of 2,100,00016,250,000 shares of the Company’s restricted common stock in exchangeto five vendors as satisfaction for 2012 services rendered. Theseand materials. The shares were valued between $0.015 and $0.030 per share, which was the fair market value of the Company’s common stock on the date of the agreement.
During October, 2012 the Company issued a total of 15,100,000 shares of the Company’s restricted common stock to five consultants for marketing services for six months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $80,216 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $108,534 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of three and half months.
During December, 2012 the Company issued 500,000 shares of the Company’s restricted common stock to a consultants for real estate consulting services for three months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $1,042 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $5,208 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of two and half months.
During March and August, 2012 the Company issued 3,000,000 shares of the Company’s restricted common stock to JPU Ventures, Inc. under each agreement dated March 19, 2012 and August 13, 2012 for a total of $6,000,000 shares. The agreement was for investor relations services for a six months term. The shares were valued at their$0.0132 and $0.0125 per share. The Company recorded an equity compensation charge of $39,600 and $21,875 for each agreement during the year ended December 31, 2012. The remaining unrecognized compensation cost of $15,625 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of two and half months. The Company issued them an additional 500,000 restricted shares for additional services rendered during December 2012. The shares were valued at $0.0179 per share.
On March 16, 2012 the Company entered into an agreement with Mark Bergman, a consultant. The contract is for an initial six months term. The shares were valued at $0.02 per share, which was the fair market value of $316,500 basedthe Company’s common stock on the date of issuance. Under the agreement the consultant’s services include the identification of international markets, funding sources for targeted companies and assistance with overall strategic planning and execution. As compensation under this agreement the Company issued 3,000,000 free trading, unrestricted shares on March 16, 2012. The Company issued them an additional 5,500,000 restricted shares under the amended agreement during December 2012. The Company recorded an equity compensation charge of $40,104 for agreement during the year ended December 31, 2012. The remaining unrecognized compensation cost of $28,646 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of five months.
On December 20, 2011 the Company entered into an agreement for investor relations services with a Consultant. The contract was for a six months term and calls for the issuance of 1,000,000 shares of restricted common stock payable in four tranches of 250,000 each as follows: (I) January 10, 2012 (II) February 10, 2012 (III) March 10, 2012 (IV) April 10, 2012. The shares were valued and charged to operations on the dates they were issued. At each issuance date, the fair market value of the shares was adjusted to the actual price on those dates with any adjustments made through our consolidated statements of ouroperations. During October, the Company issued them an additional total of 1,000,000 restricted shares under a new agreement for a six months term. The share was valued at $0.0125 per share. The Company recorded an equity compensation charge of $8,697 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $3,533 related to non-vested equity-based compensation to be recognized by the Company over the remaining vesting period of three and half months. The Company issued an additional 200,000 restricted shares for additional services rendered during December 2012.
On February 22, 2012 the Company engaged Capital Path Securities, LLC (“CPS”) as its exclusive advisor on a proposed placement by way of an equity line of approximately $10,000,000 of the Company’s equity or equity linked securities. All upfront fees have been waived by CPS. The Company will pay CPS a cash placement fee equal to 5% of all principal amounts invested from the source originated by CPS. In addition, 10,000,000 restricted shares were issued on October 26, 2012, and valued at $0.0125 per share. The Company recorded an equity compensation charge of $151,375 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $21,625 related to non-vested equity-based compensation and 125,000 non-vested shares to be recognized by the Company over the remaining vesting period of two and half months.
On July 27, 2011 the Company signed an agreement for investor relations services with Synergy Financial, LLC. The contract was for a three months term beginning August 1, 2011 and continuing through November 1, 2011 and was renewable by the Company for an additional three months period. The agreement called for a monthly payment for each of the first three months of $5,000 beginning on August 1, 2011 plus the issuance of 300,000 shares of the Company’s restricted common stock on the signing of the agreement. The shares were valued at $0.06 per share, which was chargedthe fair market value of the Company’s common stock on the date of issuance. On October 15, 2011 the Company signed a contract extension agreeing to operations.
On July 25, 2011 the Company signed an agreement for investor relations services with DRC Partners, LLC. The contract was on a month to month basis and calls for monthly payments of $5,000 in cash and 100,000 shares of restricted stock on the first day of each month of service, beginning August 1, 2011. The Company issued 100,000 shares of restricted common stock on August 22, 2011. The shares were valued at $0.06 per share, which was the fair market value of the Company’s common stock on the date of issuance. The Company did not issue additional shares under this contract. The Company entered into a separate agreement in January of 2012 for the settlement of the outstanding shares owed to DRC Partners, LLC for 400,000 shares. We issued them an additional 1,500,000 restricted shares for additional services rendered during December 2012. The shares were valued at $0.041 per share.
In April 2011, the Company issued 250,000 shares of restricted common stock to anUndiscovered Equities, a consultant for investor at a price per shareand public relations services. The agreement was for one year. Three additional tranches of $0.10250,000 shares of restricted common stock were earned on July 11, 2011, October 11, 2011 and received proceeds of $40,000. TheseJanuary 11, 2012. The shares were sold pursuant to a warrant agreement between us andvalued at $0.02 per share.
On October 4, 2011 the investor.
In March 2011, the Company issued the following shares for services which were valued at $0.13 per share which was the fair market value of such stock:
| · | 4,000,000 shares of restricted common stock to a consultant for services to be rendered beginning March 21, 2011. The Company recorded all of the expense in 2011 as services were rendered. |
| · | 200,000 shares of restricted common stock to a consultant for services to be rendered. All of the expense was recorded in 2011 as the services were rendered. |
Common Stock Issued for Debt Modification
On October 19, 2012 the Company amended the notes $250,000 each (aggregating $500,000) from two non-related parties originated in September and October 2011to include a conversion feature that would allow the holders to convert some or all of their outstanding notes into restricted Company stock at a 15% discount to the average closing market price of the Company's stock traded over the previous 5 days. The Company issued a total of 4,000,000 restricted shares to the note holders per the amendment. The shares were valued at $0.025 per share. (See note 5).
Common Stock Held in Escrow
On July 27, 2011 the Company issued 5,714,286 shares of free trading common stock in certificate form which is held in escrow as security under an agreement reached with Liquid Packaging Resources, Inc. (“LPR”) on August 2, 2011(See note 3 and 5).
Common Stock Issued for Debt
On October 3, 2011 our President and CEO, Rik Deitsch sold $300,000 of the debt we owed him to Structured Management. On October 31, 2011 the Company issued 10,000,000 shares to Structured Management as consideration for this debt. The shares were valued at $0.06, which was the fair market value of the Company’s common stock on the date of the contract. Interest expense in the amount of $300,000 has been recorded as the difference between the value of the debt and the fair market value of the common stock issued.
At December 31, 2011 the Company owed DRC Partners, LLC $16,239 plus 400,000 shares of restricted common stock under an agreement for investor relations services entered into July 25, 2011. In satisfaction of this debt our President, Rik Deitsch, assigned $175,000 of the debt owed to him by the Company to the principal of DRC Partners, LLC under an agreement dated January 2, 2012. On January 4, 2012, the Company approved the issuance of 7,000,000 shares of its restricted common stock in satisfaction of the debt. The 7 million shares of restricted common stock were issued on January 6, 2012 and valued at $0.0221 per share, which was the fair market value of $0.10 and received proceeds of $300,000. These shares were sold pursuant warrant agreements.
During December 2012, the Board of Directors approved resolutions for the issuance of a termtotal of 30 months, provides for future funding10,000,000 shares of up to $10,000,000 from sales of ourthe Company’s restricted common stock to LPC on a when and if needed basis at our discretion upon satisfactionMr. Deitsch to discharge $100,000 of certain conditions perhis outstanding loan the Purchase Agreement. We generally we have the right to direct LPC to purchase up to an additional $9,800,000 of our common stock in amounts up to $40,000 as often as every two business days under certain conditions. We can also accelerate the amount of our stock to be purchased under certain circumstances. No sales ofCompany (See note 4). The shares may occur below $.06 per share. The purchase price of the shares will be based on the market prices of our shareswere valued at the time of sale as computed undernote payable amount due to the Purchase Agreement without any fixed discount. We may at any time in our sole discretion terminate the Purchase Agreement without fee, penalty or cost upon one business days notice.
Common Stock Issued for Settlement of a cashless exercise, as defined inAccounts Payable & Debt
Following the Purchase Agreement. In considerationagreements with Coventry Enterprises, LLC (see Note 3), the conversions for entering into the Purchase Agreement we issued to LPC 400,0008,672,090 and 2,564,102 shares of ourthe Company’s restricted common stock asstocks were issued for settlement of accounts payable and a commitment fee,convertible note payable on March 29, 2012 and December 20, 2012, respectively. The shares were valued at $168,889 and $33,720, respectively, which was included as part of the fair value of convertible debts on the warrants issued to LPC (see below).
Following the Purchase Agreement, we entered into a registration rights agreement with LPC. UnderSouthridge (see Note 5), the registration rights agreement, we agreed to fileconversion for a registration statement withtotal of 6,416,733 shares of the SEC covering 62,000,000Company’s restricted common stock satisfying the note in full was made in October 2012. The shares issued or to be issued as follows: 1,666,667 purchase shares issued; 1,666,667 shares issuable to LPC under the warrant; 400,000 initial commitment shares issued to LPC; 55,666,666 purchase shares issuable to LPC under the Purchase Agreement; and 2,600,000 additional commitment shares to be issued pro rata to LPC. We filed a registration statement on Form S-1 dated December 14, 2011, and on January 7, 2011 the filing became effective.
Following the agreement with Asher Enterprises, LLC (see Note 5), the conversion for a total of 20,000,000 shares of the Company’s restricted common stock satisfying the note in full was made in October 2012. The shares were valued at December 31, 2010, resulting$356,779, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Redwood and TCN (see Note 5), the conversion for a total of 7,500,000 shares of the Company’s restricted common stock satisfying the note in full was made in October 2012. The shares were valued at $273,144, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Redwood (see Note 3), conversions were made for a gaintotal of $90,500.
7. STOCK OPTIONS AND WARRANTS
Equity Compensation Plans
On December 3, 2003, the Board of Directors approved the Employee/Consultant Stock Compensation Plan (the "2003 Plan"). The purpose of the 2003 Plan is to further our growth by allowing us to compensate employees and consultants who have provided bona fide services to us, through the award of our common stock. The maximum number of shares of common stock that may be issued under the 2003 Plan is 2,500,000.
On June 6, 2007 the Board of Directors approved the 2007 Employee/Consultant Stock Compensation Plan (the "2007 Plan"). The purpose of the 2007 Plan is to further our growth by allowing us to compensate employees and consultants who have provided bona fide services to us, through the award of our common stock. The maximum number of shares of common stock that may be issued under the 2007 Plan is 25,000,000.
The Board of Directors is responsible for the administration of the 2003 and 2007 Plans and has full authority to grant awards under the Plan. Awards may take the form of stock grants, options or warrants to purchase common stock. The Board of Directors has the authority to determine: (a) the employees and consultants that will receive awards under the Plan, (b) the number of shares, options or warrants to be granted to each employee or consultant, (c) the exercise price, term and vesting periods, if any, in connection with an option grant, and (d) the purchase price and vesting period, if any, in connection with the granting of a warrant to purchase shares of our common stock.
No options were issued under the plans during 20092011 and 2010.
We account for option and stock awards under our option plans in accordance with ASC Topic 718,Compensation – Stock Compensation(“ASC Topic 718”), which requires the measurement and recognition of compensation expense in our statement of operations for all share-based option and stock awards, based on estimated grant-date fair values.
ASC Topic 718 requires us to estimate the fair value of stock-based option awards on the date of grant using an option-pricing model. The grant-date fair value of the award is recognized as expense over the requisite service period using the straight-line method. In accordance with ASC Topic 718, the estimated stock-based compensation expense to be recognized is reduced by an estimate of the annualized rate of stock option forfeitures.
Common Stock Options
A summary of stock options for the years ended December 31, 20092012 and 20102011 is as follows:
Weighted average exercise price | ||||||||
| Balance December 31, 2008 | 3,000,000 | $ | 0.25 | |||||
| Exercised | - | - | ||||||
| Issued | - | $ | ||||||
| Forfeited | - | - | ||||||
| Balance December 31, 2009 | 3,000,000 | $ | 0.25 | |||||
| Exercised | - | $ | - | |||||
| Issued | - | $ | - | |||||
| Forfeited | (2,000,000 | ) | $ | 0.27 | ||||
| Balance December 31, 2010 | 1,000,000 | $ | 0.20 | |||||
Exercise Price | Weighted Average Number Outstanding | Weighted Average Contractual Life | Weighted Average Exercise Price | ||||||||
| $ | 0.20 | 1,000,000 | 0.10 years | $ | 0.20 | ||||||
| Stock Options | Weighted average exercise price | |||||||
| Balance December 31, 2010 | 1,000,000 | $ | 0.20 | |||||
| Exercised | - | $ | - | |||||
| Issued | - | $ | - | |||||
| Forfeited | (1,000,000 | ) | $ | 0.20 | ||||
| Balance December 31, 2011 | - | $ | - | |||||
| Exercised | - | $ | - | |||||
| Issued | - | $ | - | |||||
| Forfeited | - | $ | - | |||||
| Balance December 31, 2012 | - | $ | - | |||||
Common Stock Warrants
From time to time, we issue warrants to purchase its common stock. These warrants have been issued for cash in conjunction with the private placement of shares of our common stock.
In the third quarter 2012, The Company issued a total of 27,000,000 warrants to purchase common stock at an exercise price of $0.10 per share in connection with a private placement offering. The warrants expire on December 31, 2014 (See note 6).
In the fourth quarter 2012, the Company issued a total of 17,650,000 warrants to purchase common stock at an exercise price of $0.10 per share in connection with the private placement offerings. The warrants expire on December 31, 2014 (See note 6).
10,000,000 warrants to purchase stock at an exercise price of $0.10 per share were issued to CEO, Mr. Dietsch in December 2012. The warrants expire on December 31, 2014
A summary of warrants issuedoutstanding in conjunction with private placements of common stock forwere as follows during the years ended December 31, 20092012 and 2010 is as follows (see Note 7):
Number of shares | Weighted average exercise price | |||||||
| Balance December 31, 2008 | 37,140,000 | $ | 0.10 | |||||
| Exercised | (400,000 | ) | 0.10 | |||||
| Issued | 10,575,000 | $ | 0.10 | |||||
| Forfeited | - | - | ||||||
| Balance December 31, 2009 | 47,315,000 | $ | 0.10 | |||||
| Exercised | (3,000,000 | ) | $ | 0.10 | ||||
| Issued | - | - | ||||||
| Forfeited | - | - | ||||||
| Balance December 31, 2010 | 44,315,000 | $ | 0.10 | |||||
| Number of shares | Weighted average exercise price | |||||||
| Balance December 31, 2010 | 44,315,000 | $ | 0.10 | |||||
| Exercised | - | - | ||||||
| Issued | 3,606,667 | $ | 0.12 | |||||
| Forfeited | - | - | ||||||
| Balance December 31, 2011 | 47,921,667 | $ | 0.10 | |||||
| Exercised | - | - | ||||||
| Issued | 54,650,000 | $ | 0.10 | |||||
| Forfeited/Expired | (45,315,000 | ) | - | |||||
| Balance December 31, 2012 | 57,256,667 | $ | 0.10 | |||||
The following table summarizes information about fixed-price warrants outstanding as of December 31, 20102012:
Exercise Price | Weighted Average Number Outstanding | Weighted Average Contractual Life | Weighted Average Exercise Price | ||||||||
| $ | 0.10 | 44,315,000 | 2.00 years | $ | 0.10 | ||||||
| Exercise Price | Weighted Average Number Outstanding | Weighted Average Contractual Life | Weighted Average Exercise Price | |||||||||
| $ | 0.10-0.15 | 57,256,667 | 2.04 years | $ | 0.10 | |||||||
As of December 31, 2010,2012, the aggregate intrinsic value of all stock options and warrants outstanding and expected to vest was $0 and the aggregate intrinsic value of currently exercisable stock options was $0. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the $0.08$0.01 and $0.03 closing stock price of our common stock on December 31, 2010,2012 and 2011, the last trading day of 2010.2012 and 2011. There were no in-the-money options or warrants at December 31, 2010.
There was no intrinsic value of options and warrants exercised during the yearsyear ended December 31, 20092012 and 2010 was approximately $124,000 and $615,000, respectively.2011. Intrinsic value of exercised shares is the total value of such shares on the date of exercise less the cash received from the option holder to exercise the options.
8. INCOME TAXES
The total cash proceeds receivedCompany’s tax expense differs from the exercise of stock options was approximately $3,000 and $68,000“expected” tax expense for the years ended December 31, 20092012 and 2010, respectively.
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Computed "expected" tax expense (benefit) - Federal | $ | (1,115,374 | ) | $ | (1,362,885 | ) | ||
| Computed "expected" tax expense (benefit) - State | (318,119 | ) | (388,712 | ) | ||||
| Stock-based compensation - permante difference | 674,914 | 280,604 | ||||||
| Change in fair value of derivatives - permante difference | 159,500 | 8,993 | ||||||
| Change in valuation allowance | 599,079 | 1,462,000 | ||||||
| $ | - | $ | - | |||||
| Current portion of net deferred income tax assets: | 2012 | 2011 | ||||||
| Allowance for doubtful accounts | $ | 242,000 | $ | 242,000 | ||||
| Reserve for inventory obsolescence | 313,925 | 267,000 | ||||||
| Accrued salary | 43,154 | - | ||||||
| Subtotal | 599,079 | 509,000 | ||||||
| Valuation allowance | (599,079 | ) | (509,000 | ) | ||||
| Current net deferred income tax asset | $ | - | $ | - | ||||
| Non- current portion of net deferred income tax asset | ||||||||
| Net operating loss carryforwards | $ | 5,575,079 | $ | 4,976,000 | ||||
| Valuation allowance | (5,575,079 | ) | (4,976,000 | ) | ||||
| Non-current net deferred income tax asset | $ | - | $ | - | ||||
Due to the uncertainty of the utilization and recoverability of the loss carry-forwards and other deferred tax assets, we have provided a valuation allowance to fully reserve such assets.
As of December 31, 2009 and 2010 was2012, the Company has net operating loss carryforwards of approximately $40,000 and $300,000, respectively. The total fair value of option and warrant shares vested during the$13,769,000 available to offset future taxable income in various years endedthrough December 31, 20092032. The significant difference between such net operating loss carryforwards and 2010 wasour accumulated deficit of approximately $5,201,500$37,640,000 results primarily from stock based compensation which is considered to be a permanent difference.
The valuation allowances increased by approximately $599,000 and $4,641,500, respectively.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
In February 2010, Nutra Pharma entered into an operating lease for the use of office space. The lease expires in January 2013 and requires monthly payments of approximately $9,000. In February 2013, Nutra Pharma entered into a new operating lease for monthly payments of approximately $3,500 for three years. ReceptoPharm leases a lab and renewed operating lease agreement for five years in July of 2012. The lease requires monthly payments of approximately $4,000 beginning August 1, 2012. Future minimum payments under these lease agreements, including the extension period, are approximately as follows:
| Years ended December 31, | Amounts | |||
| 2013 | 115,220 | |||
| 2014 | 116,345 | |||
| 2015 | 120,218 | |||
| 2016 | 79,892 | |||
| 2017 | 45,249 | |||
| Total | 476,924 | |||
Rent expense in 2012 and 2011 approximated $183,000 and $168,000, respectively.
Litigation
Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.
On August 18, 2006, ReceptoPharm was named as a defendant inPatricia 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 $118,928.15 plus interest and counsel fees on a series of 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. In late 2010, Plaintiffs further amended their complaint alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights by cancelling andan additional 1,214,800 share certificates and failing to permit the Plaintiffs to exercise dissenting shareholder rights with respect to those share certificates. The damages associated with the Plaintiff’s claims could rise as the result of any increases in the Company’s share price as the ReceptopharmReceptoPharm shares may be convertible into the Company’s common shares. The potential exposure may exceed $10,000,000 if the Plaintiffs are successful with all of their claims.
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, and conversion and unjust enrichment as a result of the promissory notes. Plaintiffs have moved for partial summary judgment on their claims regarding the additional 1,214,800 shares, but not on their claims regarding the alleged promissory notes or the additional 1,750,000 alleged shares. Receptopharm willshares they alledge they are owed. In August of 2011, the Plaintiff's motion was partially granted. In September 2012, Recepto Pharm's attorneys filed a Motion to be removed as counsel. Their motion is currently being considered. ReceptoPharm is seeking new counsel to oppose the partial summary judgment motion, and wejudgment. We intend to vigorously contest this matter.
Liquid Packaging Resources,
On April 21, 2011, Nutra Pharma Corp. and its CEO, Erik Deitsch, were named as defendants inLiquid Packaging Resources, Inc. v. Nutra Pharma Corp. and Erik "Rik" Deitsch, Superior Court of Fulton County, Georgia, Civil Action No. 2011-CV-199562. Liquid Packaging Resources, Inc. ("LPR") claimed that Nutra Pharma Corp. and Mr. Deitsch, directly or through other companies, placed orders with LPR that required LPR to purchase components from third parties. LPR sought reimbursement for those third party expenses in the amount of not less than $359,826.85 plus interest. LPR also sought punitive damages in the amount of not less than $500,000 and attorney's fees.
That civil action was then removed by Nutra Pharma Corp. and Mr. Deitsch to the United States District Court, Northern District of Georgia, Civil Action No. 11-CV-01663-ODE. After removal, LPR amended the Complaint to assert that Nutra Pharma Corp. and Mr. Deitsch were the alter egos of the alleged other companies through whom the subject orders were placed and therefore should be considered one and the same. Nutra Pharma Corp. and Mr. Deitsch moved to dismiss the Complaint on several grounds including statute of frauds, failure to state a claim, and jurisdiction (only for Mr. Deitsch). Nutra Pharma Corp. and Mr. Deitsch believe the suit is without merit.
Subsequent to June 30, 2011, at LPR's request, the parties mediated the dispute before LPR responded to the Motion to Dismiss. At the mediation, the parties worked out an agreement whereby Nutra Pharma would purchase from LPR the components LPR purchased from third parties at an amount slightly less than the principal amount of the suit and on terms acceptable to Nutra Pharma. The agreed price was $350,000 payable over 7 months in equal $50,000.00 amounts. This agreement was reached by Nutra Pharma because it provided tangible value in exchange for the purchase price rather than incurring the expense of litigation which would likely be substantial and not recouped. While Nutra Pharma had counterclaims it could assert, this was a practical resolution. The settlement allowed Nutra Pharma to take possession of the components prior to full payment and, in exchange, provided security to LPR in the form of Nutra Pharma stock valued at $400,000 at the time of issuance. The stock can only be sold in event of a default of the payment schedule. The litigation was dismissed in August of 2011. The Company made the August, September and November payments (totaling $150,000) in a timely fashion. The Company was late for the payment due October 15, 2011 and requested an accommodation from LPR, eventually paying an extra $5,000 towards that payment. At December 31, 2011, the Company had made total payments of $205,000 with an additional $150,000 owed. In order to allow the Company to skip the December payment, LPR agreed to another accommodation whereby the Company would pay both the December and January payment with an additional $10,000 on or before January 16, 2012. The Company was unable to make this payment and on January 26, 2012 signed an amended payment schedule adding an additional $15,000 for a total of $175,000 owed. The Company's CEO, Rik Deitsch, added additional collateral stock in a separate company that he held personally. In January, $25,000 was paid, with subsequent payments of $30,000 due monthly on the 15th of March through the 15th of July, 2012. The Company failed to make the March payment and was subsequently called in default of the Agreement. Under the original agreement, if Nutra Pharma is in default of the agreement, LPR has the right to sell shares of the company’s free trading stock held in escrow by their attorney and receive cash settlements for a total amount of $450,000 representing the new total cash amount due to LPR by the Company.
On June 11, 2012, LPR sold their debt to Southridge Partners, LLP in an agreement to be paid out over time. We areexpect to complete those payments by the end of 2012 to satisfy the obligation in its entirety. Once satisfied, LPR will return all of the Company's collateral shares currently held by LPR's attorney. The Company is currently negotiating with Liquid Packaging ResourcesSouthridge Partners to arrange a settlement of the debt.
Laurence N. Raymond v. Receptopharm, Inc. et al.
On December 30, 2011 Laurence N. Raymond ("Raymond") brought the case against Receptopharm, Inc. ("Receptopharm") and Nutra Pharma to recover approximately $300,000 that was allegedly either loaned to Receptopharm or owing to Raymond pursuant to an oral employment agreement. The Complaint alleges that Nutra Pharma is jointly liable for Raymond's damages because Receptopharm was allegedly merged into Nutra Pharma. The parties have engaged in settlement discussions. The outcome of this matter is uncertain, no range of potential loss can be estimated and accordingly no effect has been given to any loss above what has already been accrued that may result from the resolution of this matter in the accompanying consolidated financial statements.
Paul F. Reid v, Harold H. Rumph et al.
On December 28, 2011 Paul F. Reid ("Reid") brought the case against Harold H. Rumph ("Rumph"), Receptopharm, and Nutra Pharma to recover approximately $330,000 that was allegedly either loaned to Receptopharm or owing to Reid pursuant to an oral employment agreement, The Complaint alleges that Nutra Pharma is jointly liable for Reid's damages because Receptopharm was allegedly merged into Nutra Pharma. Nutra Pharma has answered the Complaint and specifically denied the validity of several promissory notes that form the basis of Reid's damages. According to Nutra Pharma, Reid may have a claim for approximately $140,000 (which is included in accruals for disputed services), but any amounts above that are not supported by the record. The parties have engaged in limited discovery to date, including the June 2012 deposition of Rumph. The Company will vigorously defend against this action and, in so doing, will attempt to settle this case favorably and accordingly no effect has been given to any loss above what has already been accrued that may result from the resolution of this matter in the accompanying consolidated financial statements
Dustin Travers v, XenaCare Holdings, Inc., et al.
On March 7, 2012 XenaCare Holdings and Nutra Pharma were named as Defendants in the proposed Class Action filed in the Superior Court of California. Dustin Travers alleges that the marketing of the Homeopathic drug, Cobroxin included false and misleading statements regarding the product's efficacy for the purchaserelief of approximately $278,000chronic pain. Most of the suit is a diatribe against the entire concept of homeopathy and states, incorrectly, that cobra venom has never been proven scientifically as a pain reliever. On August 10, 2012, the parties reached a settlement whereby the suit would be dismissed against Nutra Pharma in return for $16,500 payable in 6 monthly payments of $2,750 beginning on August 20, 2012 with the last payment due on January 20, 2013. As part of the settlement, the Company will also make certain label changes to the Cobroxin packaging that better explain the product as a Homeopathic drug. Nutra Pharma was dismissed as a Defendant with prejudice on August 14, 2012.
Involuntary Petition of Bankruptcy
On August 31, 2012 a Petition for Involuntary Bankruptcy was filed against us by former ReceptoPharm employees and a former consultant to ReceptoPharm in the United States Bankruptcy Court, Southern District of Florida. The Petitioners are claiming a total of $990,927.75 due them in the form of accrued wages and a Note Payable. On October 12, 2012 the Plaintiffs filed an installment basis for components purchasedamended Petition, in advance byeffect lowering their claims to $816,662.39. We believe that the vendor. We paidpetition is frivolous and that their claims lack merit. The Company will vigorously defend against this action and accordingly no effect has been given to any loss above what has already been accrued that may result from the resolution of this matter in the accompanying consolidated financial statements.
Shelter Developers of America vs. ReceptoPharm, Inc.
On June 7, 2012 Shelter Developers of America enforced a Writ of Possession against ReceptoPharm as a result of ReceptoPharm’s failure to pay its obligations under the lease agreement dated May 10, 2010 between ReceptoPharm and Shelter Developers of America. On July 9, 2012 the Company issued a bank draft in the amount of $100,000 to Liquid Packaging Resources toward future purchases during 2010, which is included$38,934.90 in prepaid inventory in our 2010 consolidated balance sheet.
OTC:BB Delinquency Notification
On May 7, 2012 the Company’s securities were removed from quotation on the OTC Bulletin Board (“OTCBB”) as a result of the failure to file its annual report, Form 10-K, by the due date of May 17, 2012, which includes the 30-day grace period allowed. The Company was also delinquent in the filing of its first, second and third quarter 10-Q reports for 2012. As of the date hereof the Form 10-K and Form 10-Q’s for the first, second, and third quarters of 2012 have been filed.
Pursuant to National Association of Securities Dealers (“NASD”) Rule 6530, OTCBB issuers that are cited for filing delinquency three times in a 24-month period and those removed for failure to file two times in a 24-month period will be ineligible for quotation by an NASD member andshall not be eligible for quotation until the issuer has timely filed in a complete form all required annual and quarterly reports due in a one-year period.
10. SUBSEQUENT EVENTS
Settlements of Accounts Payable
Coventry Enterprises, LLC – Immunoclin, Ltd
At December 31, 2011 the Company owedImmunoclin, Ltd. (“Immunclin”) $80,389 representing the balance of a purchase order for the production of Nyloxin™ products. $20,000, $40,000 and $20,000 of the debt were assigned to Coventry Enterprises, LLC (“Coventry”) on December 20, 2012, January 7, 2013, and March 13, 2013, respectively (See note 3).
The Company issued two Convertible Redeemable Notes for remaining amount of $40,000 and $20,000 on January 7, 2013, and March 13, 2013 bearing interest of 8% annum. Coventry was entitled to convert all or any amount of the this note into shares of the Company's common stock (the "Common Stock") at a drug (Crotoxin)conversion price ("Conversion Price") for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common Stock for the 3 trading days 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 haslowest volume weighted average prices during the 15 trading days immediately preceding the Conversion Date. Coventry made the following conversions for a total budget of $134,33615,119,481 shares of the company’s restricted stock satisfying the note in full:
| Date | Number of shares converted | Debt Converted | ||||||
| January 21, 2013 | 4,032,258 | $ | 20,000 | |||||
| February 11, 2013 | 5,405,405 | $ | 20,000 | |||||
| March 20, 2013 | 5,681,818 | $ | 20,000 | |||||
Common Stock Issued for Services
During February, 2013, the Company issued a total of 12,500,000 shares of the Company’s restricted common stock to five consultants for investor relations and is expected to be completed in early 2011. The initial deposit of $40,301 has been deemed earnedmarketing services.
Convertible debt and has been recorded as revenue during 2010.
On March 22, 2013, the Company issued a Director of Mineral Sciences LLC, a company that packaged our product Cobroxin which was sold during the period of November 2009 to August of 2010. As of September 2010 Mineral Sciences LLC no longer performs any services for Nutra Pharma.
Notes payable-Southridge Partners, LLP (“Southridge”)
Subsequent to December 31, 2010 we issued 5,102,436 sharesyear end, the suit was voluntarily dismissed involving debt held by Southridge for $483,483. The debt was reverted back to CEDE & CO. Fast5the original holders. (See note 5).
Notes payable-related party
During January and 350,000 shares to Frederick M. Lehrer.
| F-28 |