UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10–10–Q

(Mark One)

For the quarterly period ended March 31, 20192020

For the transition period from _________ to ________

Commission file numbers 000–32141

NUTRA PHARMA CORP.

(Name of registrant as specified in its charter)

(954) 509–0911

(Registrant'sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨[  ] Noþ [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S–S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨[  ] No þ[X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–non–accelerated filer, a smaller reporting company, or an emerging growth company.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o[  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–12b–2 of the Exchange Act). Yes ¨[  ] No þ[X]

As of April 5,July 23, 2021, there were 6,855,197,2147,267,619,714 shares of common stock and 3,000,000 shares of Series A preferred stock issued and outstanding.

TABLE OF CONTENTS

NUTRA PHARMA CORP.Nutra Pharma Corp (“Nutra Pharma”) and its wholly owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics Inc. are referred to herein as “we”, “our” or “us” (ReceptoPharm is also individually referred to herein).

Nutra Pharma Corp. is referred to hereinafter as “we”, “us” or “our”

Forward Looking Statements

This Quarterly Report on Form 10–Q for the period ending March 31, 2019,2020, contains forward–looking statements that involve risks and uncertainties, as well as assumptions that if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward–looking statements. The words or phrases “would be,” “will allow, “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward–looking statements.” We are subject to risks detailed in Item 1(a). All statements other than statements of historical fact are statements that could be deemed forward–looking statements, including: (a) any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; and (b) any statements of the plans, strategies and objectives of management for future operations; and (c) any statement concerning developments, plans, or performance. Unless otherwise required by applicable law, we do not undertake and we specifically disclaim any obligation to update any forward–looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NUTRA PHARMA CORP.

Condensed Consolidated Balance Sheets

See the accompanying notes to the unaudited condensed consolidated financial statements

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Operations

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the three months ended March 31, 2020 and 2019

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements.

See the accompanying notes to the unaudited condensed consolidated financial statements.

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders' Deficit

For the three months ended March 31, 2019 and 2018

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See the accompanying notes to the unaudited condensed consolidated financial statements

NUTRA PHARMA CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 20192020

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Nutra Pharma Corp. (“Nutra Pharma”), is a holding company that owns intellectual property and operates in the biotechnology industry. Nutra Pharma was incorporated under the laws of the state of California on February 1, 2000, under the original name of Exotic-Bird.com.

Through its wholly-owned subsidiary, ReceptoPharm, Inc. (“ReceptoPharm”), Nutra Pharma conducts drug discovery research and development activities. In October 2009, Nutra Pharma launched its first consumer product called Cobroxin^®, an over-the-counter pain reliever designed to treat moderate to severe chronic pain. In May 2010, Nutra Pharma launched its second consumer product called Nyloxin^®, an over-the-counter pain reliever that is a stronger version of Cobroxin^® and is designed to treat severe chronic pain. In December 2014, weNutra Pharma launched Pet Pain-Away, an over-the-counter pain reliever designed to treat pain in cats and dogs.

Basis of Presentation and Consolidation

The Unaudited Condensed Consolidated Financial Statements and notes are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year. Therefore, the interim Unaudited Condensed Consolidated Financial statementsStatements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K.

The accompanying Unaudited Condensed 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. Designer Diagnostics Inc. has been inactive since June 2011. All intercompany transactions and balances have been eliminated in consolidation.

Reclassification of Prior Year Presentation

Reclassification occurred to certain prior year amounts in order to conform to the current year classifications. The reclassifications have no effect on the reported net loss.

Restatement of Prior Period Presentation

Certain prior period amounts have been restated. Restatements have been made for the three months ended March 31, 2018 to correct the change in the fair value of convertible notes and to record a gain on settlement of debt and accounts payable. As a result of these changes, the following occurred:

Liquidity and Going Concern

Our Unaudited Condensed Consolidated Financial Statements are presented on a going concern basis, which contemplate the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced recurring, significant losses from operations, and have an accumulated deficit of $61,673,285$65,681,240 at March 31, 2019.2020. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $6,348,242$8,866,563 and a stockholders’ deficit of $6,296,489$8,928,291 at March 31, 2019.2020.

There is substantial doubt regarding our ability to continue as a going concern which 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.

We do not have sufficient cash to sustain our operations for a period of twelve months from the issuance date of this report 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 until sales of our 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. In the event that these financing sources do not materialize, or if we are unsuccessful in increasing our revenues and profits, we will be unable to implement our current plans for expansion, repay our obligations as they become due and continue as a going concern.

The accompanying Unaudited Condensed Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Impact of COVID-19 on our Operations

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Beginning in June 2020, the Company experienced a delay in retail rollout as a downstream implication of the slowing economy. We also closed our Coral Springs office in effort to save money. During May 2020, we received approval from SBA to fund our request for a PPP loan for $64,895 (See Note 12).$64,895. We used the proceeds primarily for payroll costs. We expect forgiveness of this loan under the current terms of requirement by the SBA. During April and June 2020, we obtained athe loan in the amount of $154,900$150,000 from the SBA under its Economic Injury Disaster Loan assistance program. We intended to useused the proceeds primarily for working capital purposerent, payroll, utilities, accounting and legal expenses (See Note 12).

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the developmentdistribution of widespread testing orand a vaccine.

Use of Estimates

The accompanying Unaudited Condensed 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 a going concern, the recoverability of inventories and long-lived assets, the recoverability of amounts due from officer, the valuation of stock-based compensation and certain debt and warrantderivative liabilities, recognition of loss contingencies and deferred tax valuation allowances. Actual results could differ from those estimates. Changes in facts and circumstances may result in revised estimates, which would be recorded in the period in which they become known.

Revenue from Contracts with Customers

On January 1, 2018, we adoptedThe Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”)

Topic 606,, "RevenueRevenue from Contracts with Customers"Customers ("(“ASC Topic 606"606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The cumulative impact of adopting. Under ASC Topic 606, resulted in no changes to retained earnings at January 1, 2018. The impact to revenue for the three months ended March 31, 2018 was an increase of $1,500 as a result of applying ASC Topic 606 to certain revenues generated through online distributors which are now presented gross as we have control over providing the products related to such revenues. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists;exists; b) Identify the performance obligations;obligations; c) Determine the transaction price;price; d) Allocate the transaction price;price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has evaluated the impact of ASC Topic 606 and determined that there is no change to the Company's accounting policies, except for the recording of certain product sales to a distributor, in which a portion of the cash proceeds received is remitted back to the distributor. Under ASC 606, the Company determined that these sales should be recorded on a gross basis.satisfied

Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled upon deliveryshipment of products. We record revenues net of promotions and discounts. For certain product sales to a distributor, we record revenue including a portion of the cash proceeds that is remitted back to the distributor.

Accounting for Shipping and Handling Costs

We account for shipping and handling as fulfillment activities and record amounts billed to customers as revenue and the related shipping and handling costs incurred within revenue.as cost of sales.

Accounts Receivable and Allowance for Doubtful Accounts

We grant credit without collateral to our customers based on our evaluation of a particular customer’s credit worthiness. Accounts receivable are due 30 days after the issuance of the invoice. In addition, allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of periodic credit evaluations of our 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. We generally do not charge interest on accounts receivable. We use third party payment processors and are required to maintain reserve balances, which are included in accounts receivables.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. Management believes that the receivables are fully collectable. Therefore, noNo allowance for doubtful account is deemed to be required at March 31, 20192020 and December 31, 2018.2019.

Inventories

Inventories, which are stated at the lower of average cost or net realizable value, consist of packaging materials, finished products, and raw venom that is utilized to make the API (active pharmaceutical ingredient). The raw unprocessed venom has an indefinite life for use. Commencing on October 1, 2019, we classify inventory as short-term or long-term inventory based on timing of when it is expected to be consumed. The Company regularly reviews inventory quantities on hand. If necessary, it records a net realizable value adjustment for excess and obsolete inventory based primarily on its estimates of product demand and production requirements. Write-downs are charged to cost of goods sold. We performed an evaluation of our inventory and related accounts at March 31, 20192020 and December 31, 2018,2019, and increased the reserve on supplier advances for future venom purchases included in the prepaid expenses and other current assets by $0 and $47,757,$23,948, respectively. At both March 31, 20192020 and December 31, 2018,2019, the total valuation allowance for prepaid venom is $200,911.was $224,859.

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. Other 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 transactions in the marketplace), we believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand. Our derivative financial instruments are carried at a measured fair value.

Balances in various cash accounts may 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. In addition, for the three months ended March 31, 2020, there was one customer that accounted for 59% of the total revenues. For the three months ended March 31, 2019, there were two customers that accounted for 61% and 17% of the total revenues, respectively. For the three months ended March 31, 2018, there was one customer that accounted for 45% of the total revenues. As of March 31, 20192020 and December 31, 2018, 54% and 84%2019, 100% of the accounts receivable balance are reserves due from two payment processors.

Operating Lease Right-of-Use Asset and Liability

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases”Leases (Topic 842), as amended (“ASC Topic 842”). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classify as either operating or finance leases. We adopted this standard effective January 1, 2019 using the modified retrospective approach for all leases entered into before the effective date. Adoption of the ASC Topic 842 had a significant effect on our balance sheet resulting in increased non-current assets and increased current and non-current liabilities. There was no impact to retained earnings upon adoption of the new standard. We did not have any finance leases (formerly referred to as capital leases prior to the adoption of ASC Topic 842), therefore there was no change in accounting treatment required. For comparability purposes, the Company will continue to comply with the previous disclosure requirements in accordance with the existing lease guidance and prior periods are not restated.

The Company elected the package of practical expedients as permitted under the transition guidance, which allowed us: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases.

In accordance with ASC Topic 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit from the use of the asset, and whether we have the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate.

For periods prior to the adoption of ASC Topic 842, the Company recorded rent expense based on the term of the related lease. The expense recognition for operating leases under ASC Topic 842 is substantially consistent with prior guidance. As a result, there are no significant differences in our results of operations presented.

The impact of the adoption of ASC Topic 842 on the balance sheet was:

Derivative Financial Instruments

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. 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.

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

Convertible Debt

For convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine if the rate of conversion is below market value and should be categorized as a beneficial conversion feature ("BCF"(“BCF”). A BCF related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the resulting debt discount being accreted over the term of the note.

The Fair Value Measurement Option

We have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC Topic 815, Derivatives and Hedging(“ASC Topic 815”). The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.

Derivative Accounting for Convertible Debt and Options and Warrants

The Company evaluated the terms and conditions of the convertible debt under the guidance of ASC Topic 815, Derivatives and Hedging. The conversion terms of some of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the debt is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debt and options and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, Embedded Derivatives, the fair values of the convertible debt, options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.

Property and Equipment and Long-Lived Assets

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.

Long-Lived Assets

The carrying value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may suggest impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual disposal of the impaired assets.

Income Taxes

The Company recorded no income tax expense for the three months ended March 31, 20192020 and 20182019 because the estimated annual effective tax rate was zero. As of March 31, 2019,2020, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

Stock-Based Compensation

We account for stock-based compensation in accordance with FASB ASC Topic 718, Stock Compensation (“ASC Topic 718”). 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 statement 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 Income (Loss) Per Share

Net Loss Per Share

Net lossincome (loss) per share is calculated in accordance with FASB ASC Topic 260, Earnings per Share. Basic lossincome (loss) per share is calculated by dividing net lossincome (loss) by the weighted average number of common shares outstanding for the period. Diluted lossincome (loss) per share is calculated by dividing net lossincome (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. Any common shares issued as of a result of the exercise of stockconversion options and warrants would come from newly issued common shares from our remaining authorized shares.

(1) Includes potential common shares that are in excess of authorized shares.

As of March 31, 20192020 and 2018,2019, the following items were not included in dilutive loss as the effect is anti-dilutive:

Recent Accounting Pronouncements

In June 2018,December 2019, the FASB issued ASU 2018-07, “Compensation - Stock CompensationNo. 2019-12, Income Taxes (Topic 718)740): Improvements to Nonemployee Share-Based Payment Accounting”Simplifying the Accounting for Income Taxes (“ASU 2018-07”2019-12”)., which is intended to simplify various aspects related to accounting for income taxes. ASU No 2018-07 expands2019-12 removes certain exceptions to the scopegeneral principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard, and does not believe that it will have a material effect on the accompanying consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 718815 and removing the requirement to include share-based payment transactionsaccount for acquiring goodsbeneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and services from nonemployees.provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidanceunder ASU 2020-06 is effective for fiscal years beginning after December 15, 2018,2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years and isbeginning after December 15, 2020. The Company will adopt this standard using a modified retrospective approach effective for the Company as of January 1, 2019.2022. The Company notedis currently evaluating the impact of this standard, and does not believe that all share based payments were settled as of the date of the adoption, so there was no impactit will have a material effect on the Company'saccompanying consolidated financial statements.

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

2. FAIR VALUE MEASUREMENTS

Certain assets and liabilities that are measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019 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:

The following table summarizes our financial instruments measured at fair value at March 31, 20192020 and December 31, 2018:2019:

The following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3) during the three months ended March 31, 20192020 and the year ended December 31, 2018:2019:

(1)   The gain related to the revaluation of our warrant liability is included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations.

We valued our warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 2.27%0.17% to 2.81%1.59% risk-free rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility of 256%-290%320%-348% (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.

We valued derivative liabilities using the number of potential convertible shares for warrants in equity and convertible notes with fixed conversion price that are recorded at amortized cost times the closing stock price of our restricted common stock at March 31, 2020. These derivative liabilities are recorded due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit and the equity environment is tainted, and therefore all convertible debt and options and warrants should be accounted for as liabilities.

The following table summarizes assumptions and the significant terms of the convertible notes for which the entire hybrid instrument is recorded at fair value at March 31, 20192020 and December 31, 2018:2019:

Using the stated assumptions summarized in table above, we calculated the inception date and reporting period fair values of each note issued. The following table shows the changes in fair value measurements for the convertible notes at fair value using significant unobservable inputs (Level 3) during the three months ended March 31, 20192020 and the year ended December 31, 2018:2019:

(1)   The losses related to the valuation of the convertible notes are included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations.

3. INVENTORIES

Inventories are valued at the lower of cost or net realizable value on an average cost basis. At March 31, 20192020 and December 31, 2018,2019, inventories were as follows:

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at March 31, 20192020 and December 31, 2018:2019:

We review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At March 31, 2019,2020, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the three months ended March 31, 2020 and 2019 was $712 and 2018 was $1,105, and $1,928, respectively.

5. DUE TO/FROM OFFICER

At March 31, 2019,2020, the balance due to our President and CEO, Rik Deitsch, is $182,464,$199,290, which is an unsecured demand loan that bears interest at 4%. During the three months ended March 31, 2019,2020, we repaid $9,950advanced $4,200 to and collected $4,100$118,500 from Mr. Deitsch and the Companiescompanies owned by him. Additionally, accrued interest on the demand loan was $1,817 and is included in the due to officer account.

At December 31, 2018, the balance due to our President and CEO, Rik Deitsch, is $186,497, which was an unsecured demand loan that bore interest at 4%. During the three months ended March 31, 2018, we repaid $73,350 to and collected $31,100 from Mr. Deitsch and the Companies owned by him. Additionally, accrued interest on the demand loan was $7,674$1,678 and is included in the due to officer account. The Company has fully reserved receivables from companies owned by the Company'sCompany’s CEO. The reserve was $505,470$524,970 and $564,470 as of March 31, 20192020 and December 31, 2018.

2019, which represents a full valuation allowance for amounts owed by these companies. For the three months ended March 31, 2020 and 2019, we recorded a bad debt recovery of $39,500 and $0, respectively.

At December 31, 2019, the balance due to our President and CEO, Rik Deitsch, is $122,812, which is an unsecured demand loan that bears interest at 4%. During the year ended December 31, 2019, we advanced $134,015 to and collected $5,000 from Mr. Deitsch and the companies owned by him. Additionally, accrued interest on the demand loan was $6,330 and is included in the due to officer account.

6. DEBTS

Debts consist of the following at March 31, 20192020 and December 31, 2018:2019:

In December 2017, we issued a promissory note to a related party in the amount of $12,000 with original issuance discount of $2,000. The note was amended in December 2018 with original issuance discount of $2,400 and was due in twelve months from the execution and funding of the note. At March 31, 2019 and December 31, 2018, the principal balance of the loan is $12,600 and $12,000, net of debt discount of $1,800 and $2,000, respectively. The Note was settled in June 2020.

During the three months ended March 31,February 2019, we issued convertible notes payable of $70,000 with original issuance discount of $5,000. The notes were due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price of $0.0005 per share. During December 2019, $22,000 of the Note was amended to extend the maturity date to June 2020. In addition, uponconnection with the issuance and restatements of convertiblethe notes, the Company granted the total of 110,000,000following warrants at an exercise price of $0.001 per share.share in 2019. The warrants were valued at $8,147 using the Black-Scholes method and recorded as a debt discount that was amortized over the life of the notes. The Notes were further restated in December 2019, and August and October 2020. They2020 and are currently in default and in negotiation of settlement.

During May 2019, we restated two convertible notes payable with additional original issue discount of $6,400 and issued 6,000,001 shares of common stock with a fair value of $1,800. The two restated notes were due in August 2019 and are in default. The total discount of $8,200 was amortized over the term of the notes.

During November and December 2019, we issued two convertible promissory notes to two unrelated third parties for $159,500 with original issuance discount of $14,500. The notes were due six months from the execution and funding of each note. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price ranging from $0.0002 to$0.000275. The Notes are in default and negotiation of settlement.

During 2019, repayments of $13,500 were made in cash to three of the Notes. Six of the Notes for a total of $87,100 were repaid in stocks as the part of settlement of issuances of 800,000,000 shares of common stocks during December 2019.

Amortization for the year ended December 31, 2019 was $55,222. Additionally, $9,185 was amortized during the three months ended March 31, 2019 and 2018 was $24,902 and $48,904.2020. At March 31, 2019 and December 31, 2018,2019, the principal balance of the notes, net of discount of $16,667$17,370 is $736,180. Two of the above mentioned convertible notes payable for a total of $19,500 was settled in full in March and $28,421April 2021(See Note 12).

During the three months ended March 31, 2020, we issued convertible notes payable of $101,750 with original issuance discount of $9,250. Amortization for this discount for the three months ended March 31, 2020 was $1,542. $33,000 of the notes were due in six months from the execution and funding of each note. $68,750 of the notes were due in one year from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price ranging from $0.002 to 0.0005 per share. At March 31, 2020, the principal balance of the notes, net of discount of $15,893 is $731,583$839,407.

At the date of this report, all of the above mentioned convertible notes payable of $915,300 are in default and $589,829.in negotiation of settlement.

The new note of $49,819 carries interest at 8% and was due on February 13, 2019, unless previously converted into shares of restricted common stock. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Noteholder has the right to convert the note into shares of our restricted common stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five prior trading days including the conversion date. During September 2018, the Noteholder made conversions of 52,244,433 shares of our restricted common stock with a fair value of $37,011 in satisfaction of principal balance of $15,000 and accrued interest in full (See Note 7). At March 31, 2019 and December 31, 2018, the convertible note payable with principal balance of $34,819, at fair value, was recorded at $64,751 and $62,508.

All of the above convertible notes with principal balance of a total of $511,319 were settled in October 2020 (See Note 12).

All of the above convertible notes with principal balance of a total of $553,301 including the additional principal increases due to the default terms were settled in October 2020 (See Note 12).

7. STOCKHOLDERS'STOCKHOLDERS’ DEFICIT

Authorized Shares

On March 7, 2018, we obtained written consents from stockholders holding a majority of our outstanding voting stock to approve an amendment of the Company’s articles of incorporation, as amended, to increase the number of authorized shares of common stock from 2,000,000,000 to 8,000,000,000.

Series A Preferred Stock

Effective October 30, 2017, pursuant to authority of its Board of Directors, the Company filed a Certificate of Determination to authorize the issuance of 20,000,000 shares of stock designated “preferred shares”, issuable from time to time in one or more series and authorize the Board of Directors to fix the number of shares constituting any such series, and to determine or alter the dividend rights, dividend rate, conversion rights, voting rights, right and terms of redemption (including sinking fund provisions), the redemption price or prices and the liquidation preference of any wholly unissued series of such preferred shares, and the number of shares constituting any such series.

Effective October 30, 2017 the Board of Directors authorized the issuance of 3,000,000 shares of Series A Preferred Stock (“Series A Preferred”). Terms of the Series A Preferred include the following:

Common Stock Issued for Accrued ExpenseConversion of Convertible Debt

During January and February 2020, the Note holder made conversions of a total of 500,000,000 shares of stock satisfying the principal balance of $175,000 of a Note originated in February 2019 in connectionthe amount of up to $1,000,000(See Note 6).

Common Stock Issued for Settlement of Debt

During March 2020, $50,000 of the Note of $120,000 with the settlementoriginal issuance discount of a default penalty of debt of $110,000$20,000 originated in December 2016,November 2017 was settled for 125,000,000 shares with a fair value of $87,500. We recorded a loss on settlement in other expense for $37,500 (See Note 6).

Common Stock Issued for Debt Modification and Penalty

During January and March 2020, we issued a total of 81,000,000121,000,000 shares to two Note holders due to the default on repayment of our restricted common stock with athe promissory notes. The shares were valued at fair value of $32,400 to the Note holder (See Note 6). We had an accrual of $32,400 to account for the cost of the shares at December 31, 2018.$77,200.

Common Stock Issued for Services

During June 2018, the Company signed an agreement with a consultant for investor relation services for twelve months. In connection with the agreement, 100,000,000 shares of the Company’s restricted common stockstocks were issued. The shares were valued at $0.0012 per share. The compensation charge of $120,000 has been fully amortized as of June 2019. The Company recorded an equity compensation charge of $0 and $30,000, respectively, during the three months ended March 31, 2020 and 2019.

During April 2019, and $70,000we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 120,000,000 shares of our restricted common stock were issued. The shares were valued at $24,000. During June 2019, we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 15,000,000 shares of our restricted common stock were issued. The shares were valued at $6,000. The equity compensation charge of $21,500 has been recorded during June through December 2019. $7,500 has been recorded during the yearthree months ended DecemberMarch 31, 2018.2020. The remaining unrecognized compensation cost of $20,000 for the period from April through May 2019$1,000 will be recognized by the Company over the remaining service period.

8. STOCK WARRANTS

Common Stock Warrants

During March, 2013, the Company issued a total of 65,000 warrants to purchase common stock at an exercise price of $0.01 per share in connection with issuance of a convertible note payable to Coventry. The warrants expired on March 22, 2018.

On September 3, 2013 and September 12, 2013, the Company issued 500,000 and 375,000 warrants, respectively, to purchase common stock at an exercise price of $0.025 and $0.01 per share in connection with issuances of convertible notes payable to Coventry. The warrants expired on September 3, 2018 and September, 12, 2018, respectively.

On March 31, 2017, in connection with the issuance of an $80,000 Note, we granted three-year warrants to purchase an aggregate of 6,000,000 shares of our common stock at an exercise price of $0.005 per share. The warrants were valued at their fair value of $608$0 and $977$539 using the Black-Scholes method on March 31, 20192020 and December 31, 2018.2019. The warrants expireexpired on March 30, 2020.

On March 3, 2016, in connection with the issuance of a convertible note, we granted five-year warrants to purchase an aggregate of 2,500,000 shares of our common stock at an exercise price of $0.03 per share. The warrants were valued at their fair value of $350$866 and $491$872 using the Black-Scholes method at March 31, 20192020 and December 31, 2018.2019. The warrants expireexpired on March 3, 2021.

On April 4, 2016, in connection with the issuance of convertible notes, we granted three-year warrants to purchase an aggregate of 4,000,000 shares of our common stock at an exercise price of $0.05 per share. The warrants were valued at their fair value of $0 using the Black-Scholes method at March 31, 2019 and December 31, 2018. The warrants expireexpired on April 4, 2019.

During April 2014, the Company issued a total of 100,000 warrants to purchase common stock at an exercise price of $0.025 per share in connection with issuance of a convertible note payable to Coventry. The warrants were valued at their fair value of $0 using the Black-Scholes method at March 31, 2019 and December 31, 2018. The warrants expireexpired on April 9, 2019.

During February 2019, theThe Company granted the total of 110,000,000following warrants to purchase common stock at an exercise price of $0.001 per share in connection with issuanceissuances of three convertible notes.notes payable of $70,000 in February 2019 and amendment of one convertible notes payable of $22,000 in December 2019. The warrants were valued at $8,147 using the Black-Scholes method and recorded as a debt discount that was amortized over the life of the notes. Theand additional paid in capital. No warrants expire in August 2019.have been exercised.

A summary of warrants outstanding in conjunction with private placements of common stock were as follows during the three months ended March 31, 20192020 and the year ended December 31, 2018:2019:

The following table summarizes information about fixed-price warrants outstanding as of March 31, 20192020 and December 31, 20182019:

At March 31, 2019,2020, the aggregate intrinsic value of all warrants outstanding and expected to vest was $0. The intrinsic value of warrant share is the difference between the fair value of our restricted common stock and the exercise price of such warrant 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 warrants had they exercised their warrants 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 $0.0002,$0.0006, the closing stock price of our restricted common stock on March 29, 2019.31, 2020. There were no in-the-money warrants at March 31, 2019.2020.

9. ACCRUED EXPENSES

Accrued expenses consisted of the following:

10. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

We performed an evaluation of our inventory and related accounts at March 31, 20192020 and December 31, 2018,2019, and increased the reserve on supplier advances for future venom purchases by $0 and $47,757,$23,948, respectively. At March 31, 20192020 and December 31, 2018,2019, the total valuation allowance for prepaid venom is $200,911.$224,859.

11. COMMITMENTS AND CONTINGENCIES

Operating Leases

In February 2016, we entered into our current three-year operating lease for monthly payments of approximately $3,200 which expired in February 2019. The lease is currently month-to-month, thus classified as short-term and not reported on the balance sheet under Topic ASC 842.

ReceptoPharm leases a lab and renewed its operating lease agreement for five years beginning August 1, 2017 for monthly payments of approximately $6,900 with a 5% increase each year.