UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
( ) TRANSITION REPORT PURSUANT OF SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period _________ to____________
Commission file number: 000-32141
NUTRA PHARMA CORP.
(Exact name of small business issuer as specified in its charter)
California 91-2021600
(State or other jurisdiction of (IRS Employer I.D. Number)
incorporation or organization)
3473 High Ridge Road, Boynton Beach, FL 33426
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (954) 509-0911
1829 Corporate Drive, Boynton Beach, FL 33426
(Former address)
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
There were 68,252,182 shares of common stock outstanding as of August 19,
2005.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Balance Sheet - Unaudited
June 30, 2005
ASSETS
Current assets:
Cash $ 68,306
------------
Property and equipment, net 60,056
------------
Other assets:
Investments at cost 235,000
Other 24,059
------------
259,059
------------
$ 387,421
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 62,414
Accrued expenses 271,536
------------
Total current liabilities 333,950
------------
Stockholders' equity:
Common stock, $0.001 par value, 2.0 billion shares
authorized; 67,677,182 shares issued and outstanding 67,677
Additional paid-in capital 14,430,772
(Deficit) accumulated during the development stage (14,444,978)
------------
53,471
------------
$ 387,421
============
See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Operations - Unaudited
For the
Period From
February 1,
2000
(Inception)
Three Months Ended June 30, Six Months Ended June 30, Through
---------------------------- ---------------------------- June 30,
2004 2005 2004 2005 2005
------------ ------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Costs and expenses:
General and administrative 224,161 527,282 364,449 909,189 4,331,749
Research and development 205,169 55,884 943,664 105,499 1,210,467
Stock based compensation -- 565,805 1,592,200 799,805 3,665,801
Write-off of advances to potential acquiree -- -- -- -- 629,000
Finance costs -- -- -- -- 786,000
Interest expense -- 261,782 -- 269,684 274,390
Amortization of license agreement -- -- -- -- 155,210
Amortization of intangibles 183,066 -- 360,841 -- 656,732
Losses on settlements -- -- -- -- 1,261,284
Write-down of investment in Infectech, Inc. -- -- -- 620,805
Equity in loss of unconsolidated subsidiary -- -- -- 853,540
------------ ------------ ------------ ------------ ------------
Total costs and expenses 612,396 1,410,753 3,261,154 2,084,177 14,444,978
------------ ------------ ------------ ------------ ------------
Net loss before provision (benefit) for income taxes (612,396) (1,410,753) (3,261,154) (2,084,177) (14,444,978)
Provision (benefit) for income taxes (73,227) -- (144,337) -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (539,169) $ (1,410,753) $ (3,116,817) $ (2,084,177) $(14,444,978)
============ ============ ============ ============ ============
Per share information - basic and diluted
Loss per common share $ (0.01) $ (0.02) $ (0.06) $ (0.03)
============ ============ ============ ============
Weighted average common shares outstanding 50,273,330 62,326,382 48,518,482 60,452,909
============ ============ ============ ============
See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Cash Flows - Unaudited
For the
Period From
February 1,
2000
(Inception)
Six Months Ended June 30, Through
---------------------------- June 30,
2004 2005 2005
----------- ----------- -----------
Cash flows from operating activities:
Net cash (used in) operating activities $ (933,062) $(1,015,812) $(2,631,999)
----------- ----------- -----------
Cash flows from investing activities:
Cash reduction due to deconsolidation of Infectech, Inc. -- -- (2,997)
Cash acquired in acquisition of Infectech, Inc. -- -- 3,004
Acquisition of property and equipment -- (5,114) (62,205)
Investments carried at cost -- (130,000) (235,000)
----------- ----------- -----------
Net cash (used in) investing activities -- (135,114) (297,198)
----------- ----------- -----------
Cash flows from financing activities:
Common stock issued for cash -- 809,800 1,757,500
Proceeds from convertible loans -- -- 304,750
Loans from stockholders 1,013,952 -- 935,253
----------- ----------- -----------
Net cash provided by financing activities 1,013,952 809,800 2,997,503
----------- ----------- -----------
Net increase (decrease) in cash 80,890 (341,126) 68,306
Cash - beginning of period 47,131 409,432 --
----------- ----------- -----------
Cash - end of period $ 128,021 $ 68,306 $ 68,306
=========== =========== ===========
See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements
June 30, 2005
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) for interim financial
information and Item 310(b) of Regulation S-B. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of December 31,
2004, and for the two years then ended, including notes thereto included in the
Company's Form 10-KSB.
The accompanying 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. Actual results may differ from
these estimates.
Principles of Consolidation
The consolidated financial statements presented herein include the accounts of
Nutra Pharma and its subsidiary ReceptoPharm, Inc. (collectively, the
"Company"). In addition, the Company consolidated Nanologix, Inc. during the
period from January 1, 2004 through June 30, 2004 (see Note 3). All intercompany
transactions and balances have been eliminated in consolidation.
Income (Loss) per Share
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share, is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted
earnings(loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses common stock
equivalents, if any, are not considered, as their effect would be anti dilutive.
2. BASIS OF REPORTING
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the six months ended June 30, 2005, the Company
incurred a net loss of $2,084,177. At June 30, 2005 the Company has working
capital of $265,644 and an accumulated deficit of $14,444,978.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing, increase ownership equity and attain
profitable operations. In addition, the Company's 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 the Company operates.
The Company is pursuing financing for its operations and seeking additional
investments. In addition, the Company is seeking to establish a revenue base.
Failure to secure such financing or to raise additional equity capital and to
establish a revenue base may result in the Company depleting its available funds
and not being able to pay its obligations.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
3. NANOLOGIX, INC. (FORMERLY INFECTECH, INC.)
On September 19, 2003, the Company entered into an agreement ("Acquisition
Agreement") to acquire up to 100% of the issued and outstanding common stock of
Nanologix, Inc., a Delaware corporation ("Nanologix"). Nanologix is a
development stage company based in Sharon, Pennsylvania, which is engaged in the
development of diagnostic test kits used for the rapid identification of
infectious human and animal diseases. Nanologix owns patented technologies,
which allow for the rapid detection of disease-causing pathogens. Nanologix also
owns a patented technology designed for use in the bioremediation of
contaminated soil and water.
The Acquisition Agreement provided for the acquisition by the Company of up to
100% of the issued and outstanding common stock of Nanologix, through an
exchange of one (1) share of the Company's common stock for every two (2) shares
of Nanologix common stock. The Company recorded the acquisition of Nanologix as
the purchase of assets, principally patents and other intangibles. The value of
the Company's common stock issued in connection with this transaction was $0.85
per share, which was the market value of the Company's common stock on September
22, 2003, the date the terms of the acquisition were agreed to and announced.
Through December 31, 2003, the Company issued an aggregate of 4,502,549 shares
of its common stock in exchange for 9,005,098 shares of Nanologix common stock.
This initial exchange resulted in the Company owning approximately 58% of the
issued and outstanding common stock of Nanologix. In January 2004, the Company
issued an additional 426,275 shares of its common stock, in exchange for 852,550
shares of Nanologix common stock. In September 2004, the Company issued an
additional 293,288 shares of its common stock in exchange for 586,576 shares of
Nanologix common stock. These exchanges increased the Company's ownership
interest in Nanologix from 58% to 67%.
On September 28, 2004, the Company transferred 6,000,000 shares of Nanologix,
Inc. common stock to a shareholder of Nutra Pharma, to discharge a $1,384,931
demand loan from such shareholder. After giving effect to this transfer, the
Company owned a total of 4,444,224 shares or approximately 29% of the issued and
outstanding common stock of Nanologix (which was 15,537,050 shares).
Subsequent to September 28, 2004, the Company owned a minority interest in
Nanologix and accordingly, applied the equity method of accounting to its
investment in Nanologix. The Company's share of Nanologix's earnings or losses
is included in its statement of operations as a single amount. During the year
ended December 31, 2004, Nanologix incurred a loss of $6,658,838. The Company's
portion of the loss using the equity method of accounting of $1,664,710 exceeded
the carrying value of the Company's investment which was $853,540 at December
31, 2004, and as such, the $853,540 was charged to operations at December 31,
2004. This charge reduced the carrying value of the Company's investment in
Nanologix to $0.
At December 31, 2004, the Company owned a total of 4,556,174 shares or
approximately 25% of the issued and outstanding common stock of Nanologix.
During the six months ended June 30, 2005, Nanologix issued additional shares of
its common stock reducing the Company's ownership to approximately 12% at June
30, 2005.
The aggregate market value of the Company's 4,556,174 shares of Nanologix common
stock, based on the trading price of Nanologix common stock as quoted on the
pink sheets of $0.40 and $.22 per share at June 30, 2005, and August 9, 2005,
was $1,822,470 and $1,002,358 respectively.
4. ACQUISITION OF RECEPTOPHARM, INC.
On December 12, 2003, the Company entered into an acquisition agreement (the
"Agreement"), whereby it agreed to acquire a 49.5% interest in ReceptoPharm,
Inc. ("ReceptoPharm"), a privately held biopharmaceutical company based in Ft.
Lauderdale,
Florida. ReceptoPharm is a development stage company engaged in the research and
development of proprietary therapeutic proteins for the treatment of several
chronic viral, autoimmune and neuro-degenerative diseases.
The closing of this transaction was subject to the approval of ReceptoPharm's
board of directors, which was obtained on February 20, 2004. Pursuant to the
Agreement, the Company is acquiring 49.5% of ReceptoPharm's common equity for
$2,000,000 in cash. ReceptoPharm intends to use such funds to further research
and development, which could significantly impact future results of operations.
The Company is purchasing its 49.5% ownership interest in a series of
installments. At June 30, 2005, the Company had funded an aggregate of
$1,685,000 to ReceptoPharm under the Agreement, which represented a 40% interest
in ReceptoPharm. From July 1, 2005 through August 15, 2005, the Company funded
an additional $75,000 to ReceptoPharm, which increased the Company's ownership
of ReceptoPharm to approximately 41%.
For accounting purposes, the Company is treating its capital investment in
ReceptoPharm as a vehicle for research and development. Because the Company is
solely providing financial support to further the research and development of
ReceptoPharm, such amounts are being charged to expense as incurred by
ReceptoPharm. ReceptoPharm presently has no ability to fund these activities and
is dependent on the Company to fund its operations. In these circumstances,
ReceptoPharm is considered a variable interest entity and has been consolidated.
The creditors of ReceptoPharm do not have recourse to the general credit of the
Company.
5. CONVERTIBLE LOANS
In November 2004, in accordance with the terms of completed Subscription
Agreements, the Company received total proceeds of $206,750 from four (4)
investors. These agreements provide that upon the expiration of a 6 month term
from the date of execution, each of the four investors has the option of: (a)
being repaid the amount of their investment together with 15% interest per
annum; (b) converting their investment into shares of the Company's common stock
at a conversion price of $0.17 per share up to an aggregate of 1,216,176 shares,
if all four investors convert; or (c) converting their investment into a number
of shares of common stock of the Company equal to the sum of the principal and
accrued interest on the note, divided by the conversion price equal to a price
which is 35% below (i) the average of the last reported sales prices for the
shares of Common Stock on the NASDAQ National Market, the American Stock
Exchange, the NASDAQ Small Cap Market or the Over-the-Counter Bulletin Board for
the 5 trading days immediately prior to such date or (ii) if there have been no
sales on any such market on any applicable day, the average of the highest bid
and lowest ask prices on such market at the end of any applicable day, or
(iii)if the market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price will be at the fair market value as reasonably
determined in good faith by our Board of Directors.
Each investor had piggyback registration rights that would have required the
Company to register any shares held by them if the Company voluntarily filed a
registration statement, or immediately if an investor decided to convert their
investment into shares of common stock.
In May 2005, the loan holders amended their original agreements. The new
agreements released the Company from its requirements to register the loan
holders' shares. Each loan holder received approximately ten percent in
additional shares as part of the new agreement. In full settlement of the debt,
the Company issued an aggregate of 1,458,000 shares of common stock to settle
the debt. The fair value of these shares at the date of the settlement was
$481,140. The Company recorded interest expense of $261,782 for the value of the
shares in excess of the debt settled. (See Note 6.)
6. STOCKHOLDERS' EQUITY
During the quarter ended March 31, 2005, the Company issued 6,105,000 shares
which were subscribed for at December 31, 2004.
During the quarter ended March 31, 2005, the Company sold 790,000 shares of
restricted common stock at $0.17 per share and received proceeds of $134,300. Of
the shares sold, 90,000 were issued at March 31, 2005 and the remaining 700,000
were recorded as a subscription and the amount received is included in
additional paid-in capital. The remaining 700,000 shares were issued during the
quarter ended June 30, 2005.
During the quarter ended March 31, 2005, the Company issued 100,000 shares of
restricted common stock to a consultant for services rendered. The Company
recorded stock-based compensation expense of $34,000 based on the market value
of the Company's common stock on the date of the grant.
During the quarter ended March 31, 2005, the Company issued 500,000 shares of
restricted common stock to a Director for services rendered. The Company
recorded stock-based compensation expense of $200,000 based on the market value
of the Company's common stock on the date of the grant.
During the quarter ended June 30, 2005, the Company sold 3,377,500 shares of
restricted common stock at $0.20 per share and received proceeds of $675,500.
During the quarter ended June 30, 2005, the Company issued an aggregate of
1,287,000 shares of restricted common stock to consultants for services
rendered. The Company recorded stock-based compensation expense of $453,305
based on the market value of the Company's common stock on the respective dates
of grant.
During the quarter ended June 30, 2005, the Company issued an aggregate of
1,458,000 shares of common stock to settle the debt described in Note 5. The
fair value of these shares at the date of the settlement was $481,140. The
Company recorded a charge to interest expense of $261,782 for the value of the
shares in excess of the debt settled.
During the quarter ended June 30, 2005, ReceptoPharm issued 250,000 shares of
its common stock to a consultant for services rendered. The shares were valued
at their fair market value of $0.45 per share and the Company recorded a charge
to operations of $112,500.
7. STOCK OPTIONS
On June 1, 2005 the Company retained Doherty & Company, LLC ("Doherty &
Company"), to provide the services of Michael Doherty as executive Chairman of
the Company. Concurrently, the Company also retained Doherty & Company to act as
the Company's agent in connection with prospective private capital-raising
activities.
The Company granted a five year option to purchase Thirteen Million Six Hundred
Thousand (13,600,000) shares of the Company's common stock at an exercise price
equal to $0.27 per share, vesting over a two year period. The option expires on
May 31, 2010. The option becomes exercisable with respect to 6,800,000 shares
commencing on May 31, 2006, provided the Company has raised at least $500,000 of
additional equity, debt or equity linked financing prior to October 31, 2005,
and the balance becomes exercisable in twelve equal monthly installments
thereafter. The options are being granted to Doherty & Company for providing the
services of Mr. Doherty.
Mr. Doherty will serve as Chairman for two years but will not be required to
devote more than 20 hours per week to the Company. Mr. Doherty will also serve
as a member of the Company's Board of Directors. Additionally, Mr. Doherty will
be entitled to cash compensation from the Company commensurate with his position
when and if the Company's other executives begin to receive such compensation.
In addition, Doherty & Company will be entitled to a fee equal to 8% of the
gross proceeds received from investors in any financing arranged by Doherty &
Company together with three year options to purchase a number of securities
equal to 10% of the amount received from investors in any such financing. The
Company will reimburse Doherty & Company for its expenses, including legal fees,
not to exceed $25,000. The Company has also agreed to indemnify Doherty &
Company against claims relating to its engagement by the Company and the
services to be provided to the Company.
The Company will charge the difference between the fair value of the shares
underlying the options of $0.36 and the exercise price of $0.27 to operations
over the vesting period commencing if and when the Company receives proceeds of
$500,000.
8. INVESTMENTS
Letter of Intent to Acquire Portage BioMed LLC
On October 28, 2004, the Company entered into a non-binding letter of intent to
acquire 100% of the issued and outstanding common stock of Portage BioMed LLC, a
biotechnology research company ("Portage Biomed"). The proposed terms reflected
in the non-binding letter of intent are: (i) beginning on November 1, 2004, the
Company will pay $40,000 per month to Portage BioMed for working capital, until
such time that Portage BioMed generates sufficient cash flow to sustain its
operations; (ii) the Company will issue an aggregate of 1,000,000 shares of its
restricted common stock to Portage BioMed's four members in exchange for their
interest in Portage BioMed; (iii) the Company will also issue an aggregate of
550,000 shares of its restricted common stock to Portage BioMed's four members
for four consecutive quarters commencing six months from the closing date of the
transaction and upon the completion of certain agreed upon quarterly milestones;
and (iv) Rik J. Deitsch, the Company's Chief Executive Officer, will be
appointed to Portage BioMed's Board of Directors and one current Portage BioMed
Director will be appointed as a Director of the Company.
As of June 30, 2005 the Company has made payments totaling $60,000 to Portage
BioMed in connection with the letter of intent. As of June 30, 2005, the Company
has not entered into a definitive agreement with Portage BioMed. This investment
is included in other assets in the accompanying financial statements.
Investment in XenaCare LLC
On November 1, 2004, the Company completed an agreement with XenaCare LLC
"XenaCare", a healthcare management company engaged in the business of
manufacturing and distributing non-prescription pharmaceuticals to physicians'
offices. This agreement provides that the Company make an investment of up to
$250,000 in 15 Site of Care physician locations to be managed by XenaCare.
As of June 30, 2005, the Company has made payments totaling $175,000 to XenaCare
in connection with this agreement. This investment is included in other assets
in the accompanying financial statements.
9. CONTINGENCIES
On April 4, 2005, a Motion to Enforce Settlement Agreement was filed against the
Company in the Circuit Court of Broward County Florida by Bio Therapeutics, Inc.
f/k/a Phylomed Corp. in Nutra Pharma Corp. v. Bio Therapeutics, Inc. (17th
Judicial Circuit, Case No. 03-008928 (03). This proceeding results from the
Company's alleged breach of a settlement agreement that was entered into between
Bio Therapeutics and the Company in resolution of a previous lawsuit between the
Company and Bio Therapeutics that was resolved by entering into a Settlement
Agreement. The Company also entered into a related License Agreement and
Amendment to the License Agreement ("License Agreement") with Bio Therapeutics.
In the April 4, 2005 motion, Bio Therapeutics alleges that the Company breached
certain provisions of the License Agreement and requests that the Court grant
its motion to enforce the Settlement Agreement by declaring the License
Agreement terminated, enjoining the Company from further use of license products
that was granted to the Company by the License Agreement, and awarding attorneys
fees and costs to Bio Therapeutics. This matter is set for a hearing to hear a
motion to set a motion for an evidential hearing.
The Company intends to defend against this action. The Company does not believe
that this action will have a material effect upon its operations; and if the
license agreement is terminated does not believe there will be a material
negative impact on the Company.
10. SUBSEQUENT EVENTS
SBI Brightline XII LLC Agreement
On August 17, 2005, the Company entered into a stock purchase agreement with SBI
Brightline XII LLC ("SBI") that obligated SBI to purchase, upon the Company's
election, up to 24,000,000 shares of our common stock for an aggregate purchase
price of $9.6 million. The agreement is comprised of 24 equally sized putable
tranches with exercise prices at $0.30, $0.40 and $0.50 per share. The agreement
limits the Company from exercising a tranche that would result in SBI exceeding
9.8% total beneficial ownership of Nutra Pharma. Additionally, SBI will be
issued 2,000,000 warrants exercisable at $0.30; 2,000,000 warrants exercisable
at $0.40; and, 2,000,000 warrants exercisable at $0.50 for a total of 6,000,000
warrants. If fully exercised, the warrants will provide the Company with an
additional $2,400,000. The agreement requires that the shares be registered with
the Securities and Exchange Commission.
From July 1, 2005 through August 15, 2005, the Company sold 575,000 shares of
restricted common stock at $0.20 per share and received proceeds of $115,000.
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operations
Forward-Looking Statements
The following discussion and analysis contains forward-looking statements and
should be read in conjunction with our financial statements and related notes.
For purposes of this Plan of Operations, Nutra Pharma Corp. is referred to
herein as "we," "us," or "our." This discussion and analysis contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections overview. The words or phrases "believe," "expect,"
"may," "should," "anticipates" or similar expressions are intended to identify
"forward-looking statements". Actual results could differ materially from those
projected in the forward-looking statements as a result of the following risks
and uncertainties, including: (a) we have experienced recurring net losses and a
working capital deficiency which raises substantial doubt about our ability to
continue as a going concern; (b) our history of losses makes it difficult to
evaluate our current and future business and our future financial results; (c)
our continued operations are dependent upon obtaining equity or other financing
and should we be unable to obtain such financing, we will be unable to continue
our operations; (d) our inability to retain and attract key personnel could
adversely affect our business; (e) we are subject to substantial Federal Drug
Administration and other regulations and related costs which may adversely
affect our operations; (f) a market for our potential products may never
develop; (g) if we fail to adequately protect our patents, we may be unable to
proceed with development of potential drug products; (h) we are dependent upon
patents, licenses and other proprietary rights from third parties; should we
lose such rights our operations will be negatively affected; (h) we may be
unable to compete against our competitors in the medical device and
biopharmaceutical markets since many of our competitors have superior financial
and technical resources; (i) issuance of shares of our common stock to
consultants has and may in the future have a dilutive effect on the value of our
common stock and may negatively effect the trading price of our common stock;
(j) our Plan of Operations has been substantially delayed due to lack of
financing; (k) our management decisions are made by our Chief Executive Officer,
Rik Deitsch and, if we lose his services, our operations will be negatively
impacted; (l) we have entered into acquisition agreements which were later
rescinded, which has delayed and otherwise negatively affected our operations;
and (m) we are subject to a substantial funding commitment of $240,000 due to
ReceptoPharm in connection with the ReceptoPharm acquisition agreement and
should we fail to meet this commitment, we may lose a portion of our ownership
interest in ReceptoPharm and become unable to enact a substantial part of our
Plan of Operations.
PLAN OF OPERATIONS
Nutra Pharma Corporation is a biopharmaceutical company specializing in the
acquisition, licensing and commercialization of pharmaceutical products and
technologies for the management of neurological disorders, cancer, autoimmune
and infectious diseases. Nutra Pharma Corp. through its subsidiaries and
investments carries out basic drug discovery research and clinical development
and also seeks strategic licensing partnerships to reduce the risks associated
with the drug development process. Nutra Pharma continues to
identify and seek to acquire intellectual property and companies in the
biotechnology arena.
We currently have one operating subsidiary (ReceptoPharm, Inc.) as well as
investments in Nanologix and XenaCare.
On August 17, 2005, we entered into a stock purchase agreement with SBI
Brightline XII LLC that obligated SBI to purchase, upon our election, up to
24,000,000 shares of our common stock for an aggregate purchase price of up to
$9.6 million before fees and expenses. The agreement requires registration of
the shares which is expected to be completed in the fourth quarter of 2005.
Additionally, the agreement provides SBI with up to 6,000,000 warrants. If fully
issued and exercised, these warrants will provide the Company with an additional
$2,400,000 before fees and expenses. We estimate that the equity financing from
the sale of our common stock pursuant to the SBI stock purchase agreement will
be sufficient to satisfy our projected cash requirements for at least the next
12 months. Our estimate of these cash requirements is as follows:
We anticipate that our total estimated cash requirements of $1,070,000 for the
next 12 months, pending adequate financing, will include: (a) $755,000
pertaining directly to our own operations; (b) funding of $240,000 for
ReceptoPharm; and (c) $75,000 pertaining to our investment in Xenacare.
Specifically, our planned expenditures pertaining to (a) and (b) are:
OUR DIRECT EXPENDITURES
Type Expenditure Total Expenditure Monthly Expenditure
--------------------- ----------------- -------------------
Salaries* $ 212,000 $ 17,667
--------------------- ----------------- -------------------
Travel related
expenses pertaining
to research and due
diligence $ 40,000 $ 3,333
--------------------- ----------------- -------------------
Consulting Fees $ 180,000 $ 15,000
--------------------- ----------------- -------------------
Office-related $ 58,000 $ 4,833
expenditures
---------------------
Professional
Fees -Legal
and Accounting $ 265,000 $ 22,083
--------------------- ----------------- -------------------
Total $ 755,000 $ 62,916
* Salaries include the following: (a) Chief Executive Officer - $130,000;
(b) Administrative Assistant - $45,000; and (c) Research Assistant - $37,000
FUNDING OF RECEPTOPHARM, INC.
Type Expenditure Total Expenditure Monthly Expenditure
--------------------- ----------------- -------------------
Operating Expenses
(Rent, supplies,
utilities) $ 30,000 $ 2,500
--------------------- ----------------- -------------------
Salaries
(CEO, President,
Chief Science
Officer, and
Administrative
Assistant) $ 40,000 $ 3,333
--------------------- ----------------- -------------------
Clinical Studies
(HIV, MS, AMN) $ 170,000 $ 14,167
--------------------- ----------------- -------------------
Total: $ 240,000 $ 20,000
FUNDING OF XENACARE
Type Expenditure Total Expenditure Monthly Expenditure
--------------------- ----------------- -------------------
Funding of Site of
Cares $ 75,000 $ 6,250
OUR TWELVE-MONTH PLAN OF OPERATIONS
We intend to accomplish the following regarding our Plan of Operations over the
next twelve months.
Clinical Studies
Adrenomyeloneuropathy (AMN)
Adrenomyeloneuropathy (AMN) is a genetic disorder that affects the central
nervous system. The disease causes neurological disability that is slowly
progressive over several decades. Throughout our twelve month Plan of Operations
and for 3 months thereafter, ReceptoPharm plans to conduct a Phase IIb/IIIa
clinical study of its Adrenomyeloneuropathy (AMN) drug, which is currently under
development. We have an agreement with the Charles Dent Metabolic Unit located
in London, England to conduct a clinical study that consists of:
- Recruitment of 20 patients with AMN;
- Administering the ReceptoPharm's AMN drug under development; and
- Monitoring patients throughout a 15-month protocol.
The clinical study is classified as a Phase III study and is the final step
required for regulatory approval of the drug.
HIV and MS
ReceptoPharm also plans to conduct Phase II clinical studies of its HIV and MS
drugs under development. These studies will provide data to demonstrate the
preliminary efficacy of ReceptoPharms's HIV/MS drugs under development.
ReceptoPharm will seek to secure agreements with third parties to conduct such
clinical studies.
ReceptoPharm
Completed Pre-Clinical Work
The Company has completed pre-clinical studies with various companies that we
have agreements with pertaining to ReceptoPharm's Multiple Sclerosis (MS) and
HIV drugs, which consisted of the following:
- MS Drug under Development - We conducted microarray and histoculture
studies and related analysis of the cells of Multiple Sclerosis patients' to
ascertain how certain drugs affect the cells of these patients. Microarray
analysis is the study of the gene expression of cells. Histoculture is the study
of the entire cellular environment. We continue to conduct these studies through
our agreement with Eno Research and Development, a clinical research
organization; and
- HIV Drug under Development - Viral isolates are common mutations of HIV.
We conducted these studies through our agreement with ReceptoPharm. ReceptoPharm
has an agreement with the University of California, San Diego, to study the
effect of ReceptoPharm's drug under development on different viral isolates to
determine the drug's efficacy in mutated forms of the HIV virus.
Liquidity and Capital Resources
We have experienced a significant loss from operations. Our ability to continue
as a going concern is dependent on our ability to secure additional financing,
increase ownership equity, and attain profitable operations. Additionally, our
independent registered public accounting firm has issued a going concern opinion
on our audited
financial statements for the fiscal year ended December 31, 2004 since we have
experienced recurring net losses and at December 31, 2004, a working capital
deficiency. We have estimated expenses of $1,070,000 pertaining to our twelve
month Plan of Operations or $89,167 of monthly expenditures. Based upon our
current cash position of approximately $68,306, we have sufficient funds to
conduct our operations for only approximately 3 weeks. We intend to satisfy our
estimated cash requirements of $1,070,000 for our twelve month Plan of
Operations pending adequate financing through a private placement of our equity
securities and through our agreement with SBI Brightline XII LLC that obligated
SBI to purchase, upon our election, up to 24,000,000 shares of our common stock
for an aggregate purchase price of $9.6 million. This financing is expected to
be sufficient to fund the Company for at least the next twelve months.
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this Quarterly Report on Form 10-QSB, we carried out an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out by our sole executive officer Rik
Deitsch, who is our chief executive officer and chief financial officer, and a
member of our board of directors. Based upon his evaluation, Mr. Deitsch
concluded that our disclosure controls and procedures are effective.
There have been no changes in our system of internal control over financial
reporting in connection with the evaluation by our principal executive officer
and principal financial officer during our fiscal quarter ended June 30, 2005
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On April 4, 2005, a Motion to Enforce Settlement Agreement was filed against us
in the Circuit Court of Broward County Florida by Bio Therapeutics, Inc. f/k/a
Phylomed Corp. in Nutra Pharma Corp. v. Bio Therapeutics, Inc. (17th Judicial
Circuit, Case No. 03-008928 (03)). This proceeding results from our alleged
breach of a settlement agreement that was entered into between Bio Therapeutics
and us in resolution of a previous lawsuit between us and Bio Therapeutics. We
also entered into a related License Agreement and Amendment to the License
Agreement ("License Agreement") with Bio Therapeutics.
In the motion, Bio Therapeutics alleges that we breached certain provisions of
the License Agreement and requests that the Court grant its motion to enforce
the Settlement Agreement by declaring the License Agreement terminated,
enjoining us from further use of license products that were granted to us by the
License Agreement, and awarding attorneys fees and costs to Bio Therapeutics.
This matter was set for a hearing on April 28, 2005 to hear a motion to set a
motion for an evidential hearing. However, such hearing was cancelled and a new
hearing date has not been set.
We intend to defend against this action. We do not believe that this action will
have a material effect upon our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 1, 2005, we sold 135,000 shares of our common stock at $0.20 per share
or an aggregate of $27,000 to three accredited investors.
On April 4, 2005, we sold 125,000 shares of our common stock at $0.20 per share
or an aggregate of $25,000 to four accredited investors.
On April 5, 2005, we sold 125,000 shares of our common stock at $0.20 per share
or an aggregate of $25,000 to two accredited investors.
On April 6, 2005, we sold 185,000 shares of our common stock at $0.20 per share
or an aggregate of $37,000 to six accredited investors.
On April 7, 2005, we sold 150,000 shares of our common stock at $0.20 per share
or an aggregate of $30,000 to two accredited investors.
On April 11, 2005, we sold 105,000 shares of our common stock at $0.20 per share
or an aggregate of $21,000 to two accredited investors.
On April 12, 2005, we sold 50,000 shares of our common stock at $0.20 per share
or an aggregate of $10,000 to one accredited investor.
On April 14, 2005, we sold 275,000 shares of our common stock at $0.20 per share
or an aggregate of $55,000 to three accredited investors.
On April 15, 2005, we sold 25,000 shares of our common stock at $0.20 per share
or an aggregate of $5,000 to one accredited investor.
On April 18, 2005, we sold 75,000 shares of our common stock at $0.20 per share
or an aggregate of $15,000 to two accredited investors.
On April 19, 2005, we sold 25,000 shares of our common stock at $0.20 per share
or an aggregate of $5,000 to one accredited investor.
On April 20, 2005, we sold 175,000 shares of our common stock at $0.20 per share
or an aggregate of $35,000 to three accredited investors.
On April 21, 2005, we sold 177,500 shares of our common stock at $0.20 per share
or an aggregate of $35,500 to three accredited investors.
On April 26, 2005, we sold 50,000 shares of our common stock at $0.20 per share
or an aggregate of $10,000 to one accredited investor.
On April 27, 2005, we sold 1,260,000 shares of our common stock at $0.20 per
share or an aggregate of $252,000 to one accredited investor.
On April 29, 2005, we sold 75,000 shares of our common stock at $0.20 per share
or an aggregate of $15,000 to one accredited investor.
On May 13, 2005, we issued 69,000 shares of our restricted common stock to
Kenneth Sgro and Joshua Reynolds of CEO-Cast in satisfaction of our agreement
with them. The shares were valued at $0.31 per share or an aggregate of $21,390.
On May 23, 2005, we issued 1,458,000 shares of our restricted common stock to
four individuals in settlement of loans received in November, 2004. The
restricted shares were valued at $0.33 per share or an aggregate of $481,140.
On May 23, 2005, we sold 25,000 shares of our common stock at $0.20 per share or
an aggregate of $5,000 to one accredited investor.
On May 24, 2005, we sold 205,000 shares of our common stock at $0.20 per share
or an aggregate of $41,000 to one accredited investor.
On May 26, 2005, we issued 185,500 shares of our restricted common stock to six
individuals in return for consulting services, specifically related to clinical
research that they rendered to us. The restricted shares were valued at $0.37
per share or an aggregate of $68,635.
On May 27, 2005, we issued 842,000 shares of our restricted common stock to
three individuals in return for consulting services, specifically due diligence
relating to potential acquisitions, that they rendered to us. The restricted
shares were valued at $0.35 per share or an aggregate of $294,700.
On May 31, 2005, we issued 190,500 shares of our restricted common stock to four
individuals in return for consulting services, specifically due diligence
relating to potential acquisitions, that they rendered to us. The restricted
shares were valued at $0.36 per share or an aggregate of $68,580.
On June 2, 2005, we sold 25,000 shares of our common stock at $0.20 per share or
an aggregate of $5,000 to one accredited investor.
On June 14, 2005, we sold 110,000 shares of our common stock at $0.20 per share
or an aggregate of $22,000 to one accredited investor.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
SBI Brightline XII Agreement
On August 17, 2005, we entered into a stock purchase agreement with SBI
Brightline XII LLC that obligated SBI to purchase, upon our election, up to
24,000,000 shares of our common stock for an aggregate purchase price of $9.6
million. The agreement is comprised of 24 equally sized putable tranches with
exercise prices at $0.30, $0.40 and $0.50 per hare. The agreement limits the
Company from exercising a tranche that would result in SBI exceeding 9.8% total
beneficial ownership of Nutra Pharma. Additionally, SBI will be issued 2,000,000
warrants exercisable at $0.30; 2,000,000 warrants exercisable at $0.40; and,
2,000,000 warrants exercisable at $0.50 for a total of 6,000,000 warrants. If
fully exercised, the warrants will provide the Company with an additional
$2,400,000. The agreement required that the shares be registered with the
Securities and Exchange Commission. The Company is currently preparing a
registration statement for submission.
Convertible Loans
In November 2004, in accordance with the terms of completed Subscription
Agreements, the Company received total proceeds of $206,750 from four (4)
investors. These agreements provided that upon the expiration of a 6 month term
from the date of execution, each of the four investors had the option of: (a)
being repaid the amount of their investment together with 15% interest per
annum; (b) converting their investment into shares of the Company's common stock
at a conversion price of $0.17 per share up to an aggregate of 1,216,176 shares,
if all four investors convert; or (c) converting their investment into a number
of shares of common stock of the Company equal to the sum of the principal and
accrued interest on the note, divided by the conversion price equal to a price
which is 35% below (i) the average of the last reported sales prices for the
shares of Common Stock on the NASDAQ National Market, the American Stock
Exchange, the NASDAQ Small Cap Market or the Over-the-Counter Bulletin Board for
the 5 trading days immediately prior to such date or (ii) if there have been no
sales on any such market on any applicable day, the average of the highest bid
and lowest ask prices on such market at the end of any applicable day, or
(iii)if the market value cannot be calculated as of such date on any of the
foregoing bases, the Market Price will be at the fair market value as reasonably
determined in good faith by our Board of Directors.
Each investor had piggyback registration rights that required the Company to
register any shares held by them if the Company voluntarily filed a registration
statement or immediately if an investor decided to convert their investment into
shares of common stock.
In May 2005, however, the loan holders amended their original agreements. The
new agreements released the Company from its requirements to register the loan
holders' shares. Each loan holder received approximately ten percent in
additional shares as part of the new agreement. In full settlement of the loans,
the Company issued an aggregate of 1,458,000 shares of common stock to settle
the debt. The fair value of these shares at the date of the settlement was
$481,140. The Company recorded interest expense of $261,782 for the value of the
shares in excess of the debt settled.
Item 6. Exhibits
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the SEC:
3.1 Certificate of Incorporation dated February 1, 2000. (i)
3.2 Certificate of Amendment to Articles of Incorporation dated July 5,
2000. (i)
3.3 Certificate of Amendment to Articles of Incorporation dated October 31,
2001.
3.4 Bylaws of the Company. (i)
4.1 Form of Stock Certificate (i)
5.1 Opinion of Kenneth Eade, Attorney at Law on SB-2 Registration (i)
5.2 Opinion of Kenneth Eade, Attorney at Law on issuance of stock under plan
and consent dated December 4, 2003 (vi)
6 Specimen of Stock Certificate (i)
10.1 Acquisition Agreement between Cyber Vitamin.com and Desert Corporate
Services dated November 26, 2001 (ii)
10.2 Share Exchange Agreement between Nutra Pharma Corp. and Nutra Pharma,
Inc. dated November 26, 2001 (ii)
10.3 Joint Venture Agreement between Nutra Pharma Corp. and Terra Bio Pharma
dated January 29, 2002 (iii)
10.4 Definitive Agreement for Exchange of Common Stock dated August 20, 2002
by and among Nutra Pharma Corp. and Bio Therapeutics, Inc. (iii)
10.5 Closing Agreement for the Exchange of Common Stock dated August 20, 2002
by and between Nutra Pharma Corp. and Bio Therapeutics, Inc. (iv)
10.6 Amendment to Closing Agreement for the Exchange of Common Stock dated
September 27, 2002 (v)
10.7 Acquisition Agreement dated September 19, 2003 between Nutra Pharma Corp.
and Infectech, Inc. (vi)
10.8 Acquisition Agreement between Nutra Pharma Corp. and ReceptoPharm, Inc.
dated February 20, 2004 (vii)
10.9 Settlement Agreement dated September 28, 2004 between Opus International,
LLC (xi)
10.10 Agreement with XenaCare (xi)
10.11 Agreement with Eno Research and Development, Inc. (xi)
10.12 Agreement with Investor-Gate.com (xi)
10.13 Agreement with Tanvir Khandaker (xii)
10.14 Agreement with Doherty & Company (xiii)
10.15 Agreement with SBI Brightline XII
14.1 Code of Ethics of the Company (x)
20.1 Rescission, Settlement and Release Agreement between George Minto and
Zirk Engelbrecht (viii)
20.2 Offer to Purchase for Cash up to 2,000,000 shares of Nutra Pharma Corp.
for $.80 cash per share (viii)
20.3 License Agreement dated October 3, 2003 between Biotherapeutics, Inc.
and Nutra Pharma Corp. (ix)
20.4 Addendum to license Agreement dated October 3, 2003 between
Biotherapeutics, Inc. and Nutra Pharma Corp. (ix)
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
-------------------
(i) Incorporated by reference to the Company's Registration Statement on
Form SB-2/A (Registration No. 33-44398) filed on April 6, 2001 (the
"Registration Statement").
(ii) Incorporated by reference to the Company's Current Report on Form 8K,
filed December 26, 2001
(iii) Incorporated by reference to the Company's Current Report on Form 8K,
filed February 28, 2002
(iv) Incorporated by reference to the Company's Current Report on Form 8K,
filed September 9, 2002
(v) Incorporated by reference to the Company's Current Report on Form 8K,
filed October 31, 2002
(vi) Incorporated by reference to the Company's Current Report on Form 8K,
filed October 20, 2003
(vii) Incorporated by reference to the Company's Current Report on Form 8K,
filed March 8, 2004
(viii) Incorporated by reference to the Company's Current Report on Form 8K,
filed November 5, 2002
(ix) Incorporated by reference to the Company's Report on Form 10-KSB, filed
April 20, 2004
(x) Incorporated by reference to the Company's Report on Form 10-KSB/A,
filed May 7, 2004
(xi) Incorporated by reference to the Company's Report on Form 10-QSB, filed
December 21, 2004
(xii) Incorporated by reference to the Company's Report on Form 10-KSB, filed
May 2, 2005
(xiii) Incorporated by reference to the Company's Current Report on Form 8K,
filed June 6, 2005
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUTRA PHARMA CORP.
/s/ Rik J. Deitsch
---------------------------------------------------
Rik J. Deitsch, President
Chief Executive Officer and Chief Financial Officer
Dated: August 23, 2005