UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Amendment No. 1
to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
Nutra Pharma Corp.
|
(Exact
name of registrant as specified in its
charter)
|
California
|
|
2833
|
|
91-2021600
|
(State
or other jurisdiction
of
|
|
(Primary
Standard
Industrial
|
|
(I.R.S.
Employer
Identification
No.
|
incorporation
or
organization)
|
|
Classification
Code
Number)
|
|
|
2776
University Drive
Coral
Springs, Florida
(954)
509-0911
Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
CT
Corporation System
818
W. 7th
Street
Los
Angeles, California 90017
(213)
627-8252
(Name, address,
including zip code, and telephone number, including area code, of agent for
service)
Copies
to:
Frederick
M. Lehrer, Esq.
Law
Office of Frederick M. Lehrer
1200
North Federal Highway, Suite 200
Boca
Raton, Florida
(561)
210-8599/706-7646
Facsimile:
(561) 423-3753
Approximate
date of commencement of proposed sale to the public: From time to time after the
effective date of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box: ¨
If this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
þ
|
The
registrant hereby amends this registration statement on such date or date(s) as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, or until the registration statement shall become
effective on such date as the Commission acting pursuant to said
Section 8(a) may determine.
The
information in this prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission of which this
prospectus is a part becomes effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities o be Registered
|
|
Amount to be
Registered (1)
|
|
|
Proposed
Maximum
Offering Price
Per Share (2)
|
|
|
Proposed
Maximum
Aggregate
Offering Price (2)
|
|
|
Amount of
Registration Fee
|
|
Common
stock, $0.001 par value per share
|
|
|
62,000,000 |
|
|
$ |
0.091 |
|
|
$ |
5,642,000 |
|
|
$ |
402.28 |
|
Total
|
|
|
62,000,000 |
|
|
$ |
0.091 |
|
|
$ |
5,642,000 |
|
|
$ |
402.28 |
|
|
(1)
|
The
shares of our common stock being registered hereunder are being registered
for sale by the selling shareholder named in the
prospectus. Under Rule 416 of the Securities Act of 1933, the
shares being registered include such indeterminate number of shares of
common stock as may be issuable with respect to the shares being
registered in this registration statement as a result of any stock splits,
stock dividends.
|
|
(2)
|
The
proposed maximum offering price per share and the proposed maximum
aggregate offering price have been estimated solely for the purpose of
calculating the amount of the registration fee in accordance with Rules
457(c) under the Securities Act of 1933 on the basis of the average of the
bid and asked price of our common stock on the OTC Bulletin Board on
December 13, 2010, a date within five trading days prior to the date of
the filing of this registration
statement.
|
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and we are not soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
Subject
to Completion, Dated January 6, 2011.
NUTRA
PHARMA CORP.
PROSPECTUS
62,000,000
Shares of Common Stock
Nutra
Pharma Corp. is referred to herein as “we”, “us” or “our”.
This
prospectus relates to the sale of up to 62,000,000 shares of our common stock
which may be offered by the selling shareholder, Lincoln Park Capital Fund, LLC,
referred to hereinafter as “LPC”. The shares of common stock being
offered by the selling shareholder are outstanding or issuable pursuant to the
Lincoln Park Purchase Agreement. See description of the Purchase
Agreement beginning on page 47. Also, please refer to “Selling
Shareholder” beginning on page 49. Such
registration does not mean that LPC will actually offer or sell any of these
shares. We will not receive any proceeds from the sales of shares of
our common stock by the selling shareholder however we may receive proceeds of
up to $10 million under the Purchase Agreement.
Our
common stock trades on the Over-the-Counter Bulletin Board under the symbol
“NPHC”. As of the last trading day before the date of this
prospectus, December 13, 2010, the closing price of our common stock
was $0.091 per share.
The
selling shareholder is an "underwriter" within the meaning of the Securities Act
of 1933, as amended.
The
common stock offered in this prospectus involves a high degree of
risk. See “Risk Factors” beginning on page 8 of this prospectus
to read about factors you should consider before buying shares of our common
stock.
The
selling shareholder is an “underwriter” within the meaning of the Securities Act
of 1933. The selling shareholder is offering these shares of common
stock. The selling shareholder may sell all or a portion of these
shares from time to time in market transactions through any market on which our
common stock is then traded, in negotiated transactions or otherwise, and at
prices and on terms that will be determined by the then prevailing market price
or at negotiated prices directly or through a broker or brokers, who may act as
agent or as principal or by a combination of such methods of
sale. The selling shareholder will receive all proceeds from the sale
of the common stock. For additional information on the methods of
sale, you should refer to the section entitled “Plan of
Distribution.”
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this Prospectus is January __, 2011.
TABLE
OF CONTENTS
|
PAGE
|
|
|
PROSPECTUS
SUMMARY
|
4
|
THE
OFFERING
|
5
|
SUMMARY
FINANCIAL DATA
|
6
|
RISK
FACTORS
|
7
|
FORWARD-LOOKING
STATEMENTS
|
14
|
USE
OF PROCEEDS
|
14
|
CAPITALIZATION
|
14
|
MARKET
FOR COMMON STOCK
|
14
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
15
|
BUSINESS
|
20
|
MANAGEMENT
EXECUTIVE COMPENSATION
|
42
|
PRINCIPAL
SHAREHOLDERS
|
46
|
RELATED
PERSON TRANSACTIONS
|
46
|
LINCOLN
PARK TRANSACTION
|
47
|
SELLING
SHAREHOLDER
|
49
|
DESCRIPTION
OF SECURITIES
|
50
|
PLAN
OF DISTRIBUTION
|
50
|
LEGAL
MATTERS
|
51
|
ADDITIONAL
INFORMATION
|
52
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
53
|
You
should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information that is different from
that contained in this prospectus. The selling shareholder is not
offering to sell or seeking offers to buy shares of common stock in
jurisdictions where offers and sales are not permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock. We are responsible for updating this prospectus
to ensure that all material information is included and will update this
prospectus to the extent required by law.
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully including
the section entitled “Risk Factors” before making an investment
decision.
Our
Company
We are a
biopharmaceutical company that engages in the acquisition, licensing and
commercialization of pharmaceutical products and technologies as well as
homeopathic and ethical drugs for the management of pain, neurological
disorders, cancer, autoimmune and infectious diseases. An
ethical drug is a licensed drug which has obtained Federal Drug Administration
(“FDA”) approval after extensive pre-clinical and clinical testing. We
seek strategic licensing partnerships to reduce the risks associated with the
drug development process.
Our
wholly owned subsidiary and drug discovery arm, ReceptoPharm, carries out our
homeopathic and drug discovery research and clinical development and has fully
developed three homeopathic drugs for the treatment of pain:
|
·
|
Cobroxin®,
an over-the-counter pain reliever designed to treat moderate to severe
(Stage 2) chronic pain; and
|
|
·
|
Nyloxin™
and Nyloxin™ Extra Strength: stronger versions of Cobroxin®
|
Our
business plan will continue its efforts to produce, market and distribute our
Cobroxin® and
Nyloxin™ branded products both domestically and internationally.
Since
October 2009, our operations have centered on the marketing of Cobroxin® and
Nyloxin™ and Nyloxin™ Extra Strength, from which we have earned accumulated
revenues of $1,990,006.
Additionally,
ReceptoPharm has developed two drug candidates:
|
·
|
RPI-78M,
to treat neurological diseases, including Multiple Sclerosis (MS),
Adrenomyeloneuropathy (AMN), Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s
disease ) and Myasthenia Gravis;
and
|
|
·
|
RPI-MN,
to treat the viral diseases, including HIV/AIDS and
Herpes.
|
ReceptoPharm
is developing proprietary therapeutic protein products primarily for the
prevention and treatment of viral and neurological diseases, including Multiple
Sclerosis, Adrenomyeloneuropathy (AMN), Human Immunodeficiency Virus (HIV) and
pain in humans. These potential products are subject to FDA
approval. ReceptoPharm also provides contract research services
through its ISO class 5 and Good Manufacturing Practice (“GMP”) certified
facilities.
Our
wholly-owned subsidiary, Designer Diagnostics, has developed diagnostic test
kits designed to be used for the rapid identification of infectious diseases,
such as Nontuberculous Mycobacteria (NTM). These diagnostic test kits are
currently being validated by National Jewish Hospital in Denver,
Colorado.
We
continue to identify intellectual property and companies in the biotechnology
arena with similar synergies to us with which we may potentially be able to
enter into arrangements, agreements or to potentially acquire.
Corporate
Information
We are a
California corporation. Our principal executive offices are located
at 2776 University Drive, Coral Springs, Florida 33065. Our telephone
number is (954) 509-0911. The address of our website is www.nutrapharma.com. Information
on our website is not part of this prospectus.
THE
OFFERING
Securities
Offered
Common
stock outstanding prior to the offering:
|
279,141,899
shares, including 2,066,667 shares already issued to
LPC.
|
|
|
Common
stock to be offered by the selling shareholder
|
62,000,000
shares consisting of:
·
1,666,667 purchase shares issued;
·
1,666,667 shares issuable to LPC under the Warrant;
·
400,000 initial commitment shares issued to LPC:
·
55,666,666 purchase shares issuable to LPC under the Purchase
Agreement; and
·
2,600,000 additional commitment shares to be issued pro rata to
LPC.
|
|
|
Common
stock outstanding immediately following the offering
|
339,075,232 shares
|
|
|
Use
of Proceeds
|
We
will not receive proceeds from the sale of shares of common stock. However, we may
receive up to an additional $9,800,000 under the Purchase Agreement with
LPC. Any proceeds from LPC we receive under the stock purchase agreement
will be used for working capital and general corporate purposes. See “Use
of Proceeds.”
|
|
|
Risk
Factors:
|
See
“Risk Factors” beginning on page 8 of this prospectus for a discussion of
factors you should carefully consider before deciding to invest in shares
of our common
stock.
|
The
number of shares of common stock to be outstanding prior to and after this
offering excludes:
|
·
|
a
total of 1,000,000 shares of common stock issuable upon the exercise of
outstanding stock options;
|
|
·
|
a
total of 9,755,000 shares of common stock reserved for future issuance
under our 2007 Equity Incentive Plan, or the Plan;
and
|
|
·
|
a
total of 44,315,000 shares of common stock issuable upon the exercise of
warrants.
|
On
November 8, 2010, we executed a purchase agreement (the “Purchase Agreement”)
and a registration rights agreement with LPC, pursuant to which LPC has
purchased 1,666,667 shares of our common stock together with warrants to
purchase 1,666,667 shares of our common stock at an exercise price of $.15 per
share, for total consideration of $200,000. The warrants have a
term of five years. Under the Purchase Agreement, we also have the right to sell
to LPC up to an additional $9,800,000 of our common stock at our option as
described below.
Pursuant
to the registration rights agreement, we have filed a registration statement
that includes this prospectus with the Securities and Exchange Commission (the
“SEC”) covering the shares that have been issued or may be issued to LPC under
the Purchase Agreement. We do not have the right to commence any
additional sales of our shares to LPC until the SEC has declared effective the
registration statement of which this Prospectus is a part. After the
registration statement is declared effective, for over approximately 30 months,
generally we have the right to direct LPC to purchase up to an additional
$9,800,000 of our common stock in amounts up to $40,000 as often as every two
business days under certain conditions. We can also accelerate the amount of our
stock to be purchased under certain circumstances. No sales of shares
may occur below $.06 per share. The purchase price of the shares will
be based on the market prices of our shares at the time of sale as computed
under the Purchase Agreement without any fixed discount. We may at
any time in our sole discretion terminate the Purchase Agreement without fee,
penalty or cost upon one business days notice. We issued 400,000
shares of our stock to LPC as a commitment fee for entering into the agreement,
and we may issue up to 2,600,00 shares pro rata as LPC purchases the up to the
additional $9,800,000 of our stock as directed by us.
Upon
signing the Purchase Agreement, LPC invested $200,000 in Nutra Pharma (as an
initial purchase under the Purchase Agreement) and received 1,666,667 shares of
our common stock together with warrants, to purchase an equivalent number of
shares at an exercise price of $0.15 per share. Also, we issued
400,000 shares of our common stock to LPC as a commitment fee for entering into
the Purchase Agreement, and in addition we may issue up to an additional
2,600,000 shares pro rata if and when we sell additional shares to LPC under the
Purchase Agreement.
Under
each of the Purchase Agreement and the Registration Rights Agreement, we are
required to register: (1) 2,066,667 shares which have already been issued, (2)
an additional 2,600,000 shares which we are required to issue pro rata in the
future as a commitment fee if and when we sell shares to LPC under the Purchase
Agreement, (3) 55,666,666 shares which we may sell to LPC after this
registration statement is declared effective and (4) 1,666,667 shares issuable
upon exercise of warrants at $0.15 per share by LPC. Although the Purchase
Agreement provides that we may sell up to $10,000,000 of our common stock to
LPC, we are only registering 62,000,000 shares to be purchased thereunder, which
may or may not cover all such shares purchased by LPC under the Purchase
Agreement, depending on the purchase price per share.
Of the
62,000,000 shares offered under this prospectus:
|
·
|
2,066,667
shares have already been issued
|
|
·
|
1,666,667
issuable to LPC under the warrant
|
|
·
|
an
additional 2,600,000 shares which we are required to issue proportionally
in the future, as a commitment fee, if and when we sell additional shares
to LPC under the Purchase Agreement,
and
|
|
·
|
up
to an additional 55,666,666 shares we may sell to
LPC.
|
As of
November 30, 2010, there were 279,141,896 shares outstanding (of which there are
outstanding 186,659,736 shares held by non-affiliates), including the 2,066,667
shares offered by LPC pursuant to this Prospectus, which we have
issued. 62,000,000 shares are offered hereby consisting of: (a)
1,666,667 shares together with 1,666,667 shares underlying a warrant that we
have sold to LPC for $200,000; (b) 55,666,666 additional shares that we may sell
to LPC; (c) 400,000 shares we have issued as a commitment fee; and (d) 2,600,000
shares that we may issue as a commitment fee pro rata as up to the additional
$9,800,000 of our stock is purchased by LPC. If all of the 62,000,000
shares offered by LPC hereby were issued and outstanding as of the date hereof,
such shares would represent 18.3% of the total common stock outstanding or 25.1%
of the non-affiliates shares outstanding, as adjusted, as of the date
hereof. The number of shares ultimately offered for sale by LPC is
dependent upon the number of shares that we sell to LPC under the Purchase
Agreement.
SUMMARY
FINANCIAL DATA
The
following summary of our financial data should be read in conjunction with, and
is qualified in its entirety by reference to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and our financial
statements, appearing elsewhere in this prospectus. The data for the
years ended December 31, 2009 and 2008 has been taken from our audited financial
statements contained in our Forms 10-K reports. The data for the 9
month periods ending September 30, 2010 and 2009 has been
taken from our unaudited financial statements contained in our Forms
10-Q.
Statements
of Operations Data
|
|
9 Months Ended
September 30,
2010
|
|
|
9 Months Ended
September 30,
2009
|
|
|
Year Ended
December 31,
2009
|
|
|
Year Ended
December 31,
2008
|
|
Revenue
|
|
$ |
1,382,056 |
|
|
$ |
27,528 |
|
|
$ |
618,010 |
|
|
$ |
4,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
812,497 |
|
|
$ |
24,268 |
|
|
$ |
339,066 |
|
|
$ |
2,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(2,296,255 |
) |
|
$ |
(1,588,126 |
) |
|
$ |
(2,301,641 |
) |
|
$ |
(4,162,108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – basic and diluted
|
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares (basic and diluted)
|
|
|
274,055,747 |
|
|
|
217,217,631 |
|
|
|
230,479,684 |
|
|
|
164,732,760 |
|
Balance
Sheet Data
|
|
As
of
September 30,
2010
|
|
|
As
of
September 30,
2009
|
|
|
As
of
December 31,
2009
|
|
|
As
of
December 31,
2008
|
|
Cash
and cash equivalents
|
|
$ |
78,760 |
|
|
$ |
1,996,454 |
|
|
$ |
802,875 |
|
|
$ |
50,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working
capital (deficit)
|
|
$ |
(2,459,441 |
) |
|
$ |
(690,661 |
) |
|
$ |
(1,165,622 |
) |
|
$ |
(2,574,408 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
770,421 |
|
|
$ |
2,091,736 |
|
|
$ |
1,252,706 |
|
|
$ |
107,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
$ |
3,087,376 |
|
|
$ |
2,765,921 |
|
|
$ |
2,397,156 |
|
|
$ |
2,663,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
$ |
(28,869,098 |
) |
|
$ |
(25,859,328 |
) |
|
$ |
(26,572,843 |
) |
|
$ |
(24,271,202 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ deficit
|
|
$ |
(2,316,955 |
) |
|
$ |
(674,185 |
) |
|
$ |
(1,144,450 |
) |
|
$ |
(2,556,334 |
) |
Investing
in our common stock involves a high degree of risk. You should
carefully consider the following risk factors before deciding whether to invest
in our common stock. If any of the events discussed in the risk factors
below occur, our business, consolidated financial condition, results of
operations or prospects could be materially and adversely
affected. In such case, the value and marketability of the common
stock could decline.
RISK
FACTORS
You
should carefully consider the risks described below before purchasing our common
stock. Our most significant risks and uncertainties are described
below; however, they are not the only risks we face. If any of the
following risks actually occur, our business, financial condition, or results or
operations could be materially adversely affected, the business of our common
stock could decline, and you may lose all or part of your investment
therein. You should acquire shares of our common stock only if you
can afford to lose your entire investment.
Our
ability to continue as a going concern is in doubt absent obtaining adequate new
debt or equity financing and achieving sufficient sales levels.
We
incurred net losses of $2,296,255 for the 9 months ended September 30, 2010 and
$2,301,641 in fiscal 2009. We anticipate these losses will continue
for the foreseeable future. We have a significant working capital
deficiency, and have not reached a profitable level of operations, all of which
raise substantial doubt about our ability to continue as a going
concern. Our continued existence is dependent upon our achieving
sufficient sales levels of our Cobroxin® and
Nyloxin™ products and obtaining adequate financing. Unless we can
begin to generate material revenue, we may not be able to remain in
business. We cannot assure you that we will raise enough money or
generate sufficient sales to meet our future working capital needs.
We
have a limited revenue producing history with significant losses and expect
losses to continue for the foreseeable future
We have
yet to establish any history of profitable operations. We have
incurred net losses of $164,951, $4,162,108 and $2,301,641, during the previous
fiscal years of operations ending December 31, 2007, 2008 and 2009
respectively. We incurred a net loss from operations of $ 2,296,255
for the nine months ended September 30, 2010. As a result, at
September 30, 2010 we had an accumulated deficit of $28,869,098. Our
revenues have been insufficient to sustain our operations and we expect our
revenues will be insufficient to sustain our operations for the foreseeable
future. Our profitability will require the successful
commercialization of our Cobroxin® and
Nyloxin™ products. No assurances can be given when this will occur or that we
will ever be profitable.
We
will require additional financing to sustain our operations and without it will
be unable to continue operations
At
December 31, 2009 we had a working capital deficit of $1,165,622. The
independent auditor’s report for the year ended December 31, 2009 includes an
explanatory paragraph to their audit opinion stating that our recurring losses
from operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. We have a negative cash flow
from operations of $805,367, $976,094, and $1,956,102 for the years ended
December 31, 2007, 2008, and 2009, respectively. We do not currently
have sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we need additional funds to continue these
operations.
At
September 30, 2010, we had a working capital deficit of
$2,459,441. Additionally, as of December 1, 2010 we have
borrowed $1,184,544 from our Chief Executive Officer.
On November
8, 2010, we signed a Purchase Agreement with LPC. We may direct LPC
to purchase up to an additional $9,800,000 shares of our common stock under our
Agreement over a 30-month period assuming an effective registration statement.
The extent we rely on LPC as a source of funding will depend on a number of
factors including the prevailing market price of our common stock and volume of
trading and the extent to which we are able to secure working capital from other
sources, such as through the sale of our products. If obtaining
sufficient funding from LPC does not occur or is prohibitively dilutive and if
we are unable to sell enough of our products, we will need to secure another
source of funding in order to satisfy our working capital
needs. Should the financing we require to sustain our working capital
needs be unavailable or prohibitively expensive when we require it, the
consequences could be a material adverse effect on our business, operating
results, financial condition and prospects.
If we do
not raise the necessary working capital, our operations and potential revenues
will be negatively affected.
Our
Chief Executive Officer may be unwilling or unable to continue funding our
operations
Our Chief
Executive Officer has historically funded our operations by providing loans to
us. As of December 1, 2010, we owe Mr. Deitsch $1,184,544. Mr.
Deitsch may be unwilling or unable to fund our operations in the
future. If we have no other source of funding and we are unable
to secure additional loans from Mr. Deitsch, our operations will be negatively
affected.
To
date, none of our prescription drug candidates have received FDA drug
orphan status approval
To date,
none of our prescription drug candidates have received FDA drug orphan status,
which would otherwise place our drug candidates on a “fast track” with the FDA
application process. If none of our drug candidates can achieve that
status, our operations and financial condition will be negatively
affected.
If
our distributor, XenaCare Holdings, Inc. (“XenaCare”) fails to accomplish the
domestic advertising campaign for Cobroxin® it has
reported to us, our revenues will be negatively affected and we may experience
distribution interruptions.
Our US
Cobroxin®
distributor, XenaCare, has aired 690 television and radio commercials of the
2515 it has informed us that it will air by December 31, 2010. If
XenaCare fails to substantially meet its goal of 2515 commercials by the end of
2010, our revenues will be negatively affected. Additionally,
we may choose to seek another distributor, which may cause interruptions in
product distribution and our operations.
If
we cannot sell a sufficient volume of our products, we will not remain
operational.
To date,
sales of Cobroxin® have
been limited and inconsistent. During our fourth quarter of 2009, we
sold $583,955 of Cobroxin®. During
2010, we sold $864,424, $150,158 and $311,701 of Cobroxin® during
the first, second and third quarters, respectively. If we
cannot achieve sufficient sales levels of our Cobroxin® and
Nyloxin™ products or we are unable to secure financing, our operations will be
negatively affected.
Because
we have conducted revenue generating operations only since November 2009, we
have a limited history of generating revenues on which to evaluate our potential
for future success and to determine if we will be able to execute our business
plan; accordingly, it is difficult to evaluate our future prospects and the risk
of success or failure of our business.
Our total
sales of Cobroxin® from
November 2009 until September 30, 2010 are $1,910,238. You must consider
our business and prospects in light of the risks and difficulties we will
encounter as an early-stage revenue producing company. These risks
include:
|
·
|
our
ability to effectively and efficiently market and distribute our
products;
|
|
·
|
our
ability to obtain market acceptance of our current products and future
products that may be developed by us;
and
|
|
·
|
our
ability to sell our products at competitive prices which exceed our per
unit costs.
|
We may be
unable to address these risks and difficulties, which could materially and
adversely affect our revenue, operating results and our ability to continue to
operate our business.
Our
growth strategy reflected in our business plan may be unachievable or may not
result in profitability.
We may be
unable to implement our growth strategy reflected in our business plan rapidly
enough for us to achieve profitability. Our growth strategy is
dependent on a number of factors, including market acceptance of our
Cobroxin® and
Nyloxin™ products and the acceptance by the public of using these products as
pain relievers. We cannot assure you that our products will be
purchased in amounts sufficient to attain profitability.
Among
other things, our efforts to expand our sales of Cobroxin® and
Nyloxin™ will be adversely affected if:
|
·
|
we
are unable to attract sufficient customers to the products we offer in
light of the price and other terms required in order for us to attain the
level of profitability that will enable us to continue to pursue our
growth strategy;
|
|
·
|
adequate
penetration of new markets at reasonable cost becomes impossible limiting
the future demand for our products below the level assumed by our business
plan;
|
|
·
|
we
are unable to scale up manufacturing to meet product demand, which would
negatively affect our revenues and brand name
recognition;
|
|
·
|
we
are unable to meet regulatory requirements in the intellectual marketplace
that would otherwise allow us for wider distribution;
and
|
|
·
|
we
are unable to meet FDA regulatory requirements that would potentially
expand our product base and potential
revenues.
|
If
we cannot manage our growth effectively, we may not become
profitable.
Businesses,
which grow rapidly often, have difficulty managing their growth. If
we grow rapidly, we will need to expand our management by recruiting and
employing experienced executives and key employees capable of providing the
necessary support. We cannot assure you that our management will be
able to manage our growth effectively or successfully. Our failure to
meet these challenges could cause us to lose money, and your investment could be
lost.
Among
other things, implementation of our growth strategy would be adversely affected
if we were not able to attract sufficient customers to the products and services
we offer or plan to offer in light of the price and other terms required in
order for us to attain the necessary profitability.
If
we are unable to protect our proprietary technology, our business could be
harmed.
Our
intellectual property, including patents, is our key asset. We currently
have 21patents that we either own or have the rights to from third
parties. 14 of these patents have been approved and 7 are pending.
Competitors may be able to design around our patents for our Cobroxin® and
Nyloxin™ products and compete effectively with us. The cost to
prosecute infringements of our intellectual property or the cost to defend our
products against patent infringement or other intellectual property litigation
by others could be substantial. We cannot assure you
that:
|
·
|
pending
and future patent applications will result in issued
patents,
|
|
·
|
patents
licensed by us will not be challenged by
competitors,
|
|
·
|
our
patents, licensed and other proprietary rights from third parties will not
result in costly litigation;
|
|
·
|
pending
and future patent applications will result in issued
patents,
|
|
·
|
the
patents or our other intellectual property will be found to be
valid or sufficiently broad to protect these technologies or
provide us with a competitive
advantage,
|
|
·
|
if
we are sued for patent infringement, whether we will have sufficient funds
to defend our patents, and
|
|
·
|
we
will be successful in defending against future patent infringement claims
asserted against our products.
|
Should
any risks pertaining to the foregoing occur, our brand name reputation, results
of operation and revenues will be negatively affected.
We
are subject to substantial FDA regulations pertaining to Cobroxin® and
Nyloxin™, which may increase our costs or otherwise adversely affect our
operations
Our
Cobroxin® and
Nyloxin™ products are subject to FDA regulations, including manufacturing and
labeling, approval of ingredients, advertising and other claims made regarding
Cobroxin® or
Nyloxin™, and product ingredients disclosure. If we fail to comply with current
or future regulations, the FDA could force us to stop selling Cobroxin® or
Nyloxin™ or require us to incur substantial costs from adopting measures to
maintain FDA compliance.
The
inability to provide scientific proof for product claims may adversely affect
our sales.
The
marketing of Cobroxin® involves
claims that it assists in reducing Stage 2 chronic pain. Under FDA and Federal
Trade Commission (“FTC”) rules, we are required to have adequate data to support
any claims we make concerning Cobroxin® and
Nyloxin™. We have scientific data for our Cobroxin® and
Nyloxin™ product claims; however, we cannot be certain that these scientific
data will be deemed acceptable to the FDA to FTC. If the FDA or FTC requests
supporting information and we are unable to provide support that it
finds acceptable, the FDA or FTC could force us to stop making the
claims in question or restrict us from selling Cobroxin®.
None
of our ethical drug candidates have received FDA approval
Our
non-homeopathic or ethical products require a complex and costly FDA regulation
process that takes several years for drug approval, if ever. None of the drug
applications we have submitted to the FDA have received FDA
approval. If we do not receive FDA approval for our drug
applications, our operations and financial condition will be negatively
affected.
If
we are unable to secure sufficient cobra venom from available suppliers, our
operating results will be negatively affected.
We secure
cobra venom on an as-needed basis according to customer orders for Cobroxin® and
Nyloxin™ received by our distributor. If we do not have an available
supplier to fill customer orders, there will be distribution delays and/or our
failure to fulfill purchase orders, either of which will negatively affect our
brand name reputation and operating results.
Our
Cobroxin® and
Nyloxin™ products may be unable to compete against our competitors in the pain
relief market.
The pain
relief market is highly competitive. We compete with companies that have already
achieved product acceptance and brand recognition, including multi-billion
dollar private label manufacturers and more established pharmaceutical and
health products companies, or low cost generic drug
manufacturers. Most such companies have far greater financial
and technical resources and production and marketing capabilities than we
do. Additionally, if consumers prefer our competitors’ products, or
if these products have better safety, efficacy, or pricing characteristics, our
results could be negatively impacted. If we fail to develop and
actualize strategies to compete against our competitors we may fail to compete
effectively, which will negatively affect our operations and operating
results.
If we incur costs resulting from
product liability claims, our operating results will be negatively
affected.
If we
become subject to product liability claims for Cobroxin® and
Nyloxin™ that exceed our product liability policy limits, we may be subject to
substantial litigation costs or judgments against us, which will negatively
impact upon our financial and operating results.
Should we become dependent upon a
small group of large national retailers for distribution of Cobroxin® and any such retailer
ceases to purchase our product, our sales, operating
margins and income will be negatively affected.
Our
distributor has attempted and will continue to attempt to secure large national
retailers for Cobroxin®. Should
we secure such retailers, but they stop carrying Cobroxin®, our
financial results will be adversely affected.
Loss of any of our key personnel
could have a material adverse effect on our operations and financial
results.
We are
dependent upon a limited number of our employees: (a) our Chief Executive
Officer who directs our operations; (b) our Chief Marketing Officer who directs
our brand development and marketing activities, but resigned effective December
20, 2010; and (c) ReceptoPharm’s employees who conduct our research and
development activities. Our success depends on the continued services of our
senior management and key research and development employees as well as our
ability to attract additional members to our management and research and
development teams. The unexpected loss of the services of any of our management
or other key personnel could have a material adverse effect upon our operations
and financial results.
We
may be unable to maintain and expand our business if we are not able to retain,
hire and integrate key management and operating personnel.
Our
success depends in large part on the continued services and efforts of key
management personnel. Competition for such employees is intense and
the process of locating key personnel with the combination of skills and
attributes required to execute our business strategies may be
lengthy. The loss of key personnel could have a material adverse
impact on our ability to execute our business objectives. We do not
have any life insurance on the lives of any of our executive officers.
Risks
Related to Our Common Stock
Because
the market for our common stock is limited, persons who purchase our common
stock may not be able to resell their shares at or above the purchase price paid
by them.
Our
common stock trades on the OTC Bulletin Board, or the Bulletin Board, which is
not a liquid market. There is currently only a limited public market
for our common stock. We cannot assure you that an active public
market for our common stock will develop or be sustained in the future. If an
active market for our common stock does not develop or is not sustained, the
price may decline.
Because
we are subject to the “penny stock” rules, brokers cannot generally solicit the
purchase of our common stock which adversely affects its liquidity and market
price.
The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share, subject to
specific exemptions. The market price of our common stock on the
Bulletin Board has been substantially less than $5.00 per share and therefore we
are currently considered a “penny stock” according to SEC rules. This
designation requires any broker-dealer selling these securities to disclose
certain information concerning the transaction, obtain a written agreement from
the purchaser and determine that the purchaser is reasonably suitable to
purchase the securities. These rules limit the ability of
broker-dealers to solicit purchases of our common stock and therefore reduce the
liquidity of the public market for our shares.
Because
the majority of our outstanding shares are freely tradable, sales of these
shares could cause the market price of our common stock to drop significantly,
even if our business is performing well.
As of
November 30, 2010, we had outstanding 279,141,899 shares of common stock, of
which our principal shareholder/executive officer owns 54,500,000 which are
subject to the limitations of Rule 144 under the Securities Act of
1933. In general, Rule 144 provides that any our non-affiliates,
who have held restricted common stock for at least six-months, are entitled to
sell their restricted stock freely, provided that we stays current in its SEC
filings. After one year, a non-affiliate may sell without any
restrictions.
As
affiliate may sell after six months with the following restrictions: (i) we are
current in ours filings, (ii) certain manner of sale provisions, (iii) filing of
Form 144, and (iv) volume limitations limiting the sale of shares within
any three-month period to a number of shares that does not exceed 1% of the
total number of outstanding shares. A person who has ceased to be an
affiliate at least three months immediately preceding the sale and who has owned
such shares of common stock for at least one year is entitled to sell the shares
under Rule 144 without regard to any of the limitations described
above.
The
sale of our common stock to LPC may cause dilution and the sale of the shares by
LPC could cause the price of our common stock to decline.
In
connection with entering into the Purchase Agreement, we authorized the sale or
issuance to LPC of up to 73,000,000 shares of our common stock, 62,000,000 of
which we are registering herein. The number of shares ultimately
offered for sale by LPC is dependent upon the number of shares purchased by LPC
under the Purchase Agreement. The purchase price for the common stock
to be sold to LPC pursuant to the Purchase Agreement will fluctuate based on the
price of our common stock. It is anticipated that shares registered
in connection with the Purchase Agreement will be sold over a period of up to 30
months. Depending upon market liquidity at the time, a sale of shares
by LPC at any given time could cause the trading price of our common stock to
decline. After it has acquired such shares, LPC may sell all, some or
none of such shares. Therefore, sales to LPC by us under the Purchase
Agreement may result in substantial dilution to the interests of other holders
of our common stock. The sale of a substantial number of shares of
our common stock, or anticipation of such sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales. However, we
have the right to control the timing and amount of any sales of our shares to
LPC.
An
investment in our common stock may be diluted in the future as a result of the
issuance of additional securities or the exercise of options or
warrants.
In order
to raise additional capital to fund our strategic plan, we may issue additional
shares of common stock or securities convertible, exchangeable or exercisable
into common stock from time to time, which could result in substantial dilution
to any person who purchases our common stock. Because we have a
negative net tangible book value, purchasers will suffer substantial
dilution. We cannot assure you that we will be successful in raising
funds from the sale of common stock or other equity securities.
Since
we intend to retain any earnings for development of our business for the
foreseeable future, you will likely not receive any dividends for the
foreseeable future.
We have
not and do not intend to pay any dividends in the foreseeable future, as we
intend to retain any earnings for development and expansion of our business
operations. As a result, you will not receive any dividends on your
investment for an indefinite period of time.
We
may be unable to obtain adequate financing to pursue our business objectives or
conduct our operations.
We may
direct LPC to purchase up to an additional $9,800,000 worth of shares of our
common stock under our agreement over a 30 month period generally in amounts of
up to $500,000 every 2 business days. However, LPC shall not have the
right or the obligation to purchase any shares of our common stock on any
business day that the market price of our common stock is less than
$0.06. Assuming a purchase price of $0.091 per share
(the closing sale price of the common stock on December 13, 2010) and the
purchase by LPC of the full 55,666,666 purchase shares under the purchase
agreement, additional proceeds to us would only be $5,065,667.
The
extent we rely on LPC as a source of funding will depend on a number of factors
including, the prevailing market price of our common stock and the extent to
which we are able to secure working capital from other
sources. Specifically, LPC shall not have the right or the obligation
to purchase any shares of our common stock on any business days that the market
price of our common stock is less than $0.06. If obtaining sufficient
funding from LPC were to prove unavailable or prohibitively dilutive and if we
are unable to sell enough of our products, we will need to secure another source
of funding in order to satisfy our working capital needs. Even if we
sell all $9,800,000 under the common stock purchase agreement to LPC, we may
still need additional capital to fully implement our business, operating and
development plans. Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require
it, the consequences could be a material adverse effect on our business,
operating results, financial condition and prospects.
The
sale of our common stock to LPC may cause dilution and the sale of the shares of
common stock acquired by LPC could cause the price of our common stock to
decline
In
connection with entering into the agreement, we authorized the sale to LPC of up
to 73,000,000 shares of our common stock, 62,000,000 of which we are registering
herein. The number of shares ultimately offered for sale by LPC under
this prospectus is dependent upon the number of shares purchased by LPC under
the agreement. The purchase price for the common stock to be sold to LPC
pursuant to the common stock purchase agreement will fluctuate based on the
price of our common stock. All 62,000,000 shares registered in this offering are
expected to be freely tradable. It is anticipated that shares
registered in this offering will be sold over a period of up to 30 months from
the date of this prospectus. Depending upon market liquidity at the
time, a sale of shares under this offering at any given time could cause the
trading price of our common stock to decline. We can elect to direct
purchases in our sole discretion but no sales may occur if the price of our
common stock is below $0.06 and therefore, LPC may ultimately purchase all, some
or none of the 55,666,666 shares of common stock not yet issued but registered
in this offering. After it has acquired such shares, it may sell all,
some or none of such shares. Therefore, sales to LPC by us under the agreement
may result in substantial dilution to the interests of other holders of our
common stock. The sale of a substantial number of shares of our common stock
under this offering, or anticipation of such sales, could make it more difficult
for us to sell equity or equity-related securities in the future at a time and
at a price that we might otherwise wish to effect sales. However, we
have the right to control the timing and amount of any sales of our shares to
LPC and the agreement may be terminated by us at any time at our discretion
without any cost to us.
Due
to factors beyond our control, our stock price may continue to be
volatile
The
market price of our common stock has been and is expected to be highly volatile.
Any of the following factors could affect the market price of our common
stock:
|
·
|
our
failure to generate revenue,
|
|
·
|
our
failure to achieve and maintain
profitability,
|
|
·
|
short
selling activities,
|
|
·
|
the
sale of a large amount of common stock by our shareholders including those
who invested prior to commencement of
trading,
|
|
·
|
actual
or anticipated variations in our quarterly results of
operations,
|
|
·
|
announcements
by us or our competitors of significant contracts, new products,
acquisitions, commercial relationships, joint ventures or capital
commitments,
|
|
·
|
the
loss of major customers or product or component
suppliers,
|
|
·
|
the
loss of significant business
relationships,
|
|
·
|
our
failure to meet financial analysts’ performance
expectations,
|
|
·
|
changes
in earnings estimates and recommendations by financial analysts,
or
|
|
·
|
changes
in market valuations of similar
companies.
|
In the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation has often been
instituted. A securities class action suit against us could result in
substantial costs and divert our management’s time and attention, which would
otherwise be used to benefit our business.
FORWARD-LOOKING
STATEMENTS
This
prospectus includes forward-looking statements including:
|
·
|
opportunities
for our products in international markets,
and
|
|
·
|
anticipated
future marketing and sales of our
products.
|
All
statements other than statements of historical facts contained in this
prospectus, including statements regarding our future financial position,
liquidity, business strategy and plans and objectives of management for future
operations, are forward-looking statements. The words “believe,”
“may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,”
“could,” “target,” “potential,” “is likely,” “will,” “expect” and similar
expressions, as they relate to us, are intended to identify forward-looking
statements. We have based these forward-looking statements largely on
our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions described in “Risk Factors” elsewhere in this
prospectus.
Other
sections of this prospectus may include additional factors which could adversely
affect our business and financial performance. New risk factors
emerge from time to time and it is not possible for us to predict all such risk
factors, nor can we assess the impact of all such risk factors on our business
or the extent to which any risk factor, or combination of risk factors, may
cause actual results to differ materially from those contained in any
forward-looking statements.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling shareholder. We will receive no
proceeds from the sale of shares of common stock in this
offering. However, we may receive proceeds up to $10,000,000 under
the purchase agreement. Any proceeds from LPC we receive under the
stock purchase agreement will be used for working capital and general corporate
purposes.
CAPITALIZATION
The
following table sets forth our capitalization as of September 30, 2010. The
table should be read in conjunction with the financial statements and related
notes included elsewhere in this prospectus:
Shareholder’s equity:
|
|
As of September 30, 2010
|
|
Common
stock, $0.0001 par value;
|
|
$ |
276,176 |
|
Additional
paid-in capital
|
|
$ |
26,807,217 |
|
Accumulated
deficit
|
|
$ |
(28,869,098 |
) |
Deferred
Compensation
|
|
$ |
(531,250 |
) |
Total
shareholders’ deficit
|
|
$ |
(2,316,955 |
) |
MARKET FOR COMMON STOCK
Our
common stock is quoted on the Bulletin Board under the symbol
“NPHC”. Our common stock last traded at $0.091 on December 13, 2010.
The following table provides the high and low bid price information for our
common stock for each quarterly period within the two most recent fiscal years
as reported by the Bulletin Board. The quotation reflects
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Quarter Ended
|
|
High
|
|
|
Low
|
|
September
30, 2010
|
|
$ |
0.26 |
|
|
$ |
0.14 |
|
June
30, 2010
|
|
$ |
0.42 |
|
|
$ |
0.18 |
|
March
31, 2010
|
|
$ |
0.67 |
|
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$ |
0.85 |
|
|
$ |
0.27 |
|
September
30, 2009
|
|
$ |
0.99 |
|
|
$ |
0.02 |
|
June
30, 2009
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
March
31, 2009
|
|
$ |
0.03 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
0.04 |
|
|
$ |
0.02 |
|
September
30, 2008
|
|
$ |
0.05 |
|
|
$ |
0.03 |
|
June
30, 2008
|
|
$ |
0.06 |
|
|
$ |
0.03 |
|
March
31, 2008
|
|
$ |
0.05 |
|
|
$ |
0.02 |
|
The above
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
As of
November 30, 2010, there are approximately 277 holders of record of our common
stock. We believe that additional beneficial owners of our common
stock hold shares in street name.
Dividend
Policy
We have
not paid cash dividends on our common stock since our inception and do not plan
to pay such dividends in the foreseeable future. Our Board of
Directors will determine our future dividend policy on the basis of many
factors, including results of operations, capital requirements, and general
business conditions. Dividends, under California General Corporation Law, may
only be paid from our net profits and only at such a time when our corporate
assets exceed our liabilities by a minimum of 1.25 times. To date, we have not
had a fiscal year with net profits and do not have the necessary shareholder
asset base to offer dividends.
MANAGEMENT’S
DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes appearing elsewhere in this
prospectus. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and
assumptions. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including but
not limited to those set forth under “Risk Factors” in this
prospectus.
Overview
We are a
company which markets and sells three over-the-counter (OTC) pain relievers,
Cobroxin®,
Nyloxin™ and Nyloxin™ Extra Strength. Our financial statements have
been prepared on a going concern basis, and we need to generate sufficient
material revenues to support the ongoing business of the Company.
RESULTS
OF OPERATIONS
Comparison
of Three Month Periods Ended September 30, 2010 and September 30,
2009
Net sales
for the three months ended September 30, 2010 were $359,936 compared to $900 for
the three months ended September 30, 2009. Of the total sales during
the three months ended September 30, 2010, $311,701 was related to sales of our
consumer product Cobroxin® and
$48,235 was related to clinical research services provided to third parties by
our wholly owned subsidiary, ReceptoPharm.
Cost
of Goods Sold
Cost of
sales for the three months ended September 30, 2010 was $104,083 compared to $0
for the three months ended September 30, 2009. Our cost of sales
includes the direct costs associated with the manufacturing of Cobroxin®. Our
gross profit margin for the three months ended September 30, 2010 was $255,853
or 71%. A comparison of gross profit from 2010 to 2009 is not
meaningful since we did not sell Cobroxin® during
the quarter ended September 30, 2009.
Salaries
and Employee Benefits
Salaries
and employee benefits for the three months ended September 30, 2010 were
$317,041 compared to $127,532 for the comparable period in 2009. The
increase of $189,509 was attributable to the increase in the number of full-time
employees from four in 2009 to eleven in 2010.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses (“SG&A”) increased $59,215 or 11% from
$515,859 for the quarter ended September 30, 2009 to $575,074 for the quarter
ended September 30, 2010. Our SG&A expenses include office
expenses such as rent and utilities, product liability insurance and outside
legal and accounting services. Also included in SG&A expenses is
stock based compensation expense which increased $123,750 or 63 % from $195,000
for the three month period ended September 30, 2009 to $318,750 for the three
month period ended September 30, 2010. This accounted for all of the dollar
increase in G&A expenses.
Research
and Development Costs
Research
and development expenses decreased $74,027or 81% from $91,580 for the quarter
ended September 30, 2009 to $17,553for the comparable period in
2010. Our research expenses are primarily related to ongoing research
activities pertaining to ReceptoPharm’s leading drug compound, RPI-78 and costs
associated with a clinical trial related to Cobroxin®.
Interest
Expense
Interest
expense increased $15,965 or 76%, from $20,957 for the quarter ended September
30, 2009 to $36,922 for the comparable period in 2010.
Net
Loss
Our net
loss decreased by $114,291 or 15%, from $755,028 for the quarter ended September
30, 2009 to $640,737 for the comparable period in 2010.
RESULTS
OF OPERATIONS
Comparison
of Nine Month Periods Ending September 30, 2010 and September 30,
2009
Net sales
for the nine months ended September 30, 2010 were $1,382,056 compared to $27,528
for the nine months ended September 30, 2009. Of the total sales
during the nine months ended September 30, 2010, $1,326,283 was related to sales
of our consumer product, Cobroxin®, and
$55,773 was related to clinical research services provided to third parties
by our wholly owned subsidiary, ReceptoPharm.. During the nine months ended
September 30, 2009, all of our sales were related to the provision of clinical
research services since we did not commence selling Cobroxin® until
the fourth quarter of 2009.
Cost
of Goods Sold
Cost of
sales for the nine months ended September 30, 2010 was $569,559 compared to
$3,260 for the nine months ended September 30, 2009. Our cost of
sales includes the direct costs associated with the manufacturing of
Cobroxin®. Our
gross profit margin for the nine months ended September 30, 2010 was $812,497 or
59%.
Salaries
and Employee Benefits
Salaries
and employee benefits for the nine months ended September 30, 2010 were $904,758
compared to $382,434 for the comparable period in 2009. The increase
of $522,324 or 136% was attributable to the increase in the number of full-time
employees from four in 2009 to eleven in 2010.
Selling, General and Administrative
Expenses
Selling,
general and administrative expenses (“SG&A”) increased $968,473 or 92% from
$1,047,762 for the nine months ended September 30, 2009 to $2,016,235 for the
nine months ended September 30, 2010. Our SG&A expenses include
office expenses such as rent and utilities, product liability insurance and
outside legal and accounting services. Also included in SG&A
expenses is stock based compensation expense which increased $413,750 or 100%
from $410,000 for the nine month period ended September 30, 2009 to $823,750 for
the nine month period ended September 30, 2010. This accounted for
approximately 43% of the overall dollar increase in SG&A
expenses. The remaining increase in SG&A expenses is due
primarily to the expansion of our operations, including increased marketing
expenses related to our upcoming launch of our Nyloxin™ products both
domestically and internationally.
Research
and Development Costs
Research
and development expenses increased $47,846 or 38% from $126,955 for the nine
months ended September 30, 2009 to $174,801 for the comparable period in
2010. Our research expenses are primarily related to ongoing research
activities pertaining to ReceptoPharm’s leading drug compound, RPI-78, and costs
associated with a clinical trial related to Cobroxin®.
Interest
Expense
Interest
expense increased $7,715 or 14%, from $55,243 for the nine months ended
September 30, 2009 to $62,958 for the comparable period in 2010. This
increase is due to an increase in short term loans used for working
capital.
Net
Loss
Our net
loss increased by $708,129 or 45%, from $1,588,126 for the nine months ended
September 30, 2009 to $2,296,255 for the comparable period in 2010. This
increase is due principally to an increase in non-stock compensation and
salaries.
LIQUIDITY
AND CAPITAL RESOURCES
As
of September 30, 2010
As of
September 30, 2010, we have an accumulated deficit of $28,869,098 and working
capital and stockholders’ deficits of $2,459,441 and $2,316,955,
respectively.
For the
nine months ended September 30, 2010, we used $1,216,012 of cash for operations
as compared to $1,115,011 used for operations for the nine months ended
September 2009.
Cash
flows used in investing activities for the nine months ended September 30, 2010
amounted to $72,000 and related to furniture and computers for the corporate
office and lab equipment for our subsidiary, ReceptoPharm. There were no cash
flows used by investing activities for the nine months ended September 30,
2009.
Cash
flows from financing activities for the nine months ended September 30, 2010
were $563,900 as compared to $3,060,555 for the nine months ended September 30,
2010. During the nine months ended September 30, 2010 we received $300,000 from
the sale of common stock, $230,000 from short term loans and net loans from Mr.
Deitsch of $33,900. During the nine months ended September 30, 2009,
we received $3,060,275 from the sale of common stock. Of the total,
$2,795,900 was raised through the sale of 34,948,750 shares at a price per share
of $0.08 and $264,375 was raised through the sale of 10,575,000 shares at a
price per share of $0.025
As
of December 31, 2009
Our
independent registered public accounting firm noted in their report on our
consolidated financial statements for the year ended December 31, 2009 that our
significant losses from operating and working capital and stockholders’ deficits
raise substantial doubt about our ability to continue as a going
concern. Further, as stated in Note 1 to our consolidated financial
statements for the year ended December 31, 2009, we have experienced significant
losses from operations totaling $4,162,108 and $2,301,641 for the years ended
December 31, 2008 and 2009, respectively and had an accumulated deficit of
$26,572,843 for the period from our inception to December 31,
2009. We had working capital and stockholders’ deficits at December
31, 2009 of $1,165,622 and $1,144,450, respectively.
Historically,
we have relied upon loans from our Chief Executive Officer Rik Deitsch, to fund
costs associated with our operations. These loans are unsecured,
accrue interest at a rate of 4.0% per annum and are due on
demand. During 2009, we borrowed $546,530 from Mr. Deitsch and repaid
him $709,663 and at December 31, 2009, we owed Mr. Deitsch
$1,151,361. Included in this amount is $211,119 of accrued
interest.
Current
Liquidity
Our
ability to continue as a going concern is contingent upon our ability to secure
additional financing, increase ownership equity, and attain profitable
operations. In addition, our ability to continue as a going concern
must be considered in light of the problems, expenses and complications
frequently encountered in established markets and the competitive environment in
which we operate.
We began
generating revenues from the sale of Cobroxin® in the
fourth quarter of 2009. Our ability to meet our future operating
expenses is highly dependent on the amount of such future
revenues. To the extent that future revenues from the sale of
Cobroxin® are
insufficient to cover our operating expenses we may need to raise additional
equity capital, which could result in substantial dilution to existing
shareholders. There can be no assurance that we will be able to raise
sufficient equity capital to fund our working capital requirements on terms
acceptable to us, or at all. We may also seek additional loans from
our officers and directors; however, there can be no assurance that we will be
successful in securing such additional loans.
As of
December 1, 2010 we had $12,000 in available cash. We currently have
insufficient cash on hand to sustain us even for the next one
month and we will require additional funds in order to execute our
operating plan and continue as a going concern. We estimate that we
will require approximately $1,600,000 to fund our existing operations and the
operations of our subsidiaries, ReceptoPharm and Designer Diagnostics, over the
next twelve months. These costs include: (i) compensation for our
full-time employees; (ii) compensation for two consultants who we deem critical
to our business; (iii) general office expenses including rent and utilities;
(iv) product liability insurance; and (v) outside legal and accounting
services. These costs reflected in (i) – (v) do not include research
and development costs or other costs associated with clinical
studies.
Our
management’s plan is to attempt to secure adequate funding to bridge the further
commercialization of our Cobroxin® and
Nyloxin™ products. We cannot predict whether this additional
financing will be in the form of equity, debt, or another form and we may be
unable to obtain the necessary additional capital on a timely basis, on
acceptable terms, or at all. If we are successful at securing
additional equity financing, it could result in substantial dilution to existing
shareholders. We may also seek additional loans from our officers and
directors; however, there can be no assurance that we will be successful in
securing such additional loans.
Historically,
we have relied upon loans from our Chief Executive Officer Rik Deitsch, to fund
costs associated with our operations. During the nine month
period ended September 30, 2010, we borrowed $196,300 and repaid $162,400 for a
net borrowing of $33,900 from Mr. Deitsch, bringing the total amount owed to Mr.
Deitsch to $1,218,627 at September 30, 2010. This amount includes
$244,485 of accrued interest. After September 30, 2010, we received
additional advances in the amount of $54,900 and repaid Mr. Deitsch $100,000 for
a net repayment of $45,100. The amount owed to Mr. Deitsch at
December 1, 2010 was $1,181,544, which includes $252,502 of accrued
interest.
On
November 24, 2010 we received $160,351 from Histologics LLC representing the
repayment of our loan in the amount of $150,000 plus accrued
interest.
On
November 8, 2010, we entered into the purchase agreement with LPC to purchase up
to $10,000,000 worth of our common stock. We received $200,000
related to this transaction in exchange for 1,666,667 shares of common stock and
warrants to purchase 1,666,667 additional shares of common stock at an exercise
price of $0.15 per share. The remaining financing under the
transaction will not be available until this registration statement becomes
effective for the shares issued under the agreement.
After the
SEC has declared the registration statement effective, we have the right, in our
sole discretion, over a 30-month period to sell shares of common stock to LPC in
amounts up to $500,000 per sale, depending on certain conditions as set forth in
the Purchase Agreement, up to an additional $9.8 million. The actual
amount of money we can receive from LPC every two business days
will be based upon the price of our common stock, as follows:
Price Per Share
|
|
Amount of Money
|
|
$ |
0.15 |
|
$ |
80,000 |
|
$ |
0.30 |
|
$ |
160,000 |
|
$ |
0.45 |
|
$ |
320,000 |
|
$ |
0.60 |
|
$ |
500,000 |
|
The
actual number of shares we sell will be determined by dividing the payment to us
by the actual purchase price per share.
We cannot
predict when the SEC will declare this registration statement
effective. Any delays in the effective date and failure of our stock
price to increase will impact our ability to meet our working capital needs
through LPC.
Pending
receipt of financing from LPC, we are meeting our working capital needs from
pending orders and from loans from our Chief Executive Officer, Rik
Deitsch. We currently do not have funds to meet our working capital
needs for the current month. There is no guarantee that funds from sales of our
products or loans from Mr. Deitsch will be sufficient to cover our short term
cash needs. If we are unable to generate substantial cash flows from sales of
our products or through financing, we may not be able to remain
operational.
Uncertainties
and Trends
Our
operations and possible revenues are dependent now and in the future upon the
following factors:
|
·
|
whether
we successfully develop and commercialize products from our research and
development activities;
|
|
·
|
if
we fail to compete effectively in the intensely competitive biotechnology
area, our operations and market position will be negatively
impacted.
|
|
·
|
if
we fail to successfully execute our planned partnering and out-licensing
of products or technologies, our future performance will be adversely
affected;
|
|
·
|
the
recent economic downturn and related credit and financial market crisis
may adversely affect our ability to obtain financing, conduct our
operations and realize opportunities to successfully bring our
technologies to market;
|
|
·
|
biotechnology
industry related litigation is substantial and may continue to rise,
leading to greater costs and unpredictable litigation;
and
|
|
·
|
if
we fail to comply with extensive legal/regulatory requirements affecting
the healthcare industry, we will face increased costs, and possibly
penalties and business losses.
|
Related
Person Transactions
For
information on related party transactions and their financial impact, see Note 5
to the Unaudited Condensed Consolidated Financial Statements for the period
ending September 30, 2010.
Critical
Accounting Estimates
Our
consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) applied on a consistent basis. The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
We
regularly evaluate the accounting policies and estimates that we use to prepare
our consolidated financial statements. In general, management’s
estimates are based on historical experience, information from third party
professionals, and various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those
estimates made by management under different and/or future
circumstances.
We
believe that our critical accounting policies and estimates include our ability
to continue as a going concern, revenue recognition, accounts receivable and
allowance for doubtful accounts, inventory obsolescence, accounting for
long-lived assets and accounting for stock based compensation.
Ability to Continue as a Going
Concern: Our ability to continue as a going concern is
contingent upon our ability to secure additional financing, increase ownership
equity, and attain profitable operations. In addition, our ability to
continue as a going concern must be considered in light of the problems,
expenses and complications frequently encountered in established markets and the
competitive environment in which we operate.
Revenue
Recognition: In general, the Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. There was no
provision for sales returns at September 30, 2010 as all products sold as of
that date have been accepted by our customer and contractually we are not
obligated to accept returns.
Accounts Receivable and Allowance
for Doubtful Accounts: Our accounts receivable are stated at
estimated net realizable value. Accounts receivable are comprised of
balances due from customers net of estimated allowances for uncollectible
accounts. In determining collectability, historical trends are
evaluated and specific customer issues are reviewed to arrive at appropriate
allowances. There was no allowance for doubtful accounts at September
30, 2010.
Inventory
Obsolescence: Inventories are valued at the lower of cost or
market value using the average cost method. We periodically perform
an evaluation of inventory for excess and obsolete items. At
September 30, 2010, our inventory consisted of finished goods and raw materials
that are utilized in the manufacturing of finished goods. These raw
materials generally have expiration dates in excess of 10 years. We
performed an evaluation of our inventory and determined that at September 30,
2010, there were no obsolete or excess items.
Long-Lived
Assets: The carrying value of long-lived assets is reviewed
annually and on a regular basis for the existence of facts and circumstances
that may suggest impairment. If indicators of impairment are present,
we determine whether the sum of the estimated undiscounted future cash flows
attributable to the long-lived asset in question is less than its carrying
amount. If less, we measure the amount of the impairment based on the
amount that the carrying value of the impaired asset exceeds the discounted cash
flows expected to result from the use and eventual disposal of the impaired
assets. We do not believe there to be any impairments of long-lived
assets as of September 30, 2010.
Stock Based Compensation: We
record stock based compensation in accordance with FASB ASC 718, Stock
Compensation. FASB ASC 718 requires that the cost resulting from all share-based
transactions be recorded in the financial statements over the respective service
periods. It establishes fair value as the measurement objective in accounting
for share-based payment arrangements and requires all entities to apply a
fair-value-based measurement in accounting for share-based payment transactions
with employees. FASB ASC 718 also establishes fair value as the measurement
objective for transactions in which an entity acquires goods or services from
non-employees in share-based payment transactions.
Recent
Accounting Pronouncements
See Note
1 to our Unaudited Financial Statements included herein for discussion of
recent accounting pronouncements.
BUSINESS
We were
incorporated in the state of California on February 1, 2000. Our
operations are conducted through our two wholly owned subsidiaries, ReceptoPharm
and Designer Diagnostics.
We are a
biopharmaceutical company that engages in the acquisition, licensing and
commercialization of pharmaceutical products and technologies as well as
homeopathic and ethical drugs for the management of pain, neurological
disorders, cancer, autoimmune and infectious diseases. An
ethical drug requires Federal Drug Administration (“FDA”)
approval. We seek strategic licensing partnerships to reduce
the risks associated with the drug development process.
ReceptoPharm
carries out our homeopathic and drug discovery research and clinical development
and has fully developed three homeopathic drugs for the treatment of
pain:
|
·
|
Cobroxin®,
an over-the-counter pain reliever designed to treat moderate to severe
(Stage 2) chronic pain; and
|
|
·
|
Nyloxin™
and Nyloxin™ Extra Strength, stronger versions of Cobroxin®.
|
Additionally,
ReceptoPharm has developed two drug candidates:
|
·
|
RPI-78M,
to treat the neurological diseases, including Multiple Sclerosis
(MS), Adrenomyeloneuropathy (AMN), Amyotrophic Lateral Sclerosis (ALS
or Lou
Gehrig’s disease ) and Myasthenia Gravis;
and
|
|
·
|
RPI-MN,
to treat the viral diseases, including HIV/AIDS and
Herpes.
|
ReceptoPharm
is developing proprietary therapeutic protein products primarily for the
prevention and treatment of viral and neurological diseases, including Multiple
Sclerosis, Adrenomyeloneuropathy (AMN), Human Immunodeficiency Virus (HIV) and
pain in humans. These potential products are subject to FDA
approval. ReceptoPharm also provides contract research services
through its ISO class 5 and Good Manufacturing Practice (“GMP”) certified
facilities.
Our other
wholly-owned subsidiary, Designer Diagnostics, engages in the research and
development of and sale of diagnostic test kits designed to be used for the
rapid identification of infectious diseases, such as Nontuberculous Mycobacteria
(NTM).
We
continue to identify intellectual property and companies in the biotechnology
arena with similar synergies to us with which we may potentially be able to
enter into arrangements, agreements or to potentially acquire.
We
commenced sales of our first consumer product, Cobroxin®, in
October 2009. Cobroxin®,
Nyloxin™ and Nyloxin™ Extra Strength are homeopathic drugs that were developed
within the first 3 months of 2009 as a result of ReceptoPharm’s on-going
research for approximately 6 years. During 2009, we generated
revenues of $618,000, $583,955 of which were from sales of Cobroxin®, and
$34,055 of which were from clinical research services. Since October
2009, our operations have centered on the marketing of Cobroxin® and
Nyloxin™ and Nyloxin™ Extra Strength, from which we have earned accumulated
revenues of $1,990,006.
Our
business during 2010 has focused upon marketing our fully developed three
homeopathic drugs for the treatment of pain:
|
·
|
Cobroxin®,
an over the counter pain reliever designed to treat moderate to severe
(Stage 2) chronic pain; and
|
|
·
|
Nyloxin™
(Stage 2 Pain) and Nyloxin™ Extra Strength (Stage 3 Pain): stronger
versions of Cobroxin®.
|
We will
continue this focus during the remainder of 2010.
We have
accomplished the following during 2010:
Patent
Approved
The US
Patent and Trademark Office issued us a patent for a method of preventing
infectious diseases, including colds, flu viruses, and bacterial and parasitic
infections, using modified and detoxified cobra venom and neurotoxins. The
patent (US 7,758,894), titled “Modified elapid venoms as stimulators of the
immune reaction,” describes a method for treating and inhibiting infections by
influenza viruses through the use of subcutaneous, intramuscular, or intravenous
injections of therapeutically effective amounts of a detoxified and
neurotropically active oxidized alpha cobratoxin or alpha-cobrotoxin protein.
The patent continues by explaining clinical evidence supporting marked increases
in the expression of genes associated with the production of gamma interferon
through exposure to these detoxified proteins. Gamma interferon is considered a
potent antiviral agent and regulator of the immune response.
Pepteron,
an Antiviral Therapy
During
July 2010, ReceptoPharm presented its novel antiviral therapy, Pepteron, at the
International AIDS Conference in Vienna, Austria. Pepteron is based
on our leading drug candidate, RPI-MN, which has been shown to inhibit the entry
of several viruses that are known to cause severe neurologic damages in diseases
such as encephalitis and HIV.
Product
Advertising/Product Distribution
According
to our US distributor, XenaCare, the Cobroxin®
advertising campaign began during July 2010 and is scheduled to run through
December 2010. To date, XenaCare has reported to us that Cobroxin®
advertising has appeared on CNN, Fox News, Food, Travel, ESPN, USA, Lifetime,
CNBC, Comedy Central, AMC, History, Discovery, Fox Sports, Headline News (HLN),
and Home and Garden as well as Los Angeles, Tampa, Atlanta and Houston based
radio stations. As of October 31, 2010, XenaCare reported to us that
Cobroxin® has been
aired in 690 television commercials, a difference of 1825 commercials from the
2515 forecasted by XenaCare at year-end December 31, 2010. After the year
ended December 31, 2010 we will determine whether XenaCare has met its projected
air time for Cobroxin® and
whether it has met its contractual marketing obligations as the exclusive US
distributor. At such time, we may determine whether we will need to seek a new
distributor for Cobroxin®.
Product
Distribution
In June
2010, we entered into a partnership with the healthcare products distributor,
Henry Schein, Inc., for distribution of our Nyloxin™-branded pain relievers in
the United States. Henry Schein, which ranks #339 on the Fortune 500 list, is
one of the largest distributor of healthcare products and services to
medical, dental, and veterinary office-based practitioners in the world
(www.henryschein.com). With more than 12,500 “Team Schein Members” worldwide,
Henry Schein currently serves approximately 45% of the estimated 250,000 U.S.
office-based physician practices, surgical centers and other alternate-care
sites.
In June
2010, Grupo Farmaceutico de Tijuana (“GTF”) became our exclusive distributor in
Mexico for our Nyloxin™ branded pain relievers. GTF specializes in the
distribution of pharmaceutical products to national retailers and to over 3,000
pharmacies throughout Mexico.
In August
2010, we selected Amarey Nova Medical S. A. to serve as our exclusive
distributor in Colombia for our Nyloxin™-branded pain relievers.
In August
2010, we began our drug registration process in India for
Nyloxin™. We have been seeking a relationship with an India-based
pharmaceutical company to support the launch, marketing and sales of Nyloxin™
throughout India.
In
September 2010, we introduced “Nyloxin™ for Pets”, a treatment for moderate to
severe chronic pain in companion animals.
In
October 2010, we announced Nutritional Alliance as our global sales agent for
our Nyloxin™ pain relievers intended for the human and animal health markets.
Nutritional Alliance is considered one of the premier sales brokerage firms in
the United States according to its own website at www.nutritionalalliance.com and
they specialize in products distributed through food, drug and mass retailers as
well as medical product distributors.
Drug
Registration
In June
2010, we began the drug registration process in Panama and Mexico for our
Nyloxin™ Pain Reliever. In August 2010, we began the drug
registration process in India for our Nyloxin™ Pain Reliever. Additionally, we
have ongoing drug registrations being completed in Europe, Canada, Colombia, and
Brazil.
Retail
Sales and Distribution
During
the third quarter of 2010, we generated revenues of $311,701 from Cobroxin®
sales. Our collective revenues for the first three quarters of 2010
are $1,326,283. During the first three 2010 quarters, we continued to
focus on expanding brand awareness for our over-the-counter pain relievers,
Cobroxin®,
Nyloxin™ and Nyloxin™ Extra Strength by: (a) coordinating marketing
and awareness for those pain relievers through attendance at various
conferences; (b) seeking out additional international distribution partners
for our Nyloxin™ branded pain relievers, (c) assisting XenaCare, our U.S.
Cobroxin®
distributor, with the creation of marketing and advertising materials, including
print advertisements, television commercials, packaging enhancements and
television interviews; and (d) coordinating our ongoing drug registration
process in Europe, Canada, Brazil and Colombia, Panama, Mexico, and India,
including reviewing distributor candidates within those territories. We plan to
continue our brand development and operations during the remainder of 2010 by
continuing the above efforts, researching potential product line extensions for
our branded pain relievers and organizing clinical studies that support our
current drug products and advance our current research and development
pipeline.
In
November 2010, we were awarded a grant by the Internal Revenue Service (IRS)
valued at $244,479 under the Qualifying Therapeutic Discovery Project Program
(QTDP). We plan to use this grant to support additional clinical work on our
treatments for pain.
Industry
Overview of the Pain Market
A 2006
article published by the American Pain Society reported that pain is one of the
most common reasons that patients seek medical care and accounts for half of all
physician office visits in the United States. According to the
American Pain Foundation, a non-profit organization, as of 2007 at least 25
million people in the United States experience acute pain as a result of injury
or surgery. Additionally, more than 50 million people in the United
States are affected by ongoing chronic pain.
The
market for pain management products in the United States, including prescription
and nonprescription analgesics, reached $20.4 billion in 2005 according to an
April 2006 published report by Medtech Insight, a market research
firm. According to a more recent report conducted by IMS Health, a
market research firm, the sales of opioid-based prescription pain drugs,
including OxyContin, exceeded $6 billion in 2008. The current market for pain
drugs is expected to continue to grow according to Global Industry Analysts
Inc., a market research firm, believes that the aging baby boomer population
will continue to trigger growth in this market resulting in a market size of
$35.5 billion by 2015.
Cobroxin®
We offer
Cobroxin®, our
over-the-counter pain reliever clinically proven to treat moderate to severe
(Stage 2) chronic pain that was developed by ReceptoPharm, our drug discovery
arm and wholly owned subsidiary. Cobroxin® is
marketed online and at retailers through our United States distributor,
XenaCare. In August 2009, we completed an agreement with XenaCare
granting it the exclusive license to market and distribute Cobroxin® within
the United States. In mid-October 2009, XenaCare began selling
Cobroxin® online
through its product website, Cobroxin.com.
In
November 2009, XenaCare began selling Cobroxin® to
brick-and-mortar retailers, including distribution to CVS in March 2010 and
Walgreens in May 2010. To support ongoing sales, XenaCare intends to conduct a
marketing campaign, consisting of print, online and broadcast
advertising.
Cobroxin® is
available at the following retailers:
Cobroxin® is
currently available as a two ounce topical gel for treating joint pain and pain
associated with arthritis and repetitive stress, and as a one ounce oral spray
for treating lower back pain, migraines, neck aches, shoulder pain, cramps, and
neuropathic pain. Both the topical gel and oral spray are packaged and sold as a
one-month supply.
Cobroxin® offers
several benefits as a pain reliever. With increasing concern about
consumers using opioid and acetaminophen-based pain relievers, Cobroxin® provides
an alternative that does not rely on opiates or non-steroidal anti-inflammatory
drugs, otherwise known as NSAIDs, for its pain relieving
effects. Cobroxin® also has
a well-defined safety profile. Since the early 1930s, the active pharmaceutical
ingredient (API) of Cobroxin®, Asian
cobra venom, has been studied in more than 46 human clinical studies. The data
from these studies provide clinical evidence that cobra venom provides an
effective treatment for pain with few side effects and has the following
benefits:
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analgesic
and anti-inflammatory.
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Potential
side effects from the use of Cobroxin® include
headache, nausea, vomiting, sore throat, allergic rhinitis and
coughing.
Nyloxin™/Nyloxin™
Extra Strength
Nyloxin™
and Nyloxin™ Extra Strength are similar to Cobroxin® in that
they both contain the same active ingredient as Cobroxin®, Asian
cobra venom. The primary difference between Nyloxin™, Nyloxin™ Extra
Strength and Cobroxin® is the
dilution level of the venom. The approximate dilution levels for Nyloxin™,
Nyloxin™ Extra Strength and Cobroxin® are as
follows:
Nyloxin™
Nyloxin™ Extra
Strength
Cobroxin®
We intend
to market Nyloxin™ and Nyloxin™ Extra Strength as treatments for moderate to
severe chronic pain during our fourth quarter of 2010, pending successful
completion of international drug applications. Nyloxin™ will be
available as an oral spray for treating back pain, neck pain, headaches, joint
pain, migraines, and neuralgia and as a topical gel for treating joint pain,
neck pain, arthritis pain, and pain associated with repetitive
stress. Nyloxin™ Extra Strength will be available as an oral spray
and gel application for treating the same physical indications, but is aimed at
treating the most severe (Stage 3) pain that inhibits one’s ability to function
fully.
We intend
to begin selling Nyloxin™ Extra Strength in the form of topical gel and oral
spray products outside of the United States upon completion of international
drug registrations, which we estimate will be completed during the first quarter
of 2011. Additionally, we plan to complete two human clinical studies
aimed at comparing the ability of Nyloxin™ Extra Strength to replace
prescription pain relievers. We originally believed that these studies would
begin during the second quarter of 2010; however, these studies have been
delayed because of lack of funding. We expect that these studies will
begin by the second quarter of 2011.
In
December 2009, we began marketing Nyloxin™ and Nyloxin™ Extra Strength at
www.Nyloxin.com. Both Nyloxin™ and Nyloxin™ Extra Strength will be packaged in a
roll-on container, squeeze bottle and as an oral spray. Additionally, Nyloxin™
topical gel will be available in an 8oz pump bottle.
Regulation
The
active pharmaceutical ingredient (API) in Cobroxin®,
Nyloxin™ and Nyloxin™ Extra Strength, Asian cobra venom, has an approved United
States monograph under the Homeopathic Pharmacopoeia of the United States
(HPUS), which allowed us to register them with the FDA as homeopathic
drugs. A United States monograph is a prescribed formulation for the
production of any drug or product that is recognized by law for a specific
application and that may be introduced into commerce. The FDA
requires this registration process to maintain full compliance of companies
marketing and selling medicines classified as homeopathic. In August
2009, we successfully completed submission of final packaging and labeling to
the FDA to begin selling our over-the-counter pain reliever, Cobroxin®. In
December 2009, we completed our submission of final packaging and labeling to
the FDA of Nyloxin™ and Nyloxin™ Extra Strength.
Manufacturing
ReceptoPharm
oversees Cobroxin®
manufacturing, both at its Good Manufacturing Practice (GMP) certified facility
and at a third-party manufacturing and bottling
facility. ReceptoPharm is also responsible for acquiring
appropriate amounts of Asian cobra venom required to manufacture Cobroxin®.
ReceptoPharm
also plans to begin additional clinical studies for its prescription pain
reliever, Nyloxin™ Extra Strength. These studies will be designed to compare the
efficacy of Nyloxin™ Extra Strength to other prescription strength pain
relievers. A ReceptoPharm study published in Toxicon, which is the
journal of the International Society of Toxinology, showed that ReceptoPharm’s
leading drug treatment for the treatment of pain, drug candidate RPI-78 had pain
reducing effects that lasted four times as long as morphine without the negative
side effects associated with opioid-based pain relievers.
The FDA
requires those companies manufacturing homeopathic medicines to have their
facilities certified as GMP. As of October 2005, ReceptoPharm’s
manufacturing and laboratory facility has been fully compliant with its GMP
certification. In March 2009, ReceptoPharm received an ISO Class 5
certification for its clean room facility. An ISO Class 5 certification is a
type of classification granted for a clean room facility according to the number
and size of particles permitted per volume of air. An ISO Class 5 clean room has
at most, 3,500 particles per square meter.
Manufacturing
Cobroxin® entails
a two-step process, the first of which consists of ReceptoPharm manufacturing
the bulk raw materials and completing the dilution levels of the Cobroxin® active
pharmaceutical ingredient (API) as provided for in the Homeopathic Pharmacopoeia
of the United States, which is a compilation of continuously updated statements
of Homeopathic Pharmacopoeia standards and monographs as recognized by that
organization. Once this process is completed, the second step entails transport
of raw materials to a third-party manufacturer that completes the final mixing,
bottling and shipping processes.
Marketing
and Distribution
In August
2009, we completed an agreement with XenaCare granting it the exclusive license
to market and distribute Cobroxin® within
the United States. To maintain this market exclusivity, XenaCare is required to
meet certain minimum performance requirements.
In
mid-October 2009, XenaCare began selling Cobroxin® online
through its product website, Cobroxin.com. In November 2009, XenaCare
began selling Cobroxin® to
brick-and-mortar retailers, including distribution to CVS which began March 2010
and Walgreens by May 1, 2010.
In
December 2009, we began marketing Nyloxin™ and Nyloxin™ Extra Strength at www.Nyloxin.com.
To
support ongoing sales, XenaCare intends to conduct an extensive marketing
campaign, consisting of print, online and broadcast advertising. To
date, XenaCare has accomplished the following:
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Launched
its initial print advertising campaign with advertisements appearing in
Prevention, Health, Star, Woman's World, Soap Opera, and Self
magazines;
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Announced
that the Chain Drug Marketing Association will begin making Cobroxin®
available for purchase through its 6,000 member
pharmacies;
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Completed
an agreement to advertise Cobroxin® in
NASCAR’s Racing One publication, for the 2010 racing
season;
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Completed
an agreement to advertise Cobroxin® in
the 2009 National Football Alumni Guide and Yearbook, a publication that
is distributed to football fans, current and past NFL players, team
owners, coaches and league
executives;
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Partnered
with the Arthritis Foundation, which allows that foundation’s logo to be
used on Cobroxin®
packaging, websites, print advertisements, retail catalogs and on direct
mailers to 100,000 Arthritis Foundation
members;
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Secured
agreements to advertise Cobroxin® in
the 2010 Super Bowl XLIV program guide and the 2010 NBA All-Star Game
program guide;
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Produced
and began airing Cobroxin®
direct response commercials in select markets in the United
States;
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Began
production for a series of Cobroxin®
television commercials scheduled to begin airing during the second quarter
of 2010;
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Secured
an agreement to advertise Cobroxin® in
select Major League Baseball (MLB)
yearbooks;
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Completed
an athletic sponsorship agreement with Megan Wallin, a professional beach
volleyball player, to build awareness about Cobroxin®;
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Began
a limited television and radio advertising
campaign.
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Dependence
on one or a Few Major Customers
With
respect to Cobroxin®,
Nyloxin™ and Nyloxin™ Extra Strength, we have only one customer, our
distributor, XenaCare that then distributes our product online and to various
retailers.
International
Drug Registrations
In 2010,
we plan to expand the presence of our Cobroxin® and
Nyloxin™ pain relievers internationally through a series of out-licensing and
master distribution agreements and/or arrangements. On September 21,
2009, we announced our plan to begin the drug registration process in Canada and
Europe for Cobroxin®. On
November 12, 2009, we announced plans to begin the drug registration process in
South America for Cobroxin®. We
are continuing our efforts to begin the registration process in other countries.
While many countries adopt similar regulation to the United States for
registering homeopathic drugs, the international application process is more
complex and may be lengthier.
ReceptoPharm’s
Homeopathic Drug Pain Relief Studies
MS Neuropathic Pain Phase
IV
We will
continue our research and development into this area, with the ultimate goal of
completing development of our future product, Nyloxin™ Extra Strength, which is
a treatment for Stage 3 pain. Our estimated start and completion
dates are March 2010 and September 2010, respectively, which includes a 10-week
patient trial period. We have thus far incurred costs of $5,000 with
a total estimated budget of $130,000.
Chronic Back Pain Phase
I
We will
continue our research and development in this area, with the ultimate goal of
completing development of our future product, Recet, which is an injectable
version of Cobratoxin. Our estimated start and completion dates are
April 2010 and November 2011, respectively, which includes a 4 week patient
trial period. We have thus far incurred costs of $25,000 with a total estimated
budget of $250,000.
Chronic
Back Pain Phase IV
We will
continue our research and development, with this ultimate goal of completing
development of our future product, Nyloxin™ Extra Strength, which is a treatment
for Stage 3 pain. If this study proceeds, our estimated start and
completion dates are April 2010 and November 2010, respectively, which includes
a 4 week patient trial period. We have an estimated budget of
$250,000. We have not yet incurred any costs associated with the Chronic Back
Pain Phase IV project.
ReceptoPharm – Research and
Development
ReceptoPharm
is engaged in the research and development of novel anticholinergic therapeutic
protein products for the treatment of autoimmune and neurologic disorders,
including Human Immunodeficiency Virus (HIV), Multiple Sclerosis (MS)
Adrenomyeloneuropathy (AMN), Rheumatoid Arthritis (RA) and pain.
Drug
Applications
We have
set forth below a summary of ReceptoPharm’s proposed drugs and their potential
applications.
Drug
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Potential Applications
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RPI-78M
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MS,
AMN, Myasthenia Gravis (MG) and Amyotrophic Lateral Sclerosis
(ALS)
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RPI-MN
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HIV,
general anti-viral applications
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RPI-78
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Pain,
Arthritis
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RPI-70
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Pain
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We
believe that ReceptoPharm’s pharmaceutical products have a wide range of
applications in a number of chronic, inherited and/or life-threatening viral,
autoimmune and neuromuscular degenerative diseases, even though none of these
products have FDA or other approval for the treatment of such diseases. These
disorders target nerve cells, especially one specific type of cell receptor that
is sensitive to the neurotransmitter, acetylcholine, which
plays an important role in the transmission of nerve impulses at synapses and
myoneural (muscle-nerve) junctions.
Primary
Disease Targets
Through
ReceptoPharm’s research program, our goal is to obtain required regulatory
approvals of ReceptoPharm’s HIV, MS, and AMN products, so that they can be
marketed. We plan to apply for Orphan drug status with the FDA to expedite
approval for our AMN product; however there is no assurance we will obtain such
status. An orphan drug is a pharmaceutical agent that has been developed
specifically to treat a rare medical condition. Being granted Orphan status
would expedite the approval process and grant limited exclusivity for treating
the orphan condition. Additionally, ReceptoPharm secures confidentiality
agreements prior to initiating contract research in order to protect any
patentable opportunities.
Human Immunodeficiency Virus
(HIV) Infection
Decision
Resources, Inc., a research and advisory firm focusing on pharmaceutical and
health care issues, forecasts that the HIV drug market will grow to more than $8
billion by 2013. According to the latest Epidemic Update, an estimated 39.5
million people were living with HIV in 2006. There were 4.3 million new
infections in 2006 with 2.8 million (65%) of these occurring in sub-Saharan
Africa and important increases in Eastern Europe and Central Asia, where there
are some indications that infection rates have risen by more than 50% since
2004. In 2006, 2.9 million people died of AIDS-related illnesses. Growth in the
HIV therapy market will continue to be driven by the rapidly growing HIV and
AIDS population. In the absence of therapeutic intervention, the vast majority
of individuals infected with HIV will ultimately develop AIDS, on average in
about 10 years, which has a mortality rate approaching 100%. Experts say that
the drugs currently available only extend life on average 1.8 years. The
foregoing information was obtained from the World Health Organization website at
www.who.int.
To cause
infection, HIV needs to gain entry into cells through the attachment to
receptors on the cell membrane. These receptors are called “chemokine
receptors”. There are two principal types, CCR5 and CXCR4. Different HIV strains
use different types of these receptors for attachment. Many drugs are being
developed or have been developed that function by blocking one of these
receptors. A single drug that would block all of the chemokine receptors
("tropism-independent") could be more useful, for several reasons, than a
mixture of molecules that would have to be used to do the same
thing.
HIV
infection therapy currently uses antiviral drug therapies that are associated
with the virus’s attachment, fusion with and entry into the host cell. At the
present time, there are sixteen licensed antiretroviral drugs employed to combat
HIV-1 infection and one drug licensed by the FDA that is a binding/entry
inhibitory drug.
New drugs
and adjunct therapies with novel mechanisms of action or unique resistance
profiles are needed in the fight against HIV. Constant innovation, in terms of
efficacy, side effect profile and dosing are occurring. Current research and
development for HIV is focused on adjunctive therapy, which when combined with
existing HAART (Highly Active Anti-Retroviral Therapy) regimens reduce side
effects, enhance the efficacy of existing treatments and delay the progression
of the HIV virus.
Both of
ReceptoPharm’s drugs inhibited HIV replication in MAGI cells (a cell line to
allow the visualization of HIV infection) by 50-60% and peripheral
mononucular cells (blood cells that are easy targets for HIV
infection) by 90% in testing conducted by Dr. Juan Lama of the La Jolla
Institute for Molecular Medicine in San Diego, California. Separate Phase I
studies by Cure Aids Now of Miami, Florida, were conducted by Dr. Jamal
with orally and parentally administered RPI-78M in HIV patients confirmed
safety, tolerability and provided preliminary evidence of efficacy.
As the
HIV virus mutates, it may become resistant to current medications and those
medications will cease to be effective. Drug resistance has become a critical
factor in long-term management of HIV infection with some viral strains
developing resistance in as little as 3 weeks. RPI-MN demonstrated the ability
to inhibit the replication of highly drug-resistant strains of HIV
isolates.
Multiple Sclerosis
(MS)
Multiple
Sclerosis (MS) is thought to be an autoimmune disease that primarily causes
central nervous system problems. In MS, the insulating fatty material
surrounding the nerve fibers, also known as myelin, which functions to speed
signaling from one end of the nerve cell to the other, is attacked by cells of
the immune system causing problems in nerve signal transduction. MS is the most
common of demyelinating (loss of nerve-fiber covering) disorders, having a
prevalence of approximately 1 per 1,000 persons in most of the United States and
Europe. According to the Accelerated Cure Project for Multiple Sclerosis, a
national nonprofit organization, 400,000 people in the US are affected by MS and
another 2 million globally.
People
with MS may experience diverse signs and symptoms. MS symptoms may include pain,
fatigue, cognitive impairment, tremors, loss of coordination and muscle control,
loss of touch sensation, slurred speech and vision impairment. The course of the
disease is unpredictable and for most MS patients, the disease initially
manifests a "relapsing-remitting" pattern. Periods of apparent
stability are punctuated by acute exacerbations that are sudden unpredictable
episodes that might involve impaired vision, diminished ability to control a
limb, loss of bladder control, or a great variety of other possible neurologic
deficits. In relapsing-remitting MS, some or all of the lost function returns,
however, the patient sustains an unceasing, often insidious, accumulation of
neuronal damage. As the burden of neural damage grows, new lesions are more
likely to produce irreversible impairment of function. Typically, about eight to
fifteen years after onset, MS patients enter the secondary-progressive phase.
Eventually, progressive MS sufferers become wheelchair-bound, and may become
blind and even incapable of speech. There is currently no FDA approved drug that
reverses the course of the progressive form of MS.
RPI-78M
has shown efficacy in animal models (EAE) for MS and ReceptoPharm is planning
new animal studies to gain more insight into the levels of protection that the
drugs afford. In one study conducted in August 2007, all members of an untreated
animal control group developed signs of disease with different levels of
paralysis/muscle weakness. A similar group in the August 2007 study treated with
RPI-78M showed no disease in 90% of the animals in both acute and chronic
applications of the test. Moreover, there were no toxicities reported though the
animals received doses the equivalent of 280 times a human dose.
MS is
characterized as an autoimmune disease, which means that the patient's immune
system causes the damage. Most treatments for MS involve "immunosuppression"
where the drugs reduce the patient's immune system responses. These drugs
increase the patients' risk of infection. We believe that RPI-78M acts as an
"immunomodulating" agent, that modulates the patients' immune response instead
of simply suppressing it. Immunomodulation could form the basis of an effective
strategy for the long-term control of autoimmunity in diseases like MS and
Myasthenia gravis (MG) and is being studied as a therapeutic model for other
neuromuscular diseases. Also, we believe our data suggests that it is possible
that our novel therapeutic proteins could have a general application in
autoimmune diseases based on human studies in Rheumatoid Arthritis and anecdotal
reports from patients with MS.
In August
of 1984, Biogenix applied for and received an Intrastate Investigational Drug
(FSDHRS Protocol RA-1 (002)) from the Department of Health and Rehabilitation
(HRS) in Florida that permitted the 4-week study of RPI-MN in 13 patients with
Rheumatoid Arthritis ranging in age from 49 to 81. Patients were enrolled for a
period of 4 weeks; the results showed 30% to 49% improvement in range of joint
motion, early morning stiffness and stamina (this data is a small section of the
acquired research referenced above). We believe that the data obtained from the
examination of clinical efficacy in these three diseases can augment information
from prior clinical studies and lead to the future investigation of treatments
for other chronic conditions.
Adrenomyeloneuropathy (AMN)
and Orphan Indications
Adrenoleukodystrophy,
or ALD, is a genetically determined neurological disorder that, according to the
Adrenoleukodystrophy Foundation, affects 1 in every 17,900 boys worldwide. The
presentation of symptoms occurs between the ages of 4 and 10, and affects the
brain with demyelination, which is the stripping away of the fatty coating that
keeps nerve pulses confined and maintains the integrity of nerve signals. This
process inhibits the nerves’ ability to conduct properly, which causes
neurological deficits, including visual disturbances, auditory discrimination
(hearing issues), impaired coordination, dementia and seizures. Demyelination is
an inflammatory response and nerve cells throughout the brain are
destroyed.
Adrenomyeloneuropathy
(AMN) is the most common form of X-ALD, a maternally inherited type of ALD.
AMN affects about 40-45% of X-ALD patients and usually presents itself in
adolescence or adult life and may be preceded by hypoadrenalism (underactivity
of the adrenal glands). It is characterized by spastic paraplegia (paralysis)
and a peripheral neuropathy, often being diagnosed as Multiple Sclerosis (MS).
Nerve conduction studies in AMN show a predominant axonal neuropathy and show a
loss of all axons. Lorenzo’s oil, a mixture of glyceryltrioleate and
glyceryltrierucate, has been used for over a decade in an open, unblinded
fashion with mixed results.
Pain and
Arthritis
Pain
control products represent a huge market, especially those that reduce
dependency on opiate-based drugs. Protein or peptide-based drugs are penetrating
this market with neurotoxins taking the lead. Botox (Allergan) and Prialt (Elan)
have the potential to substitute over the long-term for morphine and other
opiates in chronic pain indications. Opiates, though potent painkillers, suffer
from drawbacks because they are addictive, short acting, and drug-resistance
inducing. We plan to assess the effects of several peptides in animal models of
pain in association with Soochow University in China. Several peptides have
demonstrated positive effects and the research and development
continues.
August
2007 studies at Soochow University proved the potential of ReceptoPharm’s drug
candidates, RPI-78 and RPI-70. When compared to Dolantin, an opiate-based drug
subordinate to morphine, the effects were very encouraging. While Dolantin
provided immediate pain relief it began wearing off just as RPI-70 began to take
effect. The effects of RPI-70 do not seem dramatic in contrast to Dolantin,
considering the quantity of drug employed in this animal model. The
concentration of RPI-70 was approximately 100 times less than the opiate
product. Also, RPI-70 showed real potential for combining with other pain
killing medications. RPI-78 was calculated to be 150,000 times more potent than
aspirin. This product can be injected systemically providing evidence of a more
practical application than Prialt, which must be administered intrathecally
(into the spinal cord). Opiate drugs induce tolerance and
dependence. This problem is not encountered with RPI-70 and
RPI-78.
In
February 2009, ReceptoPharm filed a patent application with the United States
Patent and Trademark Office for the use of RPI-78 as a novel method for treating
arthritis in humans. Also in February 2009, ReceptoPharm, in collaboration with
Soochow University in China published positive data from its recent animal
studies on the use of RPI-78 (Cobratoxin) as a method for treating
arthritis.
Market
Values
Human Immunodeficiency Virus
(HIV)
The World
Health Organization estimates that 39.5 million people worldwide are HIV
positive with the majority of these occurring in third world countries. In the
United States alone, an estimated 900,000 people are infected and the majority
undergoes treatment for HIV-related conditions at an individual cost of $14,000
(HAART) to $34,000 (AIDS patients). According to a 2007 article
published by United Press International, the worldwide market for HIV drugs
exceeds $7 billion in 2008 and is expected to grow to $11.4 billion by 2015.
Multiple Sclerosis
(MS)
Multiple
sclerosis affects an estimated 2.5 million people globally. There are 5 approved
drugs for the treatment of this disease. The average annual cost of these drugs
is $12,000 per person. In 2004, sales by one manufacturer, Biogen, were reported
to be $1.4 billion for its drug, Avonex. According to a December 2009 report by
GlobalData, the worldwide MS market was valued at $8.7 billion in 2008 and is
expected to grow to $11.4 billion by 2015.
Adrenomyeloneuropathy
(AMN)
AMN/ALD
affects an estimated 30,000 people in the US with some estimates exceeding this
number.
Current
Technologies
ReceptoPharm,
operating in its capacity as a clinical stage biotechnology company, has a
process that safely modifies proteins derived from cobra venom. ReceptoPharm
also has rights of a drug delivery method that uses an aerosol formulation,
which is administered under the tongue. By using this shared
aerosol delivery technology, oral delivery is attainable, an important step for
a biologic product.
The system is 50% efficient and affects drug delivery in
approximately 40% of patients in which it was tested. Topical preparations are
being examined for future applications in treatment of such conditions as pain
and Rheumatoid Arthritis (RA).
Business
Strategy
ReceptoPharm
seeks to develop proprietary pharmaceutical products for human illnesses that
qualify for “Fast-Track” or “Orphan Drug” status under FDA regulations, which
can expedite regulatory review. For some conditions, the FDA has
created the “two animal rule” which permits ReceptoPharm to collect data from
ongoing animal research for human treatment applications.
We
believe the results from ReceptoPharm’s research will assist in getting its
applications processed through the FDA’s “Fast-Track” approval process and
enable ReceptoPharm to plan the commercialization of each product independently
and/or through joint ventures, partnerships and licensing arrangements. “Fast-Track”
denotes life-threatening illnesses, while “Orphan” status refers to serious
ailments affecting less than 200,000 individuals nationwide. AMN qualifies under
both labels because it is considered an orphan disease and has no known
cure.
In the
areas of HIV and MS, ReceptoPharm plans to conduct clinical studies of its HIV
and MS drugs under development. These "Phase II" studies will either prove or
disprove the preliminary efficacy of ReceptoPharm's HIV and MS drugs under
development. ReceptoPharm is in the process of attempting to secure agreements
with third parties to conduct such clinical studies.
We
believe that ReceptoPharm’s proposed unique pharmaceutical products can be used
alone or licensed for use in combination with other therapeutic products and may
be of interest to other established pharmaceutical companies as a means of
extending the patent life of their proprietary products.
Short-term
Goal
Although
we focused our drug development efforts from 2006 to 2008 on clinical trials for
ReceptoPharm’s HIV drug, RPI-MN, our primary focus now is on RPI-78M for the
treatment of AMN. In January of 2007, ReceptoPharm began their
clinical study in AMN. The clinical study, which was completed at the
Charles Dent Metabolic Unity located in London, England, is classified as a
Phase IIb/IIIa study. Phase II and early Phase III (Phase IIIa) studies are
designed to assess how well the drug works, as well as to continue Phase I
safety assessments in a larger group of volunteers and patients. Initial results
from this study showed no statistically significant difference between RPI-78M
and placebo. Further investigation is necessary to determine efficacy of RPI-78M
for treating AMN.
Mid-term
Goal
Our
midterm strategy for the past three years has been to license ReceptoPharm’s
AMN, MS and HIV technologies in our attempt to bring these technologies to
market within 5 years. Should we obtain adequate financing, our midterm
strategy remains the same – to accomplish these midterm goals in the next two
years of that 5 year period.
Long-Term
Goal
Our
long-term goal is the use of drugs developed by ReceptoPharm in the field of
neurological diseases, infectious diseases and autoimmune disorders. Due to our
limited financial and operational resources, this goal will require us to
establish strategic partners or alliances with pharmaceutical companies,
academic institutions, biotechnology companies, and clinical diagnostic
laboratories, which will: (a) complement ReceptoPharm’s research and development
efforts; (b) reduce the risks associated with undertaking the entire process of
drug development and marketing; and (c) generate licensing based revenue
streams. Additionally, we plan to continue identifying intellectual
property and companies in the biotechnology arena as potential acquisition
candidates.
Compassionate
Release Programs
Certain
countries, such as Canada and the United Kingdom permit their citizens to have
access to investigational medications without being approved for any application
by their respective “FDA type” agencies, and permit physicians to prescribe
drugs they believe are of possible benefits to the patients. Through these
“Compassionate Release Programs” ReceptoPharm has supplied RPI-78M, its drug
under investigation for MS and AMN, to physicians in the United Kingdom. The FDA
does not offer this program.
Clinical
Trial Applications
ReceptoPharm
has developed Common Technical Documents (CTD) for both RPI-78M and RPI-MN that
are used to support any clinical trial application. The CTD is a complete
history of the individual drug, including all of the in-vitro and in-vivo work
accomplished to date, as well as pre-clinical development work on the drug.
Having these completed documents allows for expedited due diligence from
regulatory bodies reviewing ReceptoPharm’s applications for trials and
approvals. With these documents, ReceptoPharm has successfully applied for
approval to conduct a clinical investigation in the United Kingdom under the
regulation of the Medicines Health and Regulatory Agency (MHRA), which is the
British equivalent of the US-FDA.
Current Research and
Development Projects
Neurological
Studies
Pain
Studies
In an
effort to further support Nyloxin™ Extra Strength, ReceptoPharm plans to
complete two human clinical studies aimed at comparing the ability of Nyloxin™
Extra Strength to replace prescription pain relievers. ReceptoPharm originally
estimated that these studies would begin during the second quarter of 2010;
however, these studies have been delayed because of lack of funding. We
expect that these studies will begin by the third quarter of 2011.
MS Phase
II
ReceptoPharm
will continue its research and development, with the ultimate goal of completing
development of its future drug, RPI-78M. ReceptoPharm’s estimated start and
completion dates are October 2011 and October 2013, respectively, which includes
a 12 month patient trial period. ReceptoPharm has thus far incurred costs of
$40,000. ReceptoPharm has an estimated budget of $2,000,000.
Research
and Development
During
2008 and 2009, we had research and development costs of $229,790 and $222,558,
respectively. As of November 30, 2010, we have incurred research and development
costs of $177,104 for the current fiscal year.
We have
no customers with respect to our research and development projects since we have
not received FDA approval for our drug candidates
Marketing
We
currently do not have a marketing program for our drug candidates because none
of ReceptoPharm’s products have received FDA approval. Our lack of financing has
hampered our efforts to navigate the regulatory process in a timely fashion;
however, if and when we have FDA approved drug treatments, we plan to develop a
marketing strategy to market ReceptoPharm’s products through pharmaceutical
companies, other biotechnology companies, and diagnostic laboratories. Our Chief
Marketing Officer, David Isserman, will market the treatments to licensing and
development officers of those companies and will otherwise direct our marketing
program. Additionally, we will attempt to secure consulting agreements with
marketing consultants who will actively market our products to such companies
and/or provide our Chief Marketing Officer with marketing guidance.
Potential
Revenue Segments
Our
potential revenue segments are composed of our attempt to generate revenues from
license agreements, joint ventures in foreign countries, drug, and test kit
sales with pharmaceutical companies, biotechnology companies and clinical
diagnostic laboratories that generate license fees.
To date,
we have not earned any significant revenues regarding any drug candidate
potential revenue segments.
Product
Liability
We have
product liability insurance for our commercial products. Even so, product
liability claims may result in significant legal costs related to our defense of
such actions if damage amounts exceed our product liability insurance coverage.
The design, development, and manufacture of drug products or diagnostic tests
involves an inherent risk of product liability claims and corresponding damage
to our brand name reputation, including claims of product failure or harm caused
by the drug product. ReceptoPharm has product liability insurance for purpose of
manufacturing the drugs currently under clinical trials; however, there is no
assurance that such insurance would protect us against any product liability
claims. Designer Diagnostics has product liability insurance for its portfolio
of test kits; however, there is no assurance that such insurance would protect
us against any product liability claims.
Sources
and Availability of Raw Materials
ReceptoPharm
uses the raw material, cobra venom, for the drugs that it studies and in the
production of Cobroxin®.
There are at least three cobra venom based suppliers each in the United States
and the Peoples Republic of China from which ReceptoPharm may acquire cobra
venom, in addition to other suppliers in Thailand and India. We currently
have a supplier agreement with one of these suppliers. Paul
Reid, ReceptoPharm’s Chief Executive Officer, is responsible for
locating cobra venom suppliers on an as-needed basis, which involves obtaining a
small test amount from a supplier for scientific validation of that raw material
prior to purchase. Apart from cobra venom, we do not currently use raw
materials in our business.
Compliance
with Government Regulations and Need for Government Approval
The
production and marketing of potential drug products as well as research and
development activities generally are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, vaccines, drugs and certain diagnostic products are subject to FDA
review of safety and efficacy. The Federal Food, Drug and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in criminal prosecution and fines, recall or
seizure of products, total or partial suspension of production, or refusal of
the government to approve Biological License Applications ("BLAs"), Product
License Applications ("PLAs"), New Drug Applications ("NDAs") or refusal to
allow a company to enter into supply contracts. The FDA also has the authority
to revoke product licenses and establishment licenses previously
granted.
In order
to obtain FDA approval to market a new biological or pharmaceutical product,
proof of product safety, purity, potency and efficacy, and reliable
manufacturing capability must be submitted. This requires companies to conduct
extensive laboratory, pre clinical and clinical tests. This testing, as well as
preparation and processing of necessary applications, is expensive,
time-consuming and often takes several years to complete. There is no assurance
that the FDA will act favorably in making such reviews. Our potential partners,
or we, may encounter significant difficulties or costs in their efforts to
obtain FDA approvals, which could delay or preclude from marketing any products
that may be developed. The FDA may also require post-marketing testing and
surveillance to monitor the effects of marketed products or place conditions on
any approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if problems occur following initial
marketing, such as, compliance with regulatory standards is not maintained.
Delays imposed by governmental marketing approval processes may materially
reduce the period during which a company will have the exclusive right to
exploit patented products or technologies. Refusals or delays in the regulatory
process in one country may make it more difficult and time consuming to obtain
marketing approvals in other countries.
The FDA
approval process for a new biological or pharmaceutical drug involves completion
of preclinical studies and the submission of the results of these studies to the
FDA in an Initial New Drug application, which must be approved before human
clinical trials may be conducted. The results of preclinical and clinical
studies on biological or pharmaceutical drugs are submitted to the FDA in the
form of a BLA, PLA or NDA for product approval to commence commercial sales. In
responding to a BLA, PLA or NDA, the FDA may require additional testing or
information, or may deny the application. In addition to obtaining FDA approval
for each biological or chemical product, an Establishment License Application
("ELA") must be filed and the FDA must inspect and license the manufacturing
facilities for each product. Product sales may commence only when both BLA/ PLA/
NDA and ELA are approved. In certain instances in which a treatment for a rare
disease or condition is concerned, the manufacturer may request the FDA to grant
the drug product Orphan Drug status for a particular use. "Orphan Drug" status
refers to serious ailments affecting less than 250,000 individuals. In this
event, the developer of the drug may request grants from the government to
defray the costs of certain expenses related to the clinical testing of such
drug and be entitled to marketing exclusivity and certain tax
credits.
In order
to gain broad acceptance in the marketplace of a medical device, our partners or
we will need to receive approval from the FDA and other equivalent regulatory
bodies outside of the United States. This approval will be based upon clinical
testing programs at major medical centers. Data obtained from these institutions
will enable us, or our partners, to apply to the FDA for acceptance of its
technology as a "device" through a 510(k) application or exemption process. Once
the data have been fully gleaned, it is expected that this process would
take ninety days.
According
to the FDA, a "device" is: "an instrument, apparatus, implement, machine,
contrivance, implant, in vitro reagent, or other similar or related article,
including a component part, or accessory which is recognized in the official
National Formulary, or the United States Pharmacopoeia, or any supplement to
them, intended for use in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment, or prevention of disease, in man or other
animals, or intended to affect the structure or any function of the body of man
or other animals, and which does not achieve any of its primary intended
purposes through chemical action within or on the body of man or other animals
and which is not dependent upon being metabolized for the achievement of any of
its primary intended purposes."
The FDA
classifies devices as either Class I/II-exempt, Class II, or Class
III.
Class
III: Pre-Marketing Approval, or PMA: A Pre-Marketing Approval or PMA is the most
stringent type of device marketing application required by FDA. A PMA is an
application submitted to FDA to request clearance to market, or to continue
marketing of a Class III medical device. A PMA is usually required for products
with which FDA has little previous experience and in such cases where the safety
and efficacy must be fully demonstrated on the product. The level of
documentation is more extensive than for a 510(k) application and the review
timeline is usually longer. Under this level of FDA approval, the manufacturing
facility will be inspected as well as the clinical sites where the clinical
trials are being or have been conducted. All the appropriate documents have to
be compiled and available on demand by the FDA. The manufacturing facility is
registered with the FDA and the product or device is registered with the
FDA.
Class II:
510(k). This is one level down from the PMA and it is applied to devices with
which the FDA has had previous experience. A 510(k) is a pre-marketing
submission made to FDA to demonstrate that the device to be marketed is as safe
and effective, that is, substantially equivalent, to a legally marketed device
that is not subject to pre-market approval. Applicants must compare their 510(k)
device to one or more similar devices currently on the U.S. market and make and
support their substantial equivalency claims. The legally marketed device to
which equivalence is drawn is known as the "predicate" device. Applicants must
submit descriptive data and, when necessary, performance data to establish that
their device is SE to a predicate device. Again, the data in a 510(k) is to show
comparability, that is, substantial equivalency (SE) of a new device to a
predicate device. Under this level of approval, the manufacturing facility is
registered with the FDA and the product or device is registered with the FDA.
Inspections under this classification are possible. All the appropriate cGMP and
clinical data backing the claims made must be on file and available on demand by
the FDA.
Class
I/II Exemption: This is the lowest level of scrutiny. Most Class I devices and a
few Class II devices are exempt from the pre-marketing notification requirements
subject to the limitations on exemptions. However, these devices are not exempt
from other general controls. All medical devices must be manufactured under a
quality assurance program, be suitable for the intended use, be adequately
packaged and properly labeled, and have establishment registration and device
listing forms on file with the FDA. However, as described above, all the
appropriate documentation including cGMP and clinical data supporting the claims
being made has to be on hand and available on demand by the FDA. The data must
be available to support all the product claims.
Sales of
biological and pharmaceutical products and medical devices outside the United
States are subject to foreign regulatory requirements that vary widely from
country to country. Whether or not FDA approval has been obtained, approval of a
product or a device by a comparable regulatory authority of a foreign country
must generally be obtained prior to the commencement of marketing in that
country.
Designer
Diagnostics is also subject to regulation by the Occupational Safety and Health
Administration ("OSHA") and the Environmental Protection Agency ("EPA") and to
regulation under the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the future be subject to
other federal, state or local regulations. Designer Diagnostics believes that
they are in compliance with regulations regarding the disposal of its
biological, radioactive and chemical waste. Designer Diagnostics voluntarily
complies with NIH guidelines regarding research involving recombinant DNA
molecules. Such guidelines, among other things, restrict or prohibit certain
recombinant DNA experiments and establish levels of biological and physical
containment that must be met for various types of research.
Effect
of Compliance with Federal, State, and Local Provisions for the Protection of
the Environment
We have
no present or anticipated direct future costs associated with environmental
compliance, since we are not and will not be directly involved in manufacturing
drug products as result of our research and development; however, we may be
affected in the percentage licensing fees we receive, since a company may
consider the environmental expense as an offset to a determination of the
percentage amount we receive. ReceptoPharm produces a drug that has limited
waste issues and related costs, but handles environmentally related matters
through the FDA's Good Manufacturing Practices, the FDA mandated guidelines
pertaining to the production of drugs in the United States.
Ability
to Compete
The
biotechnology research and development field is extremely competitive and is
characterized by rapid change. Our competitors have substantially greater
financial, scientific, and human resources, and as a result greater research and
product development capabilities. Our competitors have competitive advantages
with greater potential to develop revenue streams. Our competitors are located
in the United States as well as around the world. We will attempt to complete by
establishing strategic partners or alliances with pharmaceutical companies,
academic institutions, biotechnology companies, and clinical diagnostic
laboratories, which will enter into joint ventures, emphasizing that the drugs
RPI-MN and RPI-78M possess the following properties:
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They
lack measurable toxicity but are still capable of attaching to and
affecting the target site on the nerve cells. This means that patients
cannot overdose.
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They
display no adverse side effects following years of investigations in
humans and animals.
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The
products are stable and resistant to heat, which gives the drug a long
shelf life. The drugs’ stability has been determined to be over 4 years at
room temperature.
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RPI-78M
can be administered orally; however, ReceptoPharm has not yet developed an
orally administered RPI-78M. RPI-78M has been routinely delivered by injection
in a manner similar to insulin, but research over the past two years has given
rise to administration by mouth. Oral delivery presents patients with
additional “quality of life” benefits by eliminating or decreasing the
requirements for routine injections. Should we receive adequate
funding, ReceptoPharm plans to develop an orally administered RPI-78M by
initiating new trials with an oral version of that drug.
Main
Competitors (Biologics)
Competition
is intense among companies that develop and market products based on advanced
cellular and molecular biology. ReceptoPharm’s competitors, including Amgen,
Aventis, Cephalon, Genetech, Genzyme, Immunex Corp., Novartis, Regeneron and
Schering-Plough, which have far superior financial, technological and
operational resources. We face significant competition from these and other
biotechnology and pharmaceutical firms in the United States, Europe and
elsewhere. Certain specialized biotechnology firms have also entered into
cooperative arrangements with major companies for development and
commercialization of products, creating an additional source of
competition.
Any
products or technologies that successfully address viral or neurological
indications could negatively impact the market potential for RPI-78M or RPI-MN.
These include products that could receive approval for indications similar to
those for which RPI-78M or RPI-MN seeks approval, development of biologic or
pharmaceutical treatments that are more effective than existing treatments and
the development of other modalities with reduced toxicity and side
effects.
Interferon-based
drugs and their indications represent target markets for ReceptoPharm. Sales of
interferon-based drugs annually exceed $6 billion and have attracted the
participation of several major drug companies, including Schering-Plough and
Roche. Currently, there are five interferon-based drugs licensed in Canada and
the U.S.; three for the treatment of the milder Relapsing-Remitting form of MS
and two for Hepatitis C. These interferons are also used in the treatment of
other conditions where treatment options are limited. The interferons for MS are
Betaseron (Berlex/Schering), Avonex (Biogen) and Rebif (Serono). Since the
launch of these drugs, the number of patients undergoing treatment has
stabilized at current levels, indicating that there is a high turnover rate of
patients in the administration of these individual drugs due to cost and side
effects. Biogen developed Avonex in the early 1990’s and has been shipping the
drug since late 1996. In the United Kingdom, the National Institute
for Clinical Efficiency (NICE) has called for the withdrawal of Betaseron and
another unrelated drug, Copaxone (Teva), from the market based on poor
cost/effectiveness.
Schering-Plough
manufactures alpha-interferon (Intron-A) and Roche produces Roferon as the only
treatments for Hepatitis C. Schering-Plough also developed the drug Ribavirin as
a general antiviral agent which, when combined, with Intron-A, is a treatment
for Hepatitis C. This combination is called
Ribitron. Treatment with Intron-A costs $19,000 per year though
initial treatment periods are usually for 12 months. It is the high
cost and significant side effects that prevents the widespread uptake of this
drug by the 4 million Hepatitis C sufferers in the US. Other companies producing
interferon-based products include Amgen (INFERGEN) and Viragen.
Main
Competitors (Venom-Based Drugs)
We view
our main competitors as those who also engage in the development of
protein-based neurotoxins as therapeutics. Employing venoms as therapeutics is
not new. A large number
of well-known pharmaceutical companies are developing novel therapies derived
from snake venoms and other reptiles. Most of those using snake venoms employ
the anticoagulant enzymes usually from viperids (adders and rattlesnakes) though
elapids (cobra family) are also being investigated.
We have
set forth below a summary of venom-based drugs and their potential
applications.
Company
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Drug
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Application
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Knoll
Pharmaceutical
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Ancrod
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Anticoagulant
from rattlesnakes
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Medicure
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Aggrastat
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Antiplatelet
drug from vipers
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Millennium
Pharmaceutical
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Integrilin
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Antiplatelet
drug from rattlesnakes
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Amylin
Pharmaceuticals
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Extendin-4
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Treatment
for type 2 diabetes and obesity from Gila
Monster
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Current
cobra venom-based therapies include Keluoqu, a pain-killing drug on the market
in China since 1978. Keluoque contains cobrotoxin as its primary ingredient and
is used to control severe pain in advanced cancer patients and for
post-operative pain.
Contract
Research Services
In
addition to its drug discovery research, ReceptoPharm is also engaged in
providing contract research services to third-party biotechnology and
pharmaceutical companies. ReceptoPharm announced in December 2008 that it had
received a clinical drug supply contract for Celtic Biotech, an Ireland-based
biotechnology company developing a treatment to cancer. ReceptoPharm
fulfilled this contract during the fourth quarter of 2009 and will continue to
seek additional clients for its contract research services.
Designer
Diagnostics
Designer
Diagnostics developed diagnostic test kits designed to be used for the rapid
identification of infectious diseases, such as Nontuberculous Mycobacteria
(NTM). Currently, these test kits are being tested by National Jewish Hospital
in Denver, Colorado. We will reassess our business plan with respect to Designer
Diagnostics upon completion of testing at National Jewish
Hospital.
Nontuberculous Mycobacterium
(NTM)
Nontuberculous
Mycobacterium (NTM), also known as atypical Tuberculosis (Atypical TB) or
Mycobacterium other than Tuberculosis (MOTT) are bacteria that can be found in
water, some domestic and wild animals, and soil. NTM is a primary cause of
respiratory disease in humans and is a leading cause of death in HIV/AIDS
patients. In countries (such as the U.S. and Canada) that have dramatically
reduced TB as a major disease, NTM bacteria have become a larger issue. National
Jewish Medical Research Center in Denver, Colorado, has reported a major
increase in the U.S., with over 800 patients infected in Denver in 2005 and 1500
regional centers around the country are using the National Jewish Research
Center for NTM testing.
A study
done in India on HIV/AIDS patients has shown that over 9% of HIV/AIDS patients
that have TB also have some form of NTM that requires different antibiotic
procedures.
The NTM
bacteria usually enter the body through inhalation or by drinking water that has
been contaminated by the NTM bacteria. Additionally, the NTM bacteria can enter
the body through open wounds. These bacteria cannot be spread directly between
people. There are over 20 different types of NTM, which include
Para-Tuberculosis, Nocardia, Pseudomonas and M.avium Complex (MAC).
Tuberculosis
(TB)
Tuberculosis
(TB) is a contagious disease. Like the common cold, it spreads through the air.
Only people who are sick with TB in their lungs are infectious. When infectious
people cough, sneeze, talk or spit, they propel TB germs, known as bacilli, into
the air. A person needs only to inhale a small number of these to be infected.
Left untreated, each person with active TB disease will infect on average
between 10 and 15 people every year. It is estimated that 1.7 million deaths
resulted from TB in 2004. Strains of TB resistant to all major anti-TB drugs
have recently emerged. A particularly dangerous form of drug-resistant TB is
multidrug-resistant TB (MDR-TB), which is defined as the disease caused by TB
bacilli resistant to at least isoniazid and rifampicin, the two most powerful
anti-TB drugs. Rates of MDR-TB are high in some countries, especially in the
former Soviet Union, and threaten TB control efforts. More recently, XDR-TB
(Extensively drug-resistant tuberculosis) has been discovered. XDR-TB is a
mutated form of MDR-TB that seems to be highly resistant to all of the known
treatments for the disease.
Designer
Diagnostics’ kits are being developed to detect the NTM and TB bacteria.
If this product development is successful, it may lead to the treatment
of patients before dangerous (often fatal) symptoms appear.
Market
Competition – Designer Diagnostics
We view
the main competition to Designer Diagnostics’ Test Kit technology to be divided
into two areas: Tuberculosis and Nontuberculous Mycobacterium. In the TB
(Tuberculosis) Test Kit arena, Designer Diagnostics’ main competitors are
Becton, Dickinson and Company and their TB test kit is widely used throughout
the world.
We intend
to emphasize the advantages of our Designer Diagnostic kit on the basis of lower
cost and that it does not require refrigeration or specialized equipment for
utilization. When looking at NTM (Nontuberculous Mycobacterium) Test Kits,
there is no competition with a kit that will work on all 15 identified types of
NTMs. Becton, Dickinson and Company is a purveyor and major competition
for kits that can be used for NTMs, but they require different tests for most
types. The Designer Diagnostics NTM Test Kit can be used to identify all types
and subtypes of NTMs in a single test. Additionally, there is currently no
competition for the use of an NTM test for environmental applications. Designer
Diagnostics has begun marketing the first ever diagnostic test for identifying
NTMs in soil, water and other environmental media.
Nanologix
On
January 24, 2006, we entered into an Agreement with NanoLogix whereby we
exchanged our holding of NanoLogix common stock for the intellectual property
pertaining to the manufacture of test kits for the rapid isolation, detection
and antibiotic sensitivity testing of certain microbacteria. Designer
Diagnostics owns 11 issued patents and has licensing rights to 18 issued patents
related to the rapid isolation, growth, identification and antibiotic
sensitivity of disease causing pathogens such as Tuberculosis ("TB") and
Mycobacterium avium-intracellulare ("MAI"). The patented technologies are
related to a technique known as "paraffin baiting". The researchers discovered
that certain grades of paraffin wax, when used in conjunction with a microscope
slide, and combined with a nutrient broth, provides for the rapid isolation,
growth and identification of various disease causing pathogens. Designer
Diagnostics markets a diagnostic test kit based on this technology. Designer
Diagnostics plans to market its products to hospitals, clinical laboratories,
medical research institutions, medical schools, physician's offices, and even
pharmaceutical companies, as the antibiotic sensitivity testing methodology may
be useful in creating new drugs to treat paraffinophilic
microorganisms.
Bio-Therapeutics,
Inc.
On
October 3, 2003, we entered into a non-assignable license agreement between
Bio-Therapeutics, Inc. and us, which was then amended to make the license
agreement assignable. This agreement was in settlement of a lawsuit that we
filed against Bio-Therapeutics alleging that Bio-Therapeutics owed us $850,000
in connection with a merger agreement between us and Bio-Therapeutics, which was
cancelled.
The 2003
license agreement provides that for a non-exclusive license to certain
intellectual property of Bio-Therapeutics, Inc, which consists of the following
two distinct technology platforms:
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Alteration of Proteins and
Peptides - These include patented methods for altering the 3-Dimensional
structure of certain proteins and peptides. The natural peptides bind to
receptors in the body with toxic effects. This technology allows us to
alter the structure of these peptides, preserving their receptor-binding
characteristics, while making them non-toxic and therapeutic. Different
receptors have various functions in many disease states. By the peptides
binding to these receptors in a controlled fashion, certain disease
symptoms may be treated. In connection with MS, binding to the
acetylcholine receptor on the nerves allows for more efficient nerve
conduction. With HIV, binding to chemokine receptors may prevent the virus
from entering and infecting new
cells.
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Non- Exclusive License for
“Buccal Delivery System”(“Buccal”) – An innovative aerosolized
drug delivery system that is patent pending. Many
therapeutic agents cannot be effectively delivered by aerosol formulation
due to their large size and/or irregular shapes. Since these therapeutic
agents cannot be ingested orally without being degraded by the digestive
system, patients have no alternative but to directly inject these drugs.
We have a non-exclusive license to the Bucall patent pending proprietary
aerosol formulation, which greatly enhances the permeability of the mucous
membranes found on the roof of the mouth and the back of the throat. This
allows for the easy and efficient systemic delivery into the bloodstream
of a much wider variety of proteins and peptides. This non-exclusive
license for "Buccal Delivery System" and patent pending application
includes claims that identify the active mucosal enhancer, its combination
with therapeutic agents and the mode of delivery through aerosol. This may
allow for the effective and pain-free delivery of peptide and protein
therapeutics for the treatment of HIV and
MS.
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We have
the following patents expiring at various dates indicated below:
Bio-Therapeutics
Patents
We hold
the license to certain intellectual property belonging to Bio-Therapeutics that
has either been granted a patent or is in the patent application process as
follows:
U.S.
Patent No. 5,989,857, Polypeptide compositions and methods was granted in
November 1999 with 10 claims. The patent outlines a method of preparing a
bioactive polypeptide in a stable, inactivated form, the method comprising the
step of treating the polypeptide with ozonated water in order to oxidize and/or
stabilize the cysteine residues, and in turn, prevent the formation of disulfide
bridges necessary for bioactivity. This patent expires on May 10,
2016.
U.S.
Patent No. 6,670,148, Compositions comprising bioactive peptides prepared
without formation of native disulfide bonds was granted in December 2003, with 9
claims. The patent further describes a method of preparing a bioactive
polypeptide in a stable, inactivated form, the method comprising the step of
treating the polypeptide with ozonated water in order to oxidize and/or
stabilize the cysteine residues, and in turn, prevent the formation of disulfide
bridges necessary for bioactivity. The method can involve the use of ozonated
water to both oxidize the disulfide bridges in a bioactive polypeptide, and to
then stabilize the resultant cysteine residues. Optionally, and preferably, the
method can involve the use of ozonated water to stabilize the cysteine residues,
and thereby prevent the formation of disulfide bridges, in a polypeptide
produced by recombinant means in a manner that allows the polypeptide to be
recovered with the disulfide bridges unformed. This Patent expires on
May 10, 2016.
U.S.
Patent Application Number 11/415377, Buccal Delivery System, with 20 claims. The
patent describes a delivery formulation and system for delivering inactivated
bioactive peptides to the body. The formulation includes effective amounts of
the peptide as well as a mucosal permeation enhancer selected from the group
consisting of quaternary ammonium salts. The system can be used by spraying the
formulation into the buccal cavity, e.g., to the roof of the mouth. This
application is currently listed as abandoned as of December 2009.
U.S.
Patent Application Number 11/431126, Immunokine composition and method with 31
claims. The patent describes a composition and method for preventing HIV
infection of mammalian cells. One aspect of the invention relates to an
anti-immunodeficiency virus immunokine capable of binding to a cellular protein
in a manner that prevents HIV infection of that cell. The compositions can
include either an active bioactive polypeptide, such as native cobratoxin,
and/or an inactivated bioactive polypeptide, such as cobratoxin in which one or
more of the native disulfide bridges have been prevented from forming. The term
"immunokine" is used to refer to an inactivated bioactive polypeptide, whether
inactivated by chemical, genetic, and/or synthetic means as described herein,
with the proviso that a corresponding active bioactive polypeptides can be
included where applicable (e.g., for in vitro use). This application is
currently listed as abandoned as of June 2009
ReceptoPharm
Patents
ReceptoPharm
has one issued and several patents pending with the United States Patent and
Trademark Office. These patents include:
U.S.
Patent No. 7,758,894, Modified elapid venoms as stimulators of the
immune reaction was granted in July, 2010 with 14 claims. The patent describes a
method of protection from infections by administering a detoxified and
neurotropically active modified venom containing alpha-cobratoxin. Protection
includes bacterial, viral and parasitic infections. This patent is meant to
protect and support our work in our production of anti-infective treatments.
Currently, this would be applied to RPI-MN and RPI-78.
U.S.
Patent Application Number 11/217,713, Modified venom and venom components as
anti-retroviral agents with 10 claims was filed in September 2005. The present
invention describes a method of treatment of human subject suffering from
infection with HIV, comprising administering a disease mitigating amount of a
detoxified, modified cobra venom composition in an amount effective to
ameliorate at least one symptom of said infection. This patent is meant to
protect and support our work in the production of anti-viral treatments.
Currently, this would be applied to RPI-MN and RPI-78.
U.S.
Patent Application Number 11/642,312, Use of cobratoxin as an analgesic with 5
claims was filed in December 2006. The patent describes a composition of matter
for an analgesic and its method of use is disclosed. The method of use is for
the treatment of chronic pain, especially to the treatment of heretofore
intractable pain as associated with advanced cancer. The pain associated with
neurological conditions, rheumatoid arthritis, viral infections and lesions is
also contemplated. The method includes administering to a host an
alpha-neurotoxin that is characterized by its ability to blocking of the action
of acetylcholine at nicotinic acetylcholine receptors. This patent is meant to
protect and support the Company’s work in the production of drugs for the
treatment of pain.
U.S.
Patent Application Number 10/947,434, Modified Anticholinergic Neurotoxins as
Modulators of the Autoimmune Reaction was filed in September 2004. The patent
describes a method of treatment of a human patient suffering from Multiple
Sclerosis comprising the administration of a disease-mitigating amount of a
composition consisting of detoxified and modified alpha-cobratoxin in a saline
solution. This patent is meant to protect and support our work in the production
of drugs for the treatment of auto-immune diseases.
U.S.
Patent Application Number 11/784,607, Treatment of Autoimmune Disorders Using
Detoxified Cobratoxin was filed in April 2007. The patent describes a method of
treating patients suffering from autoimmune disorders comprising the
administration of detoxified cobra venom. This patent is meant to protect and
support our work in the production of drugs for the treatment of auto-immune
diseases. Currently, this would be applied to RPI-78MN.
U.S.
Patent Application Number 12/317,115, Alpha-neurotoxin Proteins with
Anti-inflammatory Properties and Uses Thereof was filed in December 2008. The
patent describes a method of treating an arthritic condition comprising the
administration to a subject in need thereof an effective amount of a
pharmaceutical composition comprising an isolated alpha-neurotoxin protein or an
effective fragment thereof. This patent is meant to protect and support our work
in the production of drugs for the treatment of inflammatory
diseases.
Patents Assigned to Us by
Nanologix, Inc. and Used by Designer Diagnostics
On
January 24, 2006 we entered into an Agreement with NanoLogix whereby we
exchanged our entire holding of NanoLogix common stock for intellectual property
pertaining to the manufacture of test kits for the rapid isolation, detection
and antibiotic sensitivity testing of certain mycobacteria. The agreement
provides that: (a) NanoLogix has reassigned to us 11 key patents protecting the
diagnostics test kit technology in exchange for our entire holding of NanoLogix
stock represented by 4,556,174 shares of that stock; (b) NanoLogix has licensed
to us the remaining 18 patents that protect the diagnostics test kit technology
in exchange for a 6% royalty on the gross sales of the products based on the
licensed technology or escalating minimum payments starting at $20,000 annually;
(c) we issued to NanoLogix 1 million options of our restricted common stock at
$.20 per share; and (d) we will allow NanoLogix to continue their use of these
patents for development of their hydrogen technology and other technologies
unrelated to medical diagnostic test kits.
On or
about July 2009, we ceased paying the minimum royalties to Nanologix for the
licensed patents and have allowed full rights to those patents to revert back to
Nanologix.
We own 11
issued U.S. patents covering technologies related to growing, detecting,
identifying, defining antibiotic sensitivity and designing apparatus for the
detection of 32 different paraffin-eating microorganisms that were assigned to
us by Nanologix, Inc.. These patents are used by our wholly owned subsidiary,
Designer Diagnostics.
U.S.
Patent No. 5,989,902, Method for determining the antimicrobial agent sensitivity
of a nonparaffinophilic hydrophobic microorganism and an associated apparatus
was granted in November 1999 with 3 claims. The patent describes a method for
determining a sensitivity of a nonparaffinophilic hydrophobic microorganism to
an antimicrobial agent. The method includes providing at least one receptacle
containing an aqueous broth including a carbon source and introducing the
nonparaffinophilic hydrophobic microorganism into the receptacle. The method
further includes placing into the receptacle (i) a slide coated with a
hydrophobic material and (ii) a predetermined quantity of the antimicrobial
agent to be tested. By observing the nonparaffinophilic hydrophobic
microorganism growth or lack thereof on the slide, it can be determined whether
the predetermined quantity of the antimicrobial agent is effective in inhibiting
growth of the nonparaffinophilic hydrophobic microorganism on the slide. An
associated apparatus is also disclosed. This Patent expires on
November 13, 2017.
U.S.
Patent No. 5,981,210, Method for determining a presence or absence of a
nonparaffinophilic hydrophobic microorganism in a body specimen by using a DNA
extraction procedure and a novel DNA extraction procedure was granted in
November 1999 with 17 claims. The method of the invention involves providing a
first receptacle and a second receptacle. The first receptacle contains a
sterile aqueous broth and the second receptacle contains an aqueous broth
including a carbon source. The method then includes placing into the first
receptacle a first support surface having a paraffin wax coating thereon and
placing into the second receptacle a second support surface having a hydrophobic
material coating thereon. A body specimen, such as sputum, is then introduced
into each of the first and second receptacles. The presence of a
nonparaffinophilic hydrophobic microorganism in the body specimen is determined
by observing (i) a lack of microorganism growth on the paraffin coated material
of the first support surface and (ii) a presence of microorganism growth on the
hydrophobic material coating of the second support surface. The presence of the
nonparaffinophilic hydrophobic microorganism can be further confirmed by
performing a DNA extraction. An associated DNA extraction procedure is also
provided. This Patent expires on November 13, 2017.
U.S.
Patent No. 5,935,806, Method and apparatus for speciating and identifying MAI
(Mycobacterium Avium Intracellulare) and testing the same for antibiotic
sensitivity was granted in August 1999 with 3 claims. The patent describes a
method of speciating and identifying MAI in a specimen comprises placing a
paraffin coated slide in a receptacle containing a sterile aqueous solution
inoculated with the specimen, analyzing the slide after exposure to the specimen
to determine the presence or absence of atypical Mycobacteria, and after the
analysis step, if atypical Mycobacteria are determined to be present, performing
at least one speciation assay to ascertain if the atypical Mycobacteria are MAI.
A related apparatus is also disclosed for speciating and identifying MAI in a
specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous
solution contained therein, the tube adapted to hold the slide, and at least one
speciation assay means for performing an assay to determine the presence or
absence of MAI in the specimen after the specimen is introduced into the tube
holding the solution and the slide. An apparatus and method for determining the
sensitivity of MAI to different antibiotics and dosages thereof is also
provided. This Patent expired on October 24, 2009 for failure to timely pay
maintenance fees.
U.S.
Patent No. 5,882,920, Apparatus for determining the presence or absence of a
paraffinophilic microorganism was granted in March 1999 with 4 claims. The
patent describes a method of determining the presence of a paraffinophilic
microorganism in a specimen taken from a patient. The method includes providing
a receptacle containing an aqueous solution and adjusting the solution to mimic
the in vivo clinical conditions of the patient. The method then further includes
inoculating the solution with the specimen and then placing in the receptacle a
paraffin coated slide to bait the paraffinophilic microorganism. The slide is
then analyzed after exposure to the specimen to determine the presence or
absence of the paraffinophilic microorganism. An associated apparatus is also
disclosed. This Patent expires on November 9, 2015.
U.S.
Patent No. 5,854,014, Apparatus for testing paraffinophilic microorganisms for
antimicrobial sensitivity was granted in December 1998 with 2 claims. The patent
describes an apparatus for determining the antimicrobial agent sensitivity of a
paraffinophilic microorganism from a specimen obtained from a patient. The
apparatus includes a receptacle containing an aqueous solution, an amount of
antimicrobial agent to be tested and the specimen. The apparatus further
consists of a paraffin coated slide placed into the receptacle. This Patent
expired October 24, 2009 for failure to timely pay maintenance
fees.
U.S.
Patent No. 5,846,760, Method for determining a presence or absence of a
nonparaffinophilic hydrophobic microorganism in a body specimen and an
associated kit was granted in December 1998 with 15 claims. The method of the
invention involves providing a first receptacle and a second receptacle. The
first receptacle contains a sterile aqueous broth and the second receptacle
contains an aqueous broth including a carbon source. The method then includes
placing into the first receptacle a first support surface having a paraffin wax
coating thereon and placing into the second receptacle a second support surface
having a hydrophobic material coating thereon. A body specimen, such as sputum,
is then introduced into each of the first and second receptacles. The presence
of a nonparaffinophilic hydrophobic microorganism in the body specimen is
determined by observing (i) a lack of microorganism growth on the paraffin
coated material of the first support surface and (ii) a presence of
microorganism growth on the hydrophobic material coating of the second support
surface. An associated kit is also disclosed. This Patent expires on November
13, 2017
U.S.
Patent No. 5,776,722, Method of testing a body specimen taken from a patient for
the presence or absence of a microorganism and a further associated method and
associated apparatus was granted in July 1998 with 40 claims. The patent
describes a method of testing a body specimen taken from a patient for the
presence or absence of a microorganism. A transport/isolator assembly is
provided which includes a receptacle and a baiting assembly including a baiting
section having disposed thereon a coating material. A baiting liquid and the
body specimen are then introduced into the receptacle. The method further
comprises securing the baiting assembly to the receptacle so that at least a
portion of the coated section is introduced into the baiting liquid. The
transport/isolator assembly containing the baiting liquid and the body specimen
are then transported to a laboratory for subsequent observation of the coated
section for growth or lack thereof of the microorganism. A further method of
processing the body specimen and an associated isolator/transport assembly kit
as well as an associated isolator/transport assembly are also disclosed. This
Patent expires on September 25, 2017.
U.S.
Patent No. 5,569,592, Apparatus for testing MAI (Mycobacterium Avium
Intracellulare) for antimicrobial agent sensitivity was granted in October 1996
with 3 claims. The patent describes an apparatus for determining the sensitivity
of MAI to different antimicrobial agents and dosages thereof is provided. The
apparatus comprises a plurality of test tubes adapted to contain an amount of an
antimicrobial agent to be tested and MAI complex organisms to be assayed and a
separate paraffin coated slide adapted for placement in each of the test tubes.
The growth of the MAI complex organisms on the slide can be used to determine
the concentration of the antimicrobial agent necessary to resist MAI complex
organism growth on the slide. An associated method is also disclosed. This
Patent expires on October 29, 2013.
U.S.
Patent No. 5,472,877, Apparatus for determining the presence or absence of MAI
(Mycobacterium Avium Intracellulare) was granted in December 1995 with 6 claims.
The patent describes a method of speciating and identifying MAI in a specimen
comprises placing a paraffin coated slide in a receptacle containing a sterile
aqueous solution inoculated with the specimen, analyzing the slide after
exposure to the specimen to determine the presence or absence of atypical
Mycobacteria, and after the analysis step, if atypical Mycobacteria are
determined to be present, performing at least one speciation assay to ascertain
if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for
speciating and identifying MAI in a specimen comprising a paraffin-wax coated
slide, a tube having a sterile aqueous solution contained therein, the tube
adapted to hold the slide, and at least one speciation assay means for
performing an assay to determine the presence or absence of MAI in the specimen
after the specimen is introduced into the tube holding the solution and the
slide. An apparatus and method for determining the sensitivity of MAI to
different antibiotics and dosages thereof is also provided. This Patent expires
on December 5, 2012.
U.S.
Patent No. 5,316,918, Method and apparatus for testing MAI (Mycobacterium Avium
Intracellulare) for antimicrobial agent sensitivity was granted in May 1994 with
7 claims. The patent describes an apparatus and method for determining the
sensitivity of MAI to different antimicrobial agents and dosages thereof is
provided. The apparatus comprises a plurality of test tubes adapted to contain
an amount of an antimicrobial agent to be tested and MAI complex organisms to be
assayed and a separate paraffin coated slide adapted for placement in each of
the test tubes. The growth of the MAI complex organisms on the slide can be used
to determine the concentration of the antimicrobial agent necessary to resist
MAI complex organism growth on the slide. An associated method is also
disclosed. This Patent expires on May 31, 2011.
U.S.
Patent No. 5,153,119, Method for speciating and identifying MAI (Mycobacterium
Avium Intracellulare) was granted in October 1992 with 15 claims. The patent
describes a method of speciating and identifying MAI in a specimen comprises
placing a paraffin coated slide in a receptacle containing a sterile aqueous
solution inoculated with the specimen, analyzing the slide after exposure to the
specimen to determine the presence or absence of atypical Mycobacteria, and
after the analysis step, if atypical Mycobacteria are determined to be present,
performing at least one speciation assay to ascertain if the atypical
Mycobacteria are MAI. A related apparatus is also disclosed for speciating and
identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube
having a sterile aqueous solution contained therein, the tube adapted to hold
the slide, and at least one speciation assay means for performing an assay to
determine the presence or absence of MAI in the specimen after the specimen is
introduced into the tube holding the solution and the slide. An apparatus and
method for determining the sensitivity of MAI to different antibiotics and
dosages thereof is also provided. This Patent expired on October 24,
2009.
Employees
We employ
a total of 11 employees as of December 13, 2010.
MANAGEMENT
The
following is a list of our directors and executive officers. All directors serve
one-year terms or until each of their successors are duly qualified and elected.
The officers are elected by our Board.
Name
|
|
Age
|
|
Position with
the Company
|
Rik
J. Deitsch
|
|
42
|
|
Chairman,
President, Chief Executive Officer, and Chief Financial
Officer
|
David
Isserman *
|
|
27
|
|
Chief
Marketing Officer
|
Stewart
Lonky, M.D.
|
|
63
|
|
Director
(1)
|
Harold
H. Rumph
|
|
80
|
|
Director
|
Garry
R. Pottruck
|
|
54
|
|
Director
(1)
|
* Resigned effective December 20, 2010
|
(1)
|
Dr.
Lonky and Mr. Pottruck are members of our Audit Committee and
Compensation Committee.
|
Rik J. Deitsch has been our
President, Chief Executive Officer, Chief Financial Officer, and a Director
since November 7, 2002 and our Chairman of the Board from December 15, 2003
until June 1, 2005 and from April 1, 2006 to present. On August 27, 2009, Mr.
Deitsch was elected as a director of Xtreme Geen Products Inc. From February
1998 through November 2002, Mr. Deitsch served as the President of NDA
Consulting Inc., a biotechnology research group that provided consulting
services to the pharmaceutical industry. In October 1999, Mr. Deitsch founded
Wellness Industries, a private corporation that provides formulations, research
and education in the dietary supplement industry. Mr. Deitsch received a B.S. in
Chemistry and an M.S. in Biochemistry from Florida Atlantic University in June
1997 and December 1999, respectively. Throughout 1999 and 2000, he conducted
research for the Duke University Medical School Comprehensive Cancer Center. Mr.
Deitsch is the co-author of two books: Are You Agewise: A Guide to Healthy Aging
and Invisible Killers: the Truth About Environmental Genocide. Mr. Deitsch has
been the Chairman of Waiora's Scientific Advisory Board since April 2004. Waiora
develops and markets natural, science-based dietary supplements and personal
care products that provide healthy aging solutions.
David Isserman became our
Chief Marketing Officer in January 2010 and resigned effective December 20,
2010. He served as our outside consultant from 2003 to
2009. From 2001 to December 2009, Mr. Isserman served as
President of Isserman Consulting, a boutique marketing communications
consultancy that advised early-stage biotechnology, consumer products and
technology companies, and was a co-founder of RareShare, a website developed to
connect patients and healthcare providers affected by rare medical
disorders. Since 2001, Mr. Isserman has served on several
scientific and environmental non-profit boards and currently serves as a Trustee
for the Academy of Science of St. Louis, Missouri. In December 2009, Mr.
Isserman received his Master of Business Administration (MBA) from Columbia
Business School in New York.
Dr. Stewart Lonky has been our
director since November 5, 2004. Dr. Lonky is a co-founder of the Tryon
Corporation, a medical test kit firm located in Torrance, California and has
served as its Chief Medical Officer since 1990. Trylon Corporation has developed
diagnostic products for the early diagnosis of cervical and oral cancer, and in
connection with that Dr. Lonky's responsibilities have included product
development, the direction of clinical research and interacting with regulatory
agencies, including the U.S. Food and Drug Administration (FDA). In these roles
he has been instrumental in successfully bringing a number of products to the
medical marketplace. He has continued to be engaged in both clinical and
biochemical research, and has published research articles in the peer-reviewed
literature in the areas of cervical cancer and cellular pathophysiology. Dr.
Lonky has been a practicing physician in the Los Angeles Area since 1982. He is
Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care
Medicine. Prior to entering practice, Dr. Lonky served as a full-time faculty
member at the University of California, San Diego in the Department of Medicine,
Pulmonary Division, where he was engaged in research in the biochemistry of lung
injury. He was a National Institutes of Health (NIH) Postdoctoral Fellow from
1974-77. He has published over twenty articles and abstracts in the
peer-reviewed literature during that time, and authored two book
chapters.
Harold H. Rumph became our
Director on April 10, 2008 when ReceptoPharm became our wholly owned subsidiary.
From May 2003 to present, Harold H. Rumph
has been the President/Director of ReceptoPharm, Inc., a biotechnology company
located in Plantation, Florida. From September 1988 to April 2003, Mr. Rumph was
the President/Founder of Project Scheduling Services, Inc., a computerized
scheduling services company to the construction industry, located in Pompano
Beach, Florida. From 1962 to 1988, Mr. Rumph held managerial, marketing , and
other positions with IBM, RCA, Xerox , Harris Corporation and was a founder and
President of Biogenix, Inc., a biotechnology company located in Boca Raton,
Florida. From 1953 to 1962, Mr. Rumph served on active duty with various
responsibilities including Tactical Fighter Pilot and at Headquarters United
States Air Force Intelligence with the United States Air Force. In 1953, Mr.
Rumph received a Bachelor of Science Degree in Military Science from the United
States Naval Academy in Annapolis Maryland.
Garry Pottruck became our
director and Chairman of our Audit and Compensation Committees after our
December 31, 2008 year end, on July 29, 2009. Since October 2005, he has been a
Principal in the accounting and consulting firm, Argy, Wiltse & Robinson, PC
(“Argy”), headquartered in McLean, Virginia. From July 1997 through October
2005, he was managing partner in the certified public accounting firm, Friedberg
& Pottruck, PA, located in Deerfield Beach, Florida until that firm was
acquired by Argy. Friedberg & Pottruck specialized in providing accounting,
tax and consulting services to physician practices. Mr. Pottruck held financial
executive positions with several companies, both public and private, from 1984
through 1994, including more than three years as Chief Accounting
Officer/Controller at Scopas Technology Company, Inc., a NASDAQ listed,
development stage biotechnology research and development organization. Prior to
1984, Mr. Pottruck worked for public accounting firms after graduating with a
B.S. Degree in Accounting from the C.W. Post School of Professional Accountancy
at Long Island University in 1979. He is currently a member of both the Florida
and American Institutes of Certified Public Accounting, and is licensed as a
Certified Public Accountant in both Missouri and Florida.
Corporate
Governance
Committees
of the Board of Directors
Our Board
has established an Audit Committee and a Compensation Committee. We
have not established a Nominating Committee. The function of this
committee is being undertaken by the entire Board as a whole. The
Board and its Committees meet throughout the year and act by written consent
from time to time as appropriate. Committees regularly report on
their activities and actions to the Board. The Audit Committee has a
written charter approved by the Board.
Our Board
has determined that none of our Directors are independent under the NASDAQ Stock
Market Listing Rules. Also, our Board has determined that Messrs.
Lonky and Pottruck are qualified as Audit Committee Financial Experts, as that
term is defined by the rules of the SEC and in compliance with the
Sarbanes-Oxley Act of 2002.
Audit
Committee
The Audit
Committee’s primary role is to review our accounting policies and any issues
which may arise in the course of the audit of our financial
statements. The Audit Committee selects our independent registered
public accounting firm, approves all audit and non-audit services, and reviews
the independence of our independent registered public accounting
firm. The Audit Committee also reviews the audit and non-audit fees
of the auditors. Our Audit Committee is also responsible for certain
corporate governance and legal compliance matters including internal and
disclosure controls and compliance with the Sarbanes-Oxley Act of
2002.
Compensation
Committee
The
function of the Compensation Committee is to determine the compensation of our
executive officers. The Compensation Committee has the power to set
performance targets for determining periodic bonuses payable to executive
officers and may review and make recommendations with respect to shareholder
proposals related to compensation matters. Additionally, the
Compensation Committee is responsible for administering our 2007 Equity
Incentive Plan, or the Plan. Our Compensation Committee met four times during
2009 and three times during 2010 to review all salaries, expenses, stock plans,
and other compensation paid to our officers, directors, consultants, and
others.
Code
of Ethics
We have a
code of ethics that applies to all of our employees including its principal
executive officer, principal financial officer and principal accounting officer.
A copy of this code is available without charge on our website at
www.nutrapharma.com. We intend to disclose any changes in or waivers from our
code of ethics by posting such information on our website or by filing a Form
8-K.
Board
Structure
We have
chosen to combine the Chief Executive Officer and Board Chairman
positions. We believe that this Board leadership structure is the
most appropriate for us. Because we are a small company and do not
have significant revenues, it is more efficient to have the leadership of the
Board in the same hands as the Chief Executive Officer. The
challenges faced by us at this stage – obtaining financing and developing our
business – are most efficiently dealt with by one person who is familiar with
both the operational aspects as well as the strategic aspects of our
business.
Board
Assessment of Risk
Our risk
management function is overseen by our Board. Our management keeps
our Board apprised of material risks and provides our directors access to all
information necessary for them to understand and evaluate how these risks
interrelate, how they affect us, and how management addresses those
risks. Mr. Rik Deitsch, as our Chief Executive Officer and Chairman
of the Board together with the Board once material risks are identified on how
to best address such risk. If the identified risk poses an actual or
potential conflict with management, our independent directors may conduct the
assessment. Presently, the primary risks affecting us are the lack of
working capital and the inability to generate sufficient revenues so that we
have positive cash flow from operations. The Board focuses on these
key risks at each meeting and actively interfaces with management on seeking
solutions.
Shareholder
Communications
Although
we do not have a formal policy regarding shareholder communications with the
Board, we have developed a shareholder communications policy by which
shareholders and the Company may exchange communication. The shareholder
communications policy was developed and is currently managed by the Chief
Marketing Officer. A copy of this policy is available without charge on our
website at www.nutrapharma.com.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following information is related to the compensation paid, distributed or
accrued by us for the last two fiscal years to our Chief Executive Officer
(principal executive officer) and the two other most highly compensated
executive officers serving at the end of the last fiscal year whose compensation
exceeded $100,000, or our Named Executive Officers.
Name and Principal Position (a)
|
|
Year (b)
|
|
Salary ($) (c)
|
|
|
Options Awards ($) (f) (1)
|
|
|
Total ($) (j)
|
|
Rik
J Deitsch, Chief Executive Officer *
|
|
2010
|
|
$ |
225,000 |
|
|
$ |
0 |
|
|
$ |
225,000 |
|
Rik
J Deitsch,
Chief Executive Officer
|
|
2009
|
|
$ |
130,000 |
|
|
$ |
0 |
|
|
$ |
130,000 |
|
David
Isserman, Chief Marketing Officer ** |
|
2010 |
|
$ |
130,000 |
|
|
$ |
0 |
|
|
$ |
130,000 |
|
* Our Chief
Executive Officer, Rik J Deitsch, started receiving an annual salary of $225,000
in February 2010
** Resigned effective December 20, 2010
Director
Compensation
We do not
pay cash compensation to our directors for service on our Board of Directors and
our employees do not receive compensation for serving as members of our Board of
Directors. Directors are reimbursed for reasonable expenses incurred
in attending meetings and carrying out duties as board and committee
members. From time to time, our directors have received grants of
stock as compensation for their services on our Board of
Directors. Additionally, new Directors have been granted stock upon
joining our Board of Directors. The last grant to the Board of Directors as a
whole was in March, 2008 at which time we granted the following share
issuances:
Rik
J Deitsch, Chairman
|
|
5,000,000
shares
|
Stewart
Lonky, Director
|
|
2,500,000
shares
|
Stanley
Cherelstein (former Director)
|
|
2,500,000
shares
|
The last
grant to a new Board member was in July, 2009 at which time we granted Garry
Pottruck 2,500,000 shares of our common stock.
We
currently have no plans to grant additional stock or stock options to our
Board.
PRINCIPAL
SHAREHOLDERS
The
following table sets forth the number of shares of our voting stock beneficially
owned, as of November 30, 2010, by (i) those persons known by us to be owners of
more than 5% of our common stock, (ii) each of our directors, (iii) all Named
Executive Officers, and (iv) all of our executive officers and directors as a
group:
Title of Class
|
|
Name and Title of Beneficial
Owner
|
|
Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Owner (1)
|
|
|
Percent of Class (1)
|
|
Common
Stock
|
|
Rik
J Deitsch, Chairman and Chief Executive Officer
|
|
2776
University Dr. Coral Springs, FL 33065
|
|
|
54,500,000 |
|
|
|
19.5 |
% |
Common
Stock
|
|
David
Isserman, Chief Marketing Officer
|
|
2776
University Dr. Coral Springs, FL 33065
|
|
|
3,312,160 |
|
|
|
1.2 |
% |
Common
Stock
|
|
Paul
Reid, President, ReceptoPharm
|
|
1537
NW 65th
Ave. Plantation, FL 33313
|
|
|
7,000,000 |
|
|
|
2.5 |
% |
Common
Stock
|
|
Harold
Rumph, Director
|
|
1537
NW 65th
Ave. Plantation, FL 33313
|
|
|
4,400,000 |
|
|
|
1.6 |
% |
Common
Stock
|
|
Stewart
Lonky, Director
|
|
2776
University Dr. Coral Springs, FL 33065
|
|
|
3,000,000 |
|
|
|
1.1 |
% |
Common
Stock
|
|
Garry
Pottruck, Director
|
|
2776
University Dr. Coral Springs, FL 33065
|
|
|
2,550,000 |
|
|
|
0.9 |
% |
Common
Stock
|
|
all
of our executive officers and directors as a group
|
|
|
|
|
74,762,160 |
|
|
|
26.8 |
% |
Common
Stock
|
|
Med-Trust
Limited*
|
|
|
|
|
17,720,000 |
|
|
|
6.3 |
% |
*The
principal of Med-Trust Limited is Rajni Kassett.
RELATED
PERSON TRANSACTIONS
During
the year ended December 31, 2009, we borrowed $546,530 from our President, Rik
Deitsch, and repaid him $709,663, bringing the total amount owed to Mr. Deitsch
to $1,151,361 at December 31, 2009. Included in the amount owed to
Mr. Deitsch is $211,119 of accrued interest. During the nine
month period ended September 30, 2010, we borrowed a total of $196,300 and
repaid a total of $162,400 from Mr. Deitsch for a net borrowing of $33,900
during that nine month period. At September 30, 2010, we owed Mr.
Deitsch the total amount of $1,218,627, which includes $244,485 of
accrued interest. At November 30, 2010, we owed Mr. Deitsch the total
amount of $1,181,544. This loan is due on demand and bears interest
at a rate of 4% per annum.
We are
indebted to Paul Reid, President of ReceptoPharm, in the amount of
$104,823. This amount includes accrued interest of
$24,996. This loan is due on demand and bears interest at a rate of
5% per annum. The loan is secured by certain intellectual property of
ReceptoPharm. At December 31, 2009, we owed Mr. Reid $101,024, of
which amount $21,197 was for accrued interest. At November 30, 2010,
we owed Mr. Reid $105,685, of which $25,857 was for accrued
interest.
During
the third quarter of 2010, we borrowed $200,000 from our Director, Garry
Pottruck. This loan is expected to be repaid by the third quarter of
2011 with interest calculated at 10% straight interest for the first month plus
12% annum calculated monthly after 30 days from funding. At November
30, 2010, we owed Mr. Pottruck $223,255, which includes accrued interest of
$23,255.
During
the year ended December 31, 2008, ReceptoPharm, our wholly-owned subsidiary,
entered into a contract for the production of a drug (Crotoxin) with Celtic
Biotech, Ltd a company based in Dublin, Ireland. An officer of ReceptoPharm is
related to the Managing Director of Celtic Biotech, Ltd. The contract has a
total budget of $134,336 and is expected to be completed in early 2011. The
initial deposit of $40,301 has been deemed earned and has been recorded as
revenue in the quarter ending September 30, 2010
THE
LINCOLN PARK TRANSACTION
General
On
November 8, 2010, we executed a Purchase Agreement and a registration rights
agreement with LPC, pursuant to which LPC has purchased 1,666,667 shares of our
common stock together with warrants to purchase 1,666,667 shares of our common
stock at an exercise price of $.15 per share, for total consideration of
$200,000. The warrants have a term of five years. Under the
Purchase Agreement, we also have the right to sell to LPC up to an additional
$9,800,000 of our common stock at our option as described below.
Pursuant
to the registration rights agreement, we have filed a registration statement
that includes this prospectus with the Securities and Exchange Commission (the
“SEC”) covering the shares that have been issued or may be issued to LPC under
the Purchase Agreement. We do not have the right to commence any
additional sales of our shares to LPC until the SEC has declared effective the
registration statement of which this Prospectus is a part. After the
registration statement is declared effective, over approximately 30 months,
generally we have the right to direct LPC to purchase up to an additional
$9,800,000 of our common stock in amounts up to $40,000 as often as every two
business days under certain conditions. We can also accelerate the amount of our
stock to be purchased under certain circumstances. No sales of shares
may occur below $.06 per share. The purchase price of the shares will
be based on the market prices of our shares at the time of sale as computed
under the Purchase Agreement without any fixed discount. We may at
any time in our sole discretion terminate the Purchase Agreement without fee,
penalty or cost upon one business days notice. We issued 400,000
shares of our stock to LPC as a commitment fee for entering into the agreement,
and we may issue up to 2,600,000 shares pro rata as LPC purchases the up to
$9,800,000 of our stock as directed by us.
As of
November 30, 2010, there were 279,141,899 shares outstanding (186,659,736 shares
held by non-affiliates) including the 2,066,667 shares offered by LPC pursuant
to this Prospectus which we have issued. 62,000,000 shares are
offered hereby consisting of 1,666,667 shares together with 1,666,667 shares
underlying a warrant that we have sold to LPC for $200,000, 55,666,666
additional shares that we may sell to LPC, 400,000 shares we have issued as a
commitment fee, and 2,600,000 shares that we may issue as a commitment fee pro
rata as up to the additional $9,800,000 of our stock is purchased by
LPC. If all of the 62,000,000 shares offered by LPC hereby were
issued and outstanding as of the date hereof, such shares would represent 18.3%
of the total common stock outstanding or 25.1% of the non-affiliates shares
outstanding, as adjusted, as of the date hereof. The number of shares
ultimately offered for sale by LPC is dependent upon the number of shares that
we sell to LPC under the Purchase Agreement.
Purchase
of Shares Under The Common Stock Purchase Agreement
Under the
common stock purchase agreement, on any business day selected by us and as often
as every two business days, we may direct LPC to purchase up to $40,000 of our
common stock. The purchase price per share is equal to the lesser
of:
|
·
|
the
lowest sale price of our common stock on the purchase date;
or
|
|
·
|
the
average of the three (3) lowest closing sale prices of our common stock
during the twelve (12) consecutive business days prior to the date of a
purchase by LPC.
|
The
purchase price will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the business days used to compute the purchase
price.
In
addition to purchases of up to $40,000, we may direct LPC as often as every two
business days to purchase up to $80,000 of our common stock provided on the
purchase date our share price is not below $.15 per share. We may
increase this amount: up to $160,000 of our common stock provided on
the purchase date our share price is not below $.30 per share; up to $320,000 of
our common stock provided on the purchase date our share price is not below $.45
per share; up to $500,000 of our common stock provided on the purchase date our
share price is not below $.60 per share. The price at which LPC would
purchase these accelerated amounts of our stock will be the lesser of (i) the
lowest sale price of our common stock on the purchase date and (ii) the lowest
purchase price (as described above) during the previous ten (10) business days
prior to the purchase date.
Minimum
Purchase Price
Under the
common stock purchase agreement, we have set a minimum purchase price (“floor
price”) of $0.06. However, LPC shall not have the right nor the
obligation to purchase any shares of our common stock in the event that the
purchase price would be less than the floor price. Specifically, LPC shall not
have the right or the obligation to purchase shares of our common stock on any
business day that the market price of our common stock is below
$0.06.
Events
of Default
The
following events constitute events of default under the purchase
agreement:
|
·
|
the
effectiveness of the registration statement of which this prospectus is a
part of lapses for any reason (including, without limitation, the issuance
of a stop order) or is unavailable to LPC for sale of our common stock
offered hereby and such lapse or unavailability continues for a period of
ten (10) consecutive business days or for more than an aggregate of thirty
(30) business days in any 365-day
period;
|
|
·
|
suspension
by our principal market of our common stock from trading for a period of
three (3) consecutive business
days;
|
|
·
|
the
de-listing of our common stock from our principal market provided our
common stock is not immediately thereafter trading on the, the Nasdaq
Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange or the NYSE
AMEX;
|
|
·
|
the
transfer agent‘s failure for five (5) business days to issue to LPC shares
of our common stock which LPC is entitled to under the common stock
purchase agreement;
|
|
·
|
any
material breach of the representations or warranties or covenants
contained in the common stock purchase agreement or any related agreements
which has or which could have a material adverse effect on us subject to a
cure period of five (5) business days;
or
|
|
·
|
any
participation or threatened participation in insolvency or bankruptcy
proceedings by or against us; or
|
|
·
|
a
material adverse change in our
business.
|
Our
Termination Rights
We have
the unconditional right at any time for any reason to give notice to LPC
terminating the common stock purchase agreement without any cost to
us.
No
Short-Selling or Hedging by LPC
LPC has
agreed that neither it nor any of its affiliates shall engage in any direct or
indirect short-selling or hedging of our common stock during any time prior to
the termination of the common stock purchase agreement.
Effect
of Performance of the Common Stock Purchase Agreement on Our
Stockholders
All
62,000,000 shares registered in this offering are expected to be freely
tradable. It is anticipated that shares registered in this offering
will be sold over a period of up to 30 months from the date of this
prospectus. The sale by LPC of a significant amount of shares
registered in this offering at any given time could cause the market price of
our common stock to decline and to be highly volatile. LPC may
ultimately purchase all, some or none of the 59,933,333 shares of common stock
not yet issued but registered in this offering. After it has acquired
such shares, it may sell all, some or none of such shares. Therefore, sales to
LPC by us under the agreement may result in substantial dilution to the
interests of other holders of our common stock. However, we have the right to
control the timing and amount of any sales of our shares to LPC and the
agreement may be terminated by us at any time at our discretion without any cost
to us.
In
connection with entering into the agreement, we authorized the sale to LPC of up
to 70,000,000 shares of our common stock exclusive of the 400,000 commitment
shares issued, the 2,600,000 commitment shares that may be issued and the
1,666,667 shares underlying the warrant and that are part of this offering. We will sell no more
than 70,000,000 shares to LPC under the common stock purchase agreement,
62,000,000 of which are included in this offering. We have the right
to terminate the agreement without any payment or liability to LPC at any time,
including in the event that all $9,800,000 is sold to LPC under the common stock
purchase agreement. The number of shares
ultimately offered for sale by LPC under this prospectus is dependent upon the
number of shares purchased by LPC under the agreement. The following
table sets forth the amount of proceeds we would receive from LPC from the sale
of shares that are registered in this offering at varying purchase
prices:
Assumed Average Purchase Price
|
|
|
Number of Registered Shares to
be Issued if Full Purchase (1) (2)
|
|
|
Percentage of Outstanding Shares
After Giving Effect to the
Issuance to LPC (3)
|
|
|
Proceeds from the Sale of Shares
to LPC Under the
LPC Purchase Agreement
|
|
$ |
.06 |
(4) |
|
|
58,192,925 |
|
|
|
17.3 |
% |
|
$ |
5,237,363 |
|
$ |
.09 |
(5) |
|
|
58,649,251 |
|
|
|
17.45 |
% |
|
$ |
5,160,000 |
|
$ |
.18 |
|
|
|
58,155,556 |
|
|
|
17.3 |
% |
|
$ |
10,000,000 |
|
$ |
.30 |
|
|
|
35,933,333 |
|
|
|
11.5 |
% |
|
$ |
10,000,000 |
|
$ |
.50 |
|
|
|
22,600,000 |
|
|
|
7.5 |
% |
|
$ |
10,000,000 |
|
|
(1)
|
Although
the LPC Purchase Agreement provides that we may sell up to $10,000,000 of
our common stock to LPC, we are only registering 57,333,333 shares to be
purchased thereunder, which may or may not cover all such shares purchased
by LPC under the LPC Purchase Agreement, depending on the purchase price
per share. As a result, we have included in this column only
those shares which are registered in this
offering.
|
|
(2)
|
The
number of registered shares to be issued includes the additional
commitment shares issuable to LPC (but not the initial commitment shares),
and no proceeds will be attributable to such commitment
shares.
|
|
(3)
|
The
denominator is based on 279,141,899 shares outstanding as of November 30,
2010, which includes the 1,666,667 shares previously issued to LPC, which
shares are a part of this offering, the 400,000 initial commitment shares
and the number of shares set forth in the adjacent column which includes
the additional commitment shares issued pro rata as up to $9,800,000 of
our stock is purchased by LPC. The numerator is based on the
number of shares issuable under the common stock purchase agreement at the
corresponding assumed purchase price set forth in the adjacent
column. The number of shares in such column does not include
shares that may be issued to LPC which are not registered in this
offering.
|
|
(4)
|
Under
the LPC Purchase Agreement, we may not sell and LPC may not purchase any
shares in the event the purchase price of such shares is below
$.06.
|
|
(5)
|
The
closing sale price of our shares on December 13,
2010.
|
SELLING
SHAREHOLDER
The
shares of common stock being offered by the selling shareholder are those
previously issued or to be issued to Lincoln Park under the Purchase
Agreement. We are registering the shares of common stock in order to
permit the selling shareholder to offer the shares for resale from time to
time. Except for the ownership of the shares of common stock and
warrants issued pursuant to the Purchase Agreement, Lincoln Park has not had any
material relationship with us within the past three years.
We do not
know when or in what amounts Lincoln Park may offer shares for
sale. Lincoln Park may not sell any or all of the shares offered by
this prospectus. Because Lincoln Park may offer all or some of the
shares, and because there are currently no agreements, arrangements or
understandings with respect to the sale of any of the shares, we cannot estimate
the number of the shares that will be held by Lincoln Park after completion of
the offering. However, for purposes of this table, we have assumed
that, after completion of the offering, all of the shares covered by this
prospectus will be sold by Lincoln Park.
The
following table presents information regarding Lincoln Park. The
information concerning beneficial ownership has been taken from our stock
transfer records and information provided by Lincoln Park.
Selling Stockholder
|
|
Shares Beneficially
Owned Before Offering
|
|
|
Percentage of Outstanding
Shares Beneficially
Owned Before Offering
|
|
|
Shares to be Sold in the
Offering Assuming The
Company Issues The
Maximum Number of
Shares Under the
Purchase Agreement
|
|
|
Percentage of
Outstanding Shares
Beneficially Owned After
Offering
|
|
Lincoln
Park Capital Fund, LLC (1)
|
|
|
2,066,667 |
(2) |
|
|
* |
(2) |
|
|
62,000,000 |
|
|
|
* |
|
*less
than 1%
|
(1)
|
Josh
Scheinfeld and Jonathan Cope, the principals of LPC, are deemed to be
beneficial owners of all of the shares of common stock owned by LPC.
Messrs. Scheinfeld and Cope have shared voting and disposition power over
the shares being offered under this
Prospectus.
|
|
(2)
|
2,066,667
shares of our common stock have been previously acquired by LPC under the
Purchase Agreement, consisting of 1,666,667 shares purchased by LPC and
400,000 shares we issued to LPC as a commitment fee. We may at
our discretion elect to issue to LPC up to an additional 58,266,666 shares
of our common stock and 1,666,667 shares underlying a warrant are included
in this offering such shares are not included in determining the
percentage of shares beneficially owned before the
offering.
|
DESCRIPTION
OF SECURITIES
We are
authorized to issue 2,000,000,000 shares of common stock, par value $0.001 per
share. As of November 30, 2010: 279,141,899 shares of common stock were issued
and outstanding.
Common
Stock
The
holders of common stock are entitled to one vote per share for each share held
of record dated fixed for the determination of the shareholders entitled to vote
at a meeting, or of no date is fixed, the date determined in accordance with
law. At every election of Directors, shareholders may cumulate votes
and give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shares are entitled or
distribute votes according to the same principal among as many candidate as
desired; however, no shareholder is entitled to cumulate votes for any one or
more candidates unless such candidate or candidates have been placed for
nomination prior to the voting and at least one shareholder has given notice at
the meeting prior to the voting of such shareholder’s intention to cumulate
votes.
Preferred
Stock
We are
not authorized to issue preferred stock.
Warrants
We have
46,981,667 outstanding, including warrants we issued to LPC to purchase
1,666,667 shares of our common stock at an exercise price of
$0.15. The LPC warrants have a term of five years.
Anti-takeover
Effects of California Law
California
does not have an anti-takeover statute.
We have
not paid cash dividends on our common stock since our inception and do not plan
to pay such dividends in the foreseeable future. Our Board of
Directors will determine our future dividend policy on the basis of many
factors, including results of operations, capital requirements, and general
business conditions. Dividends, under California General Corporation Law, may
only be paid from our net profits and only at such a time when our corporate
assets exceed our liabilities by a minimum of 1.25 times. To date, we have not
had a fiscal year with net profits and do not have the necessary shareholder
asset base to offer dividends.
Transfer
Agent
PLAN
OF DISTRIBUTION
The
common stock offered by this prospectus is being offered by LPC, the selling
shareholder. The common stock
may be sold or distributed from time to time by the selling shareholder directly
to one or more purchasers or through brokers, dealers, or underwriters who may
act solely as agents at market prices prevailing at the time of sale, at prices
related to the prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed. The sale of the common stock offered by
this Prospectus may be affected in one or more of the following
methods:
|
·
|
ordinary
brokers’ transactions;
|
|
·
|
transactions
involving cross or block trades;
|
|
·
|
through
brokers, dealers, or underwriters who may act solely as
agents;
|
|
·
|
“at
the market” into an existing market for the common
stock;
|
|
·
|
in
other ways not involving market makers or established business markets,
including direct sales to purchasers or sales effected through
agents;
|
|
·
|
in
privately negotiated transactions;
or
|
|
·
|
any
combination of the foregoing.
|
In order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or
dealers. In addition, in certain states, the shares may not be sold
unless they have been registered or qualified for sale in the state or an
exemption from the registration or qualification requirement is available and
complied with.
Brokers,
dealers, underwriters, or agents participating in the distribution of the shares
as agents may receive compensation in the form of commissions, discounts, or
concessions from the selling shareholder and/or purchasers of the common stock
for whom the broker-dealers may act as agent. The compensation paid
to a particular broker-dealer may be less than or in excess of customary
commissions.
LPC is an
“underwriter” within the meaning of the Securities Act.
Neither
we nor LPC can presently estimate the amount of compensation that any agent will
receive. We know of no existing arrangements between LPC, any other
shareholder, broker, dealer, underwriter, or agent relating to the sale or
distribution of the shares offered by this Prospectus. At the time a
particular offer of shares is made, a prospectus supplement, if required, will
be distributed that will set forth the names of any agents, underwriters, or
dealers and any compensation from the selling shareholder, and any other
required information.
We will
pay all of the expenses incident to the registration, offering, and sale of the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify Lincoln
Park and related persons against specified liabilities, including liabilities
under the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is therefore,
unenforceable.
LPC and
its affiliates have agreed not to engage in any direct or indirect short selling
or hedging of our common stock during the term of the Purchase
Agreement.
We have
advised LPC that while it is engaged in a distribution of the shares included in
this Prospectus it is required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934. With certain exceptions, Regulation
M precludes the selling shareholder, any affiliated purchasers, and any
broker-dealer or other person who participates in the distribution from bidding
for or purchasing, or attempting to induce any person to bid for or purchase any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M also prohibits any bids or purchases made
in order to stabilize the price of a security in connection with the
distribution of that security. All of the foregoing may affect the
marketability of the shares offered hereby this Prospectus.
This
offering will terminate on the date that all shares offered by this Prospectus
have been sold by LPC.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling Nutra-Pharma Corp.
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
LEGAL
MATTERS
The
validity of the securities offered hereby will be passed upon for us by The Law
Office of Frederick M. Lehrer, P. A., Boca Raton, Florida. The Law Office of
Frederick M. Lehrer, P.A. is receiving 350,000 shares of our restricted
common stock in connection with the preparation of this Registration
Statement.
ADDITIONAL
INFORMATION
We have
filed with the SEC a registration statement on Form S-1, including the exhibits,
schedules, and amendments to this registration statement, under the Securities
Act with respect to the shares of common stock to be sold in this
offering. This prospectus, which is part of the registration
statement, does not contain all the information set forth in the registration
statement. For further information with respect to us and the shares
of our common stock to be sold in this offering, we make reference to the
registration statement. We are an Exchange Act reporting company and
are required to file periodic reports on Form 10-K and 10-Q and current reports
on Form 8-K. You may read and copy all or any portion of the
registration statement or any other information, which we file at the SEC’s
public reference room at 100 F Street, N.E., Washington, DC 20549, on official
business days during the hours of 10:00 AM to 3:00 PM. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Also, the
SEC maintains an internet site that contains reports, proxy and information
statements, and other information that we file electronically with the SEC,
including the registration statement. The website address is
www.sec.gov.
INDEX
Financial Statements
|
|
Page
|
Condensed
Consolidated Balance Sheets-September 30, 2010 (Unaudited) and December
31, 2009
|
|
F-1
|
Condensed
Consolidated Statements of Operations - for the three months
and nine months ended September 30, 2010 and 2009
(Unaudited)
|
|
F-2
|
Condensed
Consolidated Statements of Cash Flows - for the nine months ended
September 30, 2010 and 2009 (Unaudited)
|
|
F-3
|
Notes
to Condensed Consolidated Financial Statements - September 30, 2010
(Unaudited)
|
|
F-4
|
Reports
|
|
Page
|
Kingery
& Crouse P.A., Independent Registered Public Accounting Firm-
Report
|
|
F-10
|
Consolidated
Balance Sheet at December 31, 2009 and 2008
|
|
F-11
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
|
F-12
|
Consolidated
Statements of Changes in Stockholders' Equity for the years ended December
31, 2009 and 2008
|
|
F-13
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
|
F-14
|
Notes
to Consolidated Financial Statements
|
|
F-15
|
NUTRA
PHARMA CORP.
Condensed
Consolidated Balance Sheets
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
78,760 |
|
|
$ |
802,875 |
|
Accounts
receivable
|
|
|
155,795 |
|
|
|
239,583 |
|
Inventory
|
|
|
268,998 |
|
|
|
165,786 |
|
Prepaid
expenses
|
|
|
124,382 |
|
|
|
23,290 |
|
Total
current assets
|
|
|
627,935 |
|
|
|
1,231,534 |
|
Property
and equipment, net
|
|
|
73,123 |
|
|
|
12,369 |
|
Other
assets
|
|
|
69,363 |
|
|
|
8,803 |
|
TOTAL
ASSETS
|
|
$ |
770,421 |
|
|
$ |
1,252,706 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
524,207 |
|
|
$ |
104,223 |
|
Accrued
expenses
|
|
|
907,212 |
|
|
|
960,548 |
|
Due
to officers
|
|
|
1,323,450 |
|
|
|
1,252,385 |
|
Other
loans payable
|
|
|
332,507 |
|
|
|
80,000 |
|
Total
current liabilities
|
|
|
3,087,376 |
|
|
|
2,397,156 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 2,000,000,000 shares authorized; 276,175,232 and
270,425,232 shares issued and outstanding, respectively
|
|
|
276,176 |
|
|
|
270,426 |
|
Additional
paid-in capital
|
|
|
26,807,217 |
|
|
|
25,157,967 |
|
Deferred
compensation
|
|
|
(531,250 |
) |
|
|
- |
|
Accumulated
deficit
|
|
|
(28,869,098 |
) |
|
|
(26,572,843 |
) |
Total
stockholders' deficit
|
|
|
(2,316,955 |
) |
|
|
(1,144,450 |
) |
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
770,421 |
|
|
$ |
1,252,706 |
|
See the
accompanying notes to the condensed consolidated financial
statements.
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Operations - Unaudited
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
sales
|
|
$ |
359,936 |
|
|
$ |
900 |
|
|
$ |
1,382,056 |
|
|
$ |
27,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
104,083 |
|
|
|
- |
|
|
|
569,559 |
|
|
|
3,260 |
|
Gross
profit
|
|
|
255,853 |
|
|
|
900 |
|
|
|
812,497 |
|
|
|
24,268 |
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
317,041 |
|
|
|
127,532 |
|
|
|
904,758 |
|
|
|
382,434 |
|
Selling,
general and administrative - including stock based compensation of
$318,750, $195,000, $823,750 and $410,000
|
|
|
575,074 |
|
|
|
515,859 |
|
|
|
2,016,235 |
|
|
|
1,047,762 |
|
Research
and development
|
|
|
17,553 |
|
|
|
91,580 |
|
|
|
174,801 |
|
|
|
126,955 |
|
Interest
expense
|
|
|
36,922 |
|
|
|
20,957 |
|
|
|
62,958 |
|
|
|
55,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
946,590 |
|
|
|
755,928 |
|
|
|
3,158,752 |
|
|
|
1,612,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(690,737 |
) |
|
|
(755,028 |
) |
|
|
(2,346,255 |
) |
|
|
(1,588,126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
income
|
|
|
50,000 |
|
|
|
- |
|
|
|
50,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(640,737 |
) |
|
$ |
(755,028 |
) |
|
$ |
(2,296,255 |
) |
|
$ |
(1,588,126 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share
|
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
276,175,232 |
|
|
|
224,710,545 |
|
|
|
274,055,747 |
|
|
|
217,217,631 |
|
See the
accompanying notes to the condensed consolidated financial
statements.
NUTRA
PHARMA CORP.
Condensed
Consolidated Statements of Cash Flows - Unaudited
|
|
Nine
Months Ended
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
Net
cash used in operating activities
|
|
$ |
(1,216,012 |
) |
|
$ |
(1,115,011 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
$ |
(72,003 |
) |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
300,000 |
|
|
|
3,060,275 |
|
Proceeds
from notes payable
|
|
|
230,000 |
|
|
|
40,000 |
|
Repayment
of notes payable
|
|
|
- |
|
|
|
(80,000 |
) |
Loans
from stockholders
|
|
|
190,300 |
|
|
|
546,530 |
|
Repayment
of stockholder loans
|
|
|
(156,400 |
) |
|
|
(506,250 |
) |
Net
cash provided by financing activities
|
|
$ |
563,900 |
|
|
$ |
3,060,555 |
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash
|
|
|
(724,115 |
) |
|
|
1,945,544 |
|
Cash
- beginning of period
|
|
|
802,875 |
|
|
|
50,910 |
|
Cash
- end of period
|
|
$ |
78,760 |
|
|
$ |
1,996,454 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
3,286 |
|
|
$ |
- |
|
Cash
paid for income taxes
|
|
$ |
- |
|
|
$ |
- |
|
Stock
issued for deferred compensation
|
|
$ |
1,275,000 |
|
|
$ |
- |
|
Common
stock issued for services
|
|
$ |
823,750 |
|
|
$ |
410,000 |
|
See the
accompanying notes to the condensed consolidated financial
statements.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
|
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
Nutra
Pharma Corp. ("Nutra Pharma" or "the Company") is a holding company that owns
intellectual property and operations in the biotechnology
industry. Nutra Pharma incorporated under the laws of the state of
California on February 1, 2000, under the original name of
Exotic-Bird.com.
Through
its wholly-owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and
Designer Diagnostics, Inc. (“Designer Diagnostics”), the Company conducts drug
discovery research and development activities. In October 2009, the
Company launched its first consumer product called Cobroxin, an over-the-counter
pain reliever designed to treat moderate to severe chronic pain.
Principles
of Consolidation
The
condensed consolidated financial statements presented herein include the
accounts of Nutra Pharma and its wholly-owned subsidiaries, Designer Diagnostics
and ReceptoPharm.
All
intercompany transactions and balances have been eliminated in
consolidation.
Basis
of Presentation
The
condensed consolidated financial statements and notes are presented in
accordance with the rules and regulations of the Securities and Exchange
Commission and do not contain certain information included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included and are of a normal, recurring nature. Interim
results are not necessarily indicative of results for a full year.
Therefore, the interim condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company’s Annual Report on Form 10-K.
Liquidity
The
Company's condensed consolidated financial statements are presented on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business.
The
Company has experienced a net loss of $2,296,255 for the nine months ended
September 30, 2010, and has an accumulated deficit of $28,869,098 at September
30, 2010. In addition, the Company used $1,216,012 of cash for
operations during the nine months ended September 30, 2010 and had working
capital and stockholders’ deficits at September 30, 2010 of $2,459,441 and
$2,316,955, respectively.
The
Company currently does not have sufficient cash to sustain itself for the next
quarter and will require additional financing in order to execute its operating
plan and continue as a going concern. Management’s plan is to attempt
to secure adequate funding to bridge the commercialization of its Cobroxin® and
Nyloxin™ products. Management cannot predict whether additional
financing will be in the form of equity, debt, or another form and the Company
may be unable to obtain the necessary additional capital on a timely
basis, on acceptable terms, or at all. In the event that these
financing sources do not materialize, or that the Company is unsuccessful in
increasing its revenues and profits, it may be unable to implement its current
plans for expansion, repay its obligations as they become due or continue as a
going concern, any of which circumstances would have a material adverse effect
on its business prospects, financial condition and results of
operations.
After
September 30, 2010, the Company entered into an agreement with an investor to
purchase up to $10,000,000 worth of Nutra Pharma common stock. On
November 9, 2010, the Company received $200,000 related to this
transaction in exchange for 1,666,667 shares of common stock
and warrants to purchase $1,666,667 additional shares of common stock at an
exercise price of $0.15 per share. The remaining financing under this
transaction deal will be unavailable until a registration statement
becomes effective for the shares issued under the agreement.
The items
discussed above raise substantial doubt about the Company’s ability to continue
as a going concern.
The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
Use
of Estimates
The
accompanying condensed consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America which require management to make certain estimates and
assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expense. Significant estimates include management’s
belief that it will be able to raise and/or generate sufficient cash to continue
as a going concern, the allowance for doubtful accounts, the recoverability of
long-lived assets and the fair value of stock-based
compensation. Actual results could differ from those
estimates.
Revenue
Recognition
In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable are stated at estimated net realizable value. Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts. In determining collectability,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances. There was no allowance at September
30, 2010.
Inventories
Inventories
are valued at the lower of cost or market on an average cost basis and consist
primarily of raw materials and finished goods.
Research
and Development
Research
and development is charged to operations as incurred.
Reclassifications
Certain
amounts in the accompanying condensed consolidated financial statements have
been reclassified to conform with the current period presentation.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with FASB ASC 718, Stock
Compensation. FASB ASC 718 requires that the cost resulting
from all share-based transactions be recorded in the financial statements over
the respective service periods. It establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees. It also establishes
fair value as the measurement objective for transactions in which an entity
acquires goods or services from non-employees in share-based payment
transactions.
Net
Loss Per Share
Net loss
per share is calculated in accordance with FASB ASC 260, Earnings per
Share. Basic earnings (loss) per share are calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share are calculated by
dividing net income (loss) by the weighted average number of common shares and
dilutive common stock equivalents outstanding. During periods in
which we incur losses, common stock equivalents, if any, are not considered, as
their effect would be anti-dilutive or have no effect on earnings per
share.
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
Recent
Accounting Pronouncements
The
following Accounting Standards Codification Updates have been issued, or became
effective, since the beginning of the current period covered by these financial
statements:
Pronouncement
|
|
Issued
|
|
Title
|
SASU
No. 2010-01
|
|
January
2010
|
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with
Components of Stock and Cash – a consensus of the FASB Emerging Issues
Task Force
|
ASU
No. 2010-02
|
|
January
2010
|
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of
a Subsidiary – a Scope Clarification
|
ASU
No. 2012-03
|
|
January
2010
|
|
Extractive
Activities – Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
ASU
No. 2010-04
|
|
January
2010
|
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
ASU
No. 2010-05
|
|
January
2010
|
|
Compensation
- Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
ASU
No. 2010-06
|
|
January
2010
|
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements
|
ASU
No. 2010-07
|
|
January
2010
|
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities – Mergers and
Acquisitions
|
ASU
No. 2010-08
|
|
February
2010
|
|
Technical
Corrections to Various Topics
|
ASU
No. 2010-09
|
|
February
2010
|
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
ASU No.
2010-10
|
|
February
2010
|
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
ASU
No. 2010-11
|
|
March
2010
|
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
AS ASU
No. 2010-12
|
|
April
2010
|
|
Income Taxes (Topic 740):
Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts
(SEC Update)
|
AS ASU
No. 2010-13
|
|
April
2010
|
|
Compensation—Stock
Compensation (Topic 718): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades—a consensus of the FASB Emerging Issues
Task Force
|
AS ASU
No. 2010-14
|
|
April
2010
|
|
Accounting
for Extractive Activities—Oil & Gas—Amendments to Paragraph
932-10-S99-1 (SEC Update)
|
AS ASU
No. 2010-15
|
|
April
2010
|
|
Financial
Services—Insurance (Topic 944): How Investments Held through Separate
Accounts Affect an Insurer’s Consolidation Analysis of Those Investments—a
consensus of the FASB Emerging Issues Task Force
|
A ASU No.
2010-16
|
|
April
2010
|
|
Entertainment—Casinos
(Topic 924): Accruals for Casino Jackpot Liabilities—a consensus of the
FASB Emerging Issues Task Force
|
AS ASU
No. 2010-17
|
|
April
2010
|
|
Revenue
Recognition—Milestone Method (Topic 605): Milestone Method of Revenue
Recognition—a consensus of the FASB Emerging Issues Task
Force
|
AS ASU No.
2010-18
|
|
April
2010
|
|
Receivables
(Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool
That is Accounted for as a Single Asset—a consensus of the FASB Emerging
Issues Task Force
|
AS ASU
No. 2010-19
|
|
May
2010
|
|
Foreign
Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency
Exchange Rates
|
AS ASU
No. 2010-20
|
|
July
2010
|
|
Receivables
(Topic 310): Disclosure about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
|
AS ASU
No. 2010-21
|
|
August
2010
|
|
Accounting
for Technical Amendments to Various SEC Rules and Schedules Amendments to
SEC Paragraphs Pursuant to Release No. 33-9026: Technical Amendments to
Rules, Forms, Schedules and Codification of Financial Reporting
Policies
|
AS ASU
No. 2010-22
|
|
August
2010
|
|
Accounting
for Various Topics-Technical Corrections to SEC
Paragraphs
|
AS ASU
No. 2010-23
|
|
August
2010
|
|
Health
Care Entities (Topic 954): Measuring Charity Care for
Disclosure
|
AS ASU
No. 2010-24
|
|
August
2010
|
|
Health
Care Entities (Topic 954): Presentation of Insurance Claims and Related
Insurance Recoveries
|
AS ASU
No. 2010-25
|
|
September
2010
|
|
Plan
Accounting-Defined Contribution Pension Plans (Topic 962): Reporting Loans
to Participants by Defined Contribution Pension Plans
|
AS ASU
No. 2010-26
|
|
October
2010
|
|
Financial
Services-Insurance (Topic 944): Accounting for Costs Associated with
Acquiring or Renewing Insurance
Contracts
|
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our condensed consolidated financial statements
and management does not anticipate that these accounting pronouncements will
have any future effect on our consolidated financial statements.
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
2. INVENTORIES
At
September 30, 2010, inventory of $268,998 consisted of $252,829 of raw materials
and $16,169 of finished goods. At December 31, 2009, inventory of
$165,786 consisted entirely of raw materials.
3. DUE
TO OFFICERS
Officers'
Loans
During
the year ended December 31, 2009, the Company borrowed $546,530 from its
President, Rik Deitsch, and repaid him $709,663, bringing the total amount owed
to Mr. Deitsch to $1,151,361 at December 31, 2009. Included in the
amount owed to Mr. Deitsch is $211,119 of accrued interest.
During
the nine month period ended September 30, 2010, the Company borrowed a total of
$196,300 and repaid a total of $162,400 from Mr. Deitsch for a net borrowing of
$33,900 during that nine month period. At September 30, 2010, we owe
Mr. Deitsch the total amount of $1,218,627, which
amount includes $244,485 of accrued interest. This loan is
due on demand and bears interest at a rate of 4% per annum.
At
September 30, 2010, the Company was indebted to Paul Reid, President of
ReceptoPharm, in the amount of $104,823. This amount includes accrued
interest of $24,996. This loan is due on demand and bears interest at
a rate of 5% per annum. The loan is secured by certain intellectual
property of ReceptoPharm. At December 31, 2009, the Company owed Mr.
Reid $101,024, of which amount $21,197 was for accrued interest.
4. OTHER
LOANS
Director's
Loans
During
the third quarter the Company borrowed $200,000 from one of its
directors. This loan is expected to be repaid in six months to a year
from the date of the loan along with interest calculated at 10% straight
interest for the first month plus 12% annum calculated monthly after 30 days
from funding.
5.
RELATED PARTIES TRANSACTIONS
During
the year ended December 31, 2008, ReceptoPharm, the Company's wholly-owned
subsidiary, entered into a contract for the production of a drug (Crotoxin) with
Celtic Biotech, Ltd a company based in Dublin, Ireland. An officer of
ReceptoPharm is related to the Managing Director of Celtic Biotech, Ltd. The
contract has a total budget of $134,336 and is expected to be completed in early
2011. The initial deposit of $40,301 has been deemed earned and has been
recorded as revenue in the quarter ending September 30, 2010.
6.
STOCKHOLDERS' DEFICIT
On
February 26, 2010, the Company issued 2,500,000 shares to a consultant for
services to be rendered from March 1, 2010 to February 28, 2011. Of this
total, 2,000,000 shares were restricted and 500,000 shares were free-trading
pursuant to the Company’s S-8 Registration Statement. The shares were
valued at $0.51 per share which was the fair market value of the Company’s
common stock on February 26, 2010. The expense is being recorded in
selling, general and administrative over the service period of one
year.
During
April and May 2010, the Company sold an aggregate of 2,500,000 shares of
restricted common stock to three investors at a price per share of $0.10 and
received proceeds of $250,000. These shares were sold pursuant to
warrant agreements between the Company and the investors. These
shares were issued on May 7, 2010.
In May
2010, the Company issued 250,000 shares of restricted common stock to a
consultant for services rendered. The shares were valued at $0.32 per
share, which was the fair market value of the Company’s common stock on the date
of issuance.
In June
2010, the Company sold 500,000 shares of restricted common stock to an investor
at a price per share of $0.10 and received proceeds of $50,000. These
shares were sold pursuant to warrant agreements between the Company and the
investor. These shares were issued on June 30, 2010.
7. STOCK
OPTIONS AND WARRANTS
On
September 30, 2010, the Company had a total of 45,315,000 stock options and
warrants outstanding at a weighted average exercise price of
$0.10. There were no awards of options or warrants during the nine
months ended September 30, 2010 and all outstanding options are vested and
exercisable.
NUTRA
PHARMA CORP.
Notes
to Condensed Consolidated Financial Statements - Unaudited
September
30, 2010
8. COMMITMENTS
AND CONTINGENCIES
Patricia
Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.
On August
18, 2006, ReceptoPharm was named as a defendant in Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.:18247/06 (New York
Supreme Court, Queens County). The original proceeding claimed that
ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to
own, the sum of $118,928 plus interest and counsel fees on a series promissory
notes that were allegedly executed in 2001 and 2002. On August 23,
2007, the Queens County New York Supreme Court issued a decision denying
Plaintiffs' motion for summary judgment in lieu of a complaint, concluding that
there were issues of fact concerning the enforceability of the promissory
notes. On May 23, 2008, the Plaintiffs filed an amended complaint in
which they reasserted their original claims and asserted new claims seeking
damages of no less than $768,506 on their claims that in or about June 2004
ReceptoPharm wrongfully cancelled certain of their purported ReceptoPharm share
certificates.
In late
2009, Plaintiffs filed a motion seeking to further amend their complaint
alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights
by cancelling additional ReceptoPharm share certificates totaling 1,214,800
shares and failing to permit the Plaintiffs to exercise dissenting shareholder
rights with respect to those share certificates. The court ultimately granted
Plaintiffs permission to further amend their complaint in a decision and order
dated July 14, 2010. ReceptoPharm has moved to dismiss and/or to strike portions
of Plaintiffs' latest amended complaint, and the motion currently is
pending.
The
damages associated with the Plaintiffs' claims could rise as the result of
increases in our share price as the ReceptoPharm shares may be convertible into
shares of our common stock.
ReceptoPharm
believes the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, and
breach of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. Discovery in this matter is ongoing. We
intend to vigorously contest this matter.
Concentrations
During
the nine months ended September 30, 2010, 96% of the Company’s sales were to a
single customer.
9. SUBSEQUENT
EVENTS
Additional
Officer Loans
Subsequent
to September 30, 2010 and through November 15, 2010, the date of the filing of
its third quarter report the Company received additional advances from its
President, Rik Deitsch in the amount of $25,000 and repaid Mr. Deitsch $49,900
for a net repayment of $24,900. The amount owed to Mr. Deitsch at
November 15, 2010 was $1,197,802, which includes $248,559 of accrued
interest
On
October 29, 2010 the Department of the Treasury notified the Company that it had
approved a grant in the amount of $244,479 based on the Company's application
submitted to the Internal Revenue Service on July 20, 2010 requesting
certification for qualified investments in a qualifying therapeutic discovery
project under section 48D of the Internal Revenue Code.
On
November 8, 2010 the Company signed a $10 million dollar purchase agreement with
Lincoln Park Capital Fund, LLC, an Illinois limited liability company. Upon
signing the agreement Nutra Pharma received on November 9,
2010 $200,000 in exchange for 1,666,667 shares of common
stock and warrants to purchase 1,666,667 shares of common stock at an exercise
price of $0.15 per share. A copy of the agreement and description of the terms
is included in Form 8-K which the Company filed on November 12,
2010.
REPORT
OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Stockholders
and Board of Directors
Nutra
Pharma Corp.
We have
audited the accompanying consolidated balance sheets of Nutra Pharma Corp. as of
December 31, 2008 and 2009, and the related consolidated statements of
operations, stockholders’ deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Nutra Pharma Corp. as of December
31, 2008 and 2009, and results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant losses from
operations and has working capital and Stockholder deficits. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to this matter are also discussed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Kingery
& Crouse PA
Kingery
& Crouse P.A.
Certified
Public Accountants
Tampa,
Florida
April 15,
2010
NUTRA
PHARMA CORP.
Consolidated
Balance Sheets
As of
December 31,
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$ |
50,910 |
|
|
$ |
802,875 |
|
Accounts
receivable
|
|
|
- |
|
|
|
239,583 |
|
Inventory
|
|
|
10,770 |
|
|
|
165,786 |
|
Prepaid
expenses
|
|
|
27,468 |
|
|
|
23,290 |
|
Total
current assets
|
|
|
89,148 |
|
|
|
1,231,534 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
9,941 |
|
|
|
12,369 |
|
Other
assets
|
|
|
8,133 |
|
|
|
8,803 |
|
TOTAL
ASSETS
|
|
$ |
107,222 |
|
|
$ |
1,252,706 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
156,399 |
|
|
$ |
104,223 |
|
Accrued
expenses
|
|
|
849,856 |
|
|
|
960,548 |
|
Due
to officers
|
|
|
1,557,301 |
|
|
|
1,252,385 |
|
Other
loans payable
|
|
|
100,000 |
|
|
|
80,000 |
|
Total
current liabilities
|
|
|
2,663,556 |
|
|
|
2,397,156 |
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, 2,000,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
211,276,482
and 270,425,232 shares issued and outstanding,
respectively
|
|
|
211,277 |
|
|
|
270,426 |
|
Additional
paid-in capital
|
|
|
21,503,591 |
|
|
|
25,157,967 |
|
Accumulated
deficit
|
|
|
(24,271,202 |
) |
|
|
(26,572,843 |
) |
Total
stockholders' deficit
|
|
|
(2,556,334 |
) |
|
|
(1,144,450 |
) |
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$ |
107,222 |
|
|
$ |
1,252,706 |
|
See the
accompanying notes to the financial statements.
NUTRA
PHARMA CORP.
Consolidated
Statements of Operations
Years
Ended December 31,
|
|
2008
|
|
|
2009
|
|
Sales
|
|
$ |
4,045 |
|
|
$ |
618,010 |
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,057 |
|
|
|
278,944 |
|
Gross
profit
|
|
|
2,988 |
|
|
|
339,066 |
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
General
and administrative - including stock based
|
|
|
|
|
|
|
|
|
compensation
of $500,000 and $613,250
|
|
|
1,480,002 |
|
|
|
2,199,146 |
|
Research
and development
|
|
|
229,790 |
|
|
|
222,558 |
|
Impairment
of note receivable
|
|
|
- |
|
|
|
150,000 |
|
Purchased
research and development
|
|
|
2,397,749 |
|
|
|
- |
|
Interest
expense
|
|
|
57,555 |
|
|
|
69,003 |
|
Total
costs and expenses
|
|
|
4,165,096 |
|
|
|
2,640,707 |
|
Net
loss
|
|
$ |
(4,162,108 |
) |
|
$ |
(2,301,641 |
) |
Per
share information - basic and diluted:
|
|
|
|
|
|
|
|
|
Loss
per common share
|
|
$ |
(0.03 |
) |
|
$ |
(0.01 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
164,732,760 |
|
|
|
230,479,684 |
|
See the
accompanying notes to the financial statements.
NUTRA
PHARMA CORP.
Consolidated
Statements of Changes in Stockholders' Deficit
For the
Years Ended December 31, 2008 and 2009
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance
-January 1, 2008
|
|
|
81,895,682 |
|
|
$ |
81,896 |
|
|
$ |
18,074,472 |
|
|
$ |
(20,109,094 |
) |
|
$ |
(1,952,726 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares subscribed for at December 31, 2007
|
|
|
4,800,000 |
|
|
|
4,800 |
|
|
|
(4,800 |
) |
|
|
- |
|
|
|
- |
|
Issuance
of common stock for repayment of loan - $0.025 per share
|
|
|
48,000,000 |
|
|
|
48,000 |
|
|
|
1,152,000 |
|
|
|
- |
|
|
|
1,200,000 |
|
Issuance
of common stock in exchange for services - $0.025 to $0.03 per
share
|
|
|
19,500,000 |
|
|
|
19,500 |
|
|
|
480,500 |
|
|
|
- |
|
|
|
500,000 |
|
Common
shares issued for cash -$0.025 per share
|
|
|
32,340,000 |
|
|
|
32,340 |
|
|
|
776,160 |
|
|
|
- |
|
|
|
808,500 |
|
Issuance
of common stock in connection with acquisition of
Receptopharm
|
|
|
30,000,000 |
|
|
|
30,000 |
|
|
|
1,020,000 |
|
|
|
- |
|
|
|
1,050,000 |
|
Reclass
shares subscribed for but not yet issued - Receptopharm
|
|
|
(5,259,200 |
) |
|
|
(5,259 |
) |
|
|
5,259 |
|
|
|
- |
|
|
|
- |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,162,108 |
) |
|
|
(4,162,108 |
) |
Balance
- December 31, 2008
|
|
|
211,276,482 |
|
|
|
211,277 |
|
|
|
21,503,591 |
|
|
|
(24,271,202 |
) |
|
|
(2,556,334 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares issued for cash -$0.025 to $0.08 per share
|
|
|
45,523,750 |
|
|
|
45,524 |
|
|
|
3,014,751 |
|
|
|
- |
|
|
|
3,060,275 |
|
Exercise
of warrants at $0.10
|
|
|
400,000 |
|
|
|
400 |
|
|
|
39,600 |
|
|
|
- |
|
|
|
40,000 |
|
Issuance
of common stock in exchange for services - $0.02 to $0.54 per
share
|
|
|
12,825,000 |
|
|
|
12,825 |
|
|
|
600,425 |
|
|
|
- |
|
|
|
613,250 |
|
Issuance
of common stock in connection with acquisition of
Receptopharm
|
|
|
400,000 |
|
|
|
400 |
|
|
|
(400 |
) |
|
|
- |
|
|
|
- |
|
Net
loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,301,641 |
) |
|
|
(2,301,641 |
) |
Balance
- December 31, 2009
|
|
|
270,425,232 |
|
|
$ |
270,426 |
|
|
$ |
25,157,967 |
|
|
$ |
(26,572,843 |
) |
|
$ |
(1,144,450 |
) |
See the
accompanying notes to the financial statements.
NUTRA
PHARMA CORP.
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
Years
Edned December 31,
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(4,162,108 |
) |
|
$ |
(2,301,641 |
) |
Adjustments
to reconcile net loss to net
|
|
|
|
|
|
|
|
|
cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,394 |
|
|
|
5,818 |
|
Stock-based
compensation
|
|
|
500,000 |
|
|
|
613,250 |
|
Purchased
research and development
|
|
|
2,397,749 |
|
|
|
- |
|
Non
cash interest expense
|
|
|
57,555 |
|
|
|
59,046 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease
(increase) in accounts receivable
|
|
|
- |
|
|
|
(239,583 |
) |
Decrease
(increase) in inventory
|
|
|
655 |
|
|
|
(155,016 |
) |
Decrease
(increase) in prepaid expenses
|
|
|
(17,518 |
) |
|
|
4,178 |
|
Decrease
(increase) in other assets
|
|
|
- |
|
|
|
(670 |
) |
Increase
(decrease) in accounts payable
|
|
|
(39,279 |
) |
|
|
(52,176 |
) |
Increase
(decrease) in accrued expenses
|
|
|
280,458 |
|
|
|
110,692 |
|
Net
cash (used in) operating activities
|
|
$ |
(976,094 |
) |
|
$ |
(1,956,102 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash
acquired in acquisition of Receptopharm
|
|
|
40,444 |
|
|
|
- |
|
Acquisition
of property and equipment
|
|
|
- |
|
|
|
(8,246 |
) |
Loan
to Receptopharm
|
|
|
(300,000 |
) |
|
|
- |
|
Net
cash (used in) investing activities
|
|
$ |
(259,556 |
) |
|
$ |
(8,246 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
808,500 |
|
|
|
3,100,275 |
|
Repayment
of notes payable
|
|
|
- |
|
|
|
(20,000 |
) |
Repayment
of stockholder loans
|
|
|
(108,750 |
) |
|
|
(910,492 |
) |
Loans
from stockholders
|
|
|
464,000 |
|
|
|
546,530 |
|
Net
cash provided by financing activities
|
|
$ |
1,163,750 |
|
|
$ |
2,716,313 |
|
Net
increase (decrease) in cash
|
|
|
(71,900 |
) |
|
|
751,965 |
|
Cash
- beginning of period
|
|
|
122,810 |
|
|
|
50,910 |
|
Cash
- end of period
|
|
$ |
50,910 |
|
|
$ |
802,875 |
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
- |
|
|
$ |
- |
|
Cash
paid for income taxes
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
Settment
of debt with common stock
|
|
$ |
1,200,000 |
|
|
$ |
- |
|
Common
shares issued in conjunction with the acquisition
|
|
|
|
|
|
|
|
|
of
Receptopharm
|
|
$ |
1,050,000 |
|
|
$ |
- |
|
See the
accompanying notes to the financial statements.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
|
1.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
Nutra
Pharma Corp. ("Nutra Pharma" or "the Company") is a holding company that owns
intellectual property and operations in the biotechnology
industry. Nutra Pharma incorporated under the laws of the state of
California on February 1, 2000, under the original name of
Exotic-Bird.com. The Company was in the development stage through
September 30, 2009.
Through
its wholly-owned subsidiaries ReceptoPharm, Inc. (“ReceptoPharm”)and Designer
Diagnostics Inc., the Company conducts drug discovery research and development
activities. In October 2009, the Company launched its first consumer
product called Cobroxin, an over-the-counter pain reliever designed to treat
moderate to severe chronic pain.
Basis
of Presentation
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.
The
Company has experienced significant losses from operations of $4,162,108 and
$2,301,641 for the years ended December 31, 2008 and 2009, and has an
accumulated deficit of $26,572,843 at December 31, 2009. In addition,
the Company had working capital and stockholders’ deficits at December 31, 2009
of $1,165,622 and $1,144,450.
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 additional financing for its operations and seeking
additional investments. In addition, the Company is seeking to expand
its revenue base. Failure to secure such additional 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 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.
Principles
of Consolidation
The
consolidated financial statements presented herein include the accounts of Nutra
Pharma and its wholly-owned subsidiaries Designer Diagnostics Inc. and
ReceptoPharm. The accounts of ReceptoPharm have been consolidated from April 16,
2008, to December 31, 2009 (see Note 2).
All
intercompany transactions and balances have been eliminated in
consolidation.
Use
of Estimates
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. Significant estimates
include the recoverability of long-lived assets and the fair value of
stock-based compensation. Actual results could differ from those
estimates.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
Revenue
Recognition
In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
Revenue
is recognized at the time the product is delivered. Provision for
sales returns will be estimated based on the Company's historical return
experience. Revenue will be presented net of returns.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable are stated at estimated net realizable value. Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts. In determining collectability,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances. There was no allowance at December
31, 2009 as substantially all accounts receivable were collected subsequent to
year end.
Inventories
Inventories
are valued at the lower of cost or market on an average cost basis and consist
primarily of raw materials.
Fair
Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2008 and
2009. The respective carrying value of certain on-balance-sheet
financial instruments, approximate their fair values. These financial
instruments include cash, accounts receivable, accounts payable, accrued
expenses, loans payable and due to officers. Fair values were assumed
to approximate carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand.
As
of December 31, 2009 and 2008, and periodically throughout such years, balances
in various operating accounts exceeded federally insured limits. The
Company has not experienced any losses in such accounts. The Company
does not hold or issue financial instruments for trading purposes nor does it
hold or issue interest rate or leveraged derivative financial
instruments.
Property
and Equipment
Property
and equipment is recorded at cost. Expenditures for major
improvements and additions are added to property and equipment, while
replacements, maintenance and repairs which do not extend the useful lives are
expensed. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets of 3 – 7 years.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
Property,
plant, and equipment consists of the following at December 31,
|
|
2008
|
|
|
2009
|
|
Computer
equipment
|
|
$ |
7,114 |
|
|
$ |
11,950 |
|
Automobiles
|
|
$ |
7,500 |
|
|
$ |
- |
|
Furniture
& fixtures
|
|
$ |
11,562 |
|
|
$ |
11,562 |
|
Lab
equipment
|
|
$ |
11,272 |
|
|
$ |
14,682 |
|
Office
equipment - other
|
|
$ |
2,630 |
|
|
$ |
2,630 |
|
Leasehold
improvements
|
|
$ |
67,417 |
|
|
$ |
67,417 |
|
|
|
$ |
107,495 |
|
|
$ |
108,241 |
|
Less
accumulated depreciation
|
|
$ |
(97,554 |
|
|
$ |
(95,872 |
|
|
|
|
|
|
|
|
|
|
Net
property, plant, and equipment
|
|
$ |
9,941 |
|
|
$ |
12,369 |
|
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, the Company measures the amount of the impairment based on the amount that
the carrying value of the impaired asset exceeds the discounted cash flows
expected to result from the use and eventual disposal of the from the impaired
assets. We believe the carrying values of our long-lived assets were not
impaired as of December 31, 2008 and 2009.
Research
and Development
Research
and development is charged to operations as incurred.
Segment
Information
The
Company follows Financial Accounting Standards Board (FASB) ASC 280-10, Segment
Reporting. Under ASC 280-10, certain information is disclosed based
on the way management organizes financial information for making operating
decisions and assessing performance. The Company currently operates
in a single segment and will evaluate additional segment disclosure requirements
as it expands its operations.
Income
Taxes
The
Company computes income taxes in accordance with FASB ASC Topic 740, Income
Taxes. Under ASC-740, deferred tax assets and liabilities are
computed based upon the difference between the financial statement and income
tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or
settled. Deferred income tax expenses or benefits are based on the
changes in the asset or liability each period. Also, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that included the enactment date. If available evidence suggests that
it is more likely than not that some portion or all of the deferred tax assets
will not be realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
Beginning
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FASB ASC 740-10). The Interpretation
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate
settlement.
Stock-Based
Compensation
The
Company records stock based compensation in accordance with FASB ASC 718, Stock
Compensation. FASB ASC 718 requires that the cost resulting from all
share-based transactions be recorded in the financial statements over the
respective service periods. It establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees. 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
Loss Per Share
Net loss
per share is calculated in accordance with ASC Topic 260, Earnings per
Share. Basic earnings (loss) per share are calculated by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share are calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During periods in which we
incur losses, common stock equivalents, if any, are not considered, as their
effect would be anti-dilutive or have no effect on earnings per
share.
Recent
Accounting Pronouncements
The
following Accounting Standards Codification Updates have been issued, or will
become effective, after the end of the period covered by these financial
statements:
Pronouncement
|
|
Issued
|
|
Title
|
ASU
No. 2009-13
|
|
October
2009
|
|
Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a
consensus of the FASB Emerging Issues Task Force
|
ASU
No. 2009-14
|
|
October
2009
|
|
Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements -
a consensus of the FASB Emerging Issues Task Force
|
ASU
No. 2009-15
|
|
October
2009
|
|
Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt
Issuance or Other Financing
|
ASU
No. 2009-16
|
|
December
2009
|
|
Transfers
and Servicing (Topic 860): Accounting for Transfers and Financial
Assets
|
ASU
No. 2009-17
|
|
December
2009
|
|
Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises Involved
with Variable Interest Entities
|
ASU
No. 2010-01
|
|
January
2010
|
|
Equity
(Topic 505): Accounting for Distributions to Shareholders with Components
of Stock and Cash - a consensus of the FASB Emerging Issues Task
Force
|
ASU
No. 2010-02
|
|
January
2010
|
|
Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary - a Scope
Clarification
|
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
ASU
No. 2010-03
|
|
January
2010
|
|
Extractive
Activities - Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
Disclosures
|
ASU
No. 2010-04
|
|
January
2010
|
|
Accounting
for Various Topics: Technical Corrections to SEC
Paragraphs
|
ASU
No. 2010-05
|
|
January
2010
|
|
Compensation
- Stock Compensation (Topic718): Escrowed Share Arrangements and the
Presumption of Compensation
|
ASU
No. 2010-06
|
|
January
2010
|
|
Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements
|
ASU
No. 2010-07
|
|
January
2010
|
|
Not-for-Profit
Entities (Topic 958): Not-for-Profit Entities - Mergers and
Acquisitions
|
ASU
No. 2010-08
|
|
February
2010
|
|
Technical
Corrections to Various Topics
|
ASU
No. 2010-09
|
|
February
2010
|
|
Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements
|
ASU
No. 2010-10
|
|
February
2010
|
|
Consolidation
(Topic 810): Amendments for Certain Investment Funds
|
ASU
No. 2010-11
|
|
March
2010
|
|
Derivatives
and Hedging (Topic 815): Scope Exception Related to Embedded Credit
Derivatives
|
To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our consolidated financial statements and
management does not anticipate that these accounting pronouncements will have
any future effect on our consolidated financial statements.
At its
meeting on March 18, 2010, the FASB's Emerging Issues Task Force reached a
consensus on five Issues. If the consensuses are ratified by the FASB at its
meeting on March 31, 2010, the related Accounting Standards Codification Updates
will become authoritative accounting guidance. None of the consensuses address
issues that have a material effect on our consolidated financial
statements.
2. ACQUISITION
OF RECEPTOPHARM
On
December 12, 2003, the Company entered into an acquisition agreement (the
“Agreement”), whereby it agreed to acquire up to a 49.5% interest in
ReceptoPharm, a privately held biopharmaceutical company based in Ft.
Lauderdale, Florida. ReceptoPharm is engaged in the research and
development of proprietary therapeutic proteins for the treatment of several
chronic viral, autoimmune and neuro-degenerative diseases.
Pursuant
to the Agreement, the Company acquired its interest in ReceptoPharm’s common
equity for $2,000,000 in cash, which equates to a purchase price of $0.45 per
share. ReceptoPharm intends to use such funds to further research and
development, which could significantly impact future results of
operations.
At
December 31, 2005, the Company had funded a total of $1,860,000 to ReceptoPharm
under the Agreement, which equated to a 37% ownership interest in
ReceptoPharm. In February 2006, the Company funded an additional
$140,000 to ReceptoPharm, thereby completing the $2,000,000
investment. As of December 31, 2006, the Company owned 4,444,445
shares or 38% of the issued and outstanding common equity of
ReceptoPharm. In addition to its ownership interest, as of December
31, 2006, the Company had loaned ReceptoPharm $825,000 for working capital
purposes.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
For
accounting purposes, the Company through March 31, 2007, had been 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
were being charged to expense as incurred by ReceptoPharm. ReceptoPharm had no
ability to fund these activities and was dependent on the Company to fund its
operations. In these circumstances, ReceptoPharm was considered a
variable interest entity and had been consolidated. The creditors of
ReceptoPharm did not have recourse to the general credit of the
Company.
Effective
in April 2007 the Company ceased advancing funds to ReceptoPharm and had no
further commitment to fund them. As such, the Company deconsolidated
ReceptoPharm from its financial statements at June 30, 2007. This
deconsolidation resulted in a gain of $1,081,095. This gain resulted
from the Company reversing the net losses of ReceptoPharm included in its
consolidated financial statements and writing off the balance of its investment
in ($2,000,000) and advances to ($975,000) ReceptoPharm as discussed above as
they were deemed to be impaired at June 30, 2007.
The gain
was computed as follows:
Net
losses included in the consolidated financial statements
|
|
$ |
4,056,095 |
|
Investment
in and advances to ReceptoPharm
|
|
$ |
(2,975,000 |
|
Gain
on deconsolidation
|
|
$ |
1,081,095 |
|
On April
10, 2008, the Company completed a transaction pursuant to which it acquired the
remaining sixty-two percent (62%) of ReceptoPharm’s issued and outstanding
common shares in exchange for a maximum of 30,000,000 shares of the Company’s
common stock. Prior to April 10, 2008, the Company owned 4,444,445 shares
or approximately 38% of ReceptoPharm’s common stock. The exchange ratio in
this transaction was four (4) Nutra Pharma shares for each ReceptoPharm
share. As a result of this transaction, the Company now owns 100% of
the issued and outstanding common stock of ReceptoPharm.
The
Company accounted for this acquisition under the purchase method of
accounting.
The
calculation of the total purchase cost is as follows:
Total
number of Nutra Pharma shares issued
|
|
$ |
30,000,000 |
|
Market
price of Nutra Pharma common stock on April 10, 2008
|
|
$ |
0.035 |
|
Value
of shares issued
|
|
$ |
1,050,000 |
|
Loan
to ReceptoPharm forgiven at closing
|
|
$ |
300,000 |
|
Liabilities
of ReceptoPharm assumed at closing
|
|
$ |
1,119,413 |
|
Total
purchase cost to be allocated
|
|
$ |
2,469,413 |
|
|
|
|
|
|
Allocation
of purchase cost:
|
|
|
|
|
Fair
value of ReceptoPharm assets at closing
|
|
$ |
71,664 |
|
Purchase
cost in excess of fair value of assets acquired
|
|
$ |
2,397,749 |
|
Total
purchase cost
|
|
$ |
2,469,413 |
|
The
purchase cost in excess of the fair value of net assets acquired was recorded as
purchased research and development.
Had the
acquisition of Receptopharm taken place at January 1, 2008 the unaudited
consolidated results of operations would have been as follows:
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
|
|
2008
|
|
Revenue
|
|
$ |
4,045 |
|
Net
loss
|
|
$ |
4,400,389 |
|
Net
loss per share
|
|
$ |
(0.03 |
|
As of
December 31, 2009, the Company had issued a total of 25,140,800 shares of its
common stock in exchange for 6,285,200 shares of Receptopharm.
3. INVENTORIES
Inventories
are valued at the lower of cost or market on an average cost
basis. At December 31, 2009, inventory of $165,786 consisted entirely
of raw materials that are used in the production of the Company’s finished
goods. We did not have inventory at December 31, 2008.
4. IMPAIRMENT
OF NOTES RECEIVABLE
During
2009, the Company advanced $150,000 to an unrelated business pursuant to a
promissory note. As of December 31, 2009, the note was fully
reserved, resulting in a $150,000 charge to operations.
5. ACCRUED
EXPENSES
Accrued
expenses consist of the following:
At December 31,
|
|
2008
|
|
|
2009
|
|
Accrued
payroll
|
|
$ |
583,500 |
|
|
$ |
656,690 |
|
Accrued
legal
|
|
$ |
196,057 |
|
|
$ |
196,057 |
|
Other
accrued expenses
|
|
$ |
70,299 |
|
|
$ |
107,801 |
|
Total
|
|
$ |
849,856 |
|
|
$ |
960,548 |
|
6. DUE
TO OFFICERS AND STOCKHOLDERS
Officer
Loans
The
balance owed to the Company’s President Rik Deitsch at December 31, 2007 was
$1,944,414 which includes accrued interest of $105,039. This demand
loan is unsecured and bears interest at a rate of 4.0%.
On March
14, 2008, the Company’s Board of Directors approved an offer made by Mr.
Deitsch, to discharge $1,200,000 of his outstanding loan to the Company in
exchange for 48,000,000 shares of restricted common stock. The price
per share in this loan conversion was the fair market value of the common shares
on the date of the exchange which was $0.025.
During
the year ended December 31, 2008, the Company borrowed an additional $464,000
from Mr. Deitsch. The balance owed to him at December 31, 2008, was
$1,255,448 which includes accrued interest of $152,073.
During
the year ended December 31, 2009, the Company borrowed an additional $546,530
from Mr. Deitsch and repaid him $709,663, bringing the total amount owed to Mr.
Deitsch to $1,151,361 at December 31, 2009. Included in the amount
owed to Mr. Deitsch is $211,119 of accrued interest.
In
addition, at December 31, 2009, the Company is indebted to Paul Reid, the
President of its wholly-owned subsidiary ReceptoPharm in the amount of
$101,024. This amount includes accrued interest of
$21,197. This loan is due on demand and bears interest at a rate of
5% per annum. The loan is secured by certain intellectual property of
ReceptoPharm.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
Stockholder
Loan
At
December 31, 2007, ReceptoPharm was indebted to a stockholder in the amount of
$245,801 which includes accrued interest of $5,801. This demand loan
is unsecured and bears interest at a rate of 5.0% per annum.
During
the year ended December 31, 2008, ReceptoPharm repaid $43,750 of this loan and
the balance at December 31, 2008 was $215,246 which includes accrued interest of
$18,996.
During
the year ended December 31, 2009, ReceptoPharm paid off the entire balance of
the loan of $223,403. This payoff included $27,153 of accrued
interest.
7. STOCKHOLDERS'
DEFICIT
Private Placements of Common
Stock
During
2008, the Company completed private placements of restricted shares of its
common stock, whereby it sold an aggregate of 32,340,000 shares at a price per
share of $0.025. The Company received proceeds of $808,500 in
connection with the sale of these shares. In addition, the Company
granted one (1) warrant for each share sold which gives the investor the right
to purchase one (1) additional share until December 31, 2012 at an exercise
price of $0.10 per share.
From
January 1 through August 31, 2009, the Company completed private placements of
restricted shares of its common stock, whereby it sold an aggregate of
10,575,000 shares at a price per share of $0.025. The Company
received proceeds of $264,375 in connection with the sale of these
shares. The Company also granted one (1) warrant for each share sold
which gives the investor the right to purchase one (1) additional share until
December 31, 2012 at an exercise price of $0.10 per share.
From
September 1 through December 31, 2009, the Company completed private placements
of restricted shares of its common stock, whereby it sold an aggregate of
34,948,750 shares at a price per share of $0.08. The Company received
proceeds of $2,795,900 in connection with the sale of these shares.
Common Stock Issued for
Services
During
the year ended December 31, 2008 the Company issued an aggregate of 19,500,000
shares of common stock in exchange for services. The shares were
valued at their fair market value of $500,000 based on the trading price of the
Company’s common shares, which has been charged to operations.
During
the year ended December 31, 2009, the Company issued an aggregate of 12,825,000
shares of its common stock in exchange for services rendered. These
shares were valued at their fair market value of $613,250 based on the trading
price of the Company’s common shares, which was charged to
operations.
Exercise of Common Stock
Warrants
In
December 2009, the Company sold 400,000 restricted shares of its common stock to
an investor at a price per share of $0.10 and received proceeds of
$40,000. These shares were sold pursuant to a warrant agreement
between the Company and the investor.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
8. STOCK
OPTIONS AND WARRANTS
Equity Compensation
Plans
On
December 3, 2003, the Board of Directors of the Company approved the
Employee/Consultant Stock Compensation Plan (the "2003 Plan"). The purpose of
the 2003 Plan is to further the growth of Nutra Pharma by allowing the Company
to compensate employees and consultants who have provided bona fide services to
the Company, through the award of common stock of the Company. The maximum
number of shares of common stock that may be issued under the 2003 Plan is
2,500,000.
On June
6, 2007 the Board of Directors of the Company approved the 2007
Employee/Consultant Stock Compensation Plan (the "2007 Plan"). The
purpose of the 2007 Plan is to further the growth of Nutra Pharma by allowing
the Company to compensate employees and consultants who have provided bona fide
services to the Company, through the award of common stock of the
Company. The maximum number of shares of common stock that may be
issued under the 2007 Plan is 25,000,000.
The Board
of Directors is responsible for the administration of the 2003 and 2007 Plans
and has full authority to grant awards under the Plan. Awards may
take the form of stock grants, options or warrants to purchase common
stock. The Board of Directors has the authority to determine: (a) the
employees and consultants that will receive awards under the Plan, (b) the
number of shares, options or warrants to be granted to each employee or
consultant, (c) the exercise price, term and vesting periods, if any, in
connection with an option grant, and (d) the purchase price and vesting period,
if any, in connection with the granting of a warrant to purchase shares of
common stock of the Company.
A summary
of stock options and warrants issued in conjunction with private placement of
common stock is as follows:
|
|
Number of shares
|
|
|
Weighted average exercise price
|
|
Balance
December 31, 2007
|
|
|
7,800,000 |
|
|
$ |
0.16 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Issued
|
|
|
32,340,000 |
|
|
$ |
0.10 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Balance
December 31, 2008
|
|
|
40,140,000 |
|
|
$ |
0.11 |
|
Exercised
|
|
|
(400,000 |
|
|
$ |
0.10 |
|
Issued
|
|
|
10,575,000 |
|
|
$ |
0.10 |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Balance
December 31, 2009
|
|
|
50,315,000 |
|
|
$ |
0.11 |
|
The
following table summarizes information about fixed-price stock options and
warrants:
Exercise Price
|
|
|
Weighted
Average
Number
Outstanding
|
|
Weighted
Average
Contractual Life
|
|
Weighted Average
Exercise Price
|
|
$ |
0.10 |
|
|
|
47,315,000 |
|
3.00
years
|
|
$ |
0.10 |
|
$ |
0.20 |
|
|
|
1,000,000 |
|
1.08
years
|
|
$ |
0.20 |
|
$ |
0.27 |
|
|
|
2,000,000 |
|
0.42
years
|
|
$ |
0.27 |
|
|
|
|
|
|
50,315,000 |
|
|
|
|
|
|
All
options are vested and exercisable.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
As of
December 31, 2009, the aggregate intrinsic value of all stock options
outstanding and expected to vest was approximately $13,145,050 and the aggregate
intrinsic value of currently exercisable stock options was approximately
$13,145,050. The Intrinsic value of each option share is the
difference between the fair market value of the Company’s common stock and the
exercise price of such option share to the extent it is
“in-the-money”. Aggregate intrinsic value represents the value that
would have been received by the holders of in-the-money options had they
exercised their options on the last trading day of the year and sold the
underlying shares at the closing stock price on such day. The
intrinsic value calculation is based on the $0.37 closing stock price of the
Company’s common stock on December 31, 2009.
9. INCOME
TAXES
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse. The Company had no significant deferred tax items arise
during any of the periods presented.
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes
for the years ended December 31, 2008 and 2009. The sources and tax effects of
the differences are as follows:
Income
tax provision at the federal statutory rate
|
|
|
34 |
% |
Effect
of operating losses
|
|
|
(34 |
)% |
|
|
|
0 |
% |
As of
December 31, 2009, the Company has a net operating loss carry forward of
approximately $7,100,000. This loss will be available to offset future taxable
income. Assuming our net operating loss carryforwards are not disallowed because
of certain “change in control” provisions of the Internal Revenue Code, these
net operating loss carryforwards expire in various years through the year ending
December 31, 2029. The deferred tax asset of approximately $2,400,000
relating to the operating loss carry forward has been fully reserved at December
31, 2009. The increase in the valuation allowance related to the deferred tax
asset was approximately $600,000 during 2009. The principal difference between
the accumulated deficit for income tax purposes and for financial reporting
purposes results from stock based compensation of approximately $9,500,000,
non-cash finance charges of approximately $1,100,000, non-cash losses on
settlements of approximately $1,000,000, non-cash losses related to Nanologix of
approximately $1,700,000, losses of ReceptoPharm, Inc. of approximately
$3,000,000, goodwill impairment of $2,400,000 and the amortization of
intangibles of approximately $800,000.
Since
inception, we have been subject to tax by both federal and state taxing
authorities. Until the respective statutes of limitations expire, we are subject
to income tax audits in the jurisdictions in which we operate. We are no longer
subject to U.S. federal tax examinations for fiscal years prior to 2005, and we
are not subject to audits prior to the 2005 fiscal year for the state
jurisdiction.
10. COMMITMENTS
AND CONTINGENCIES
Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc.
On August
18, 2006, ReceptoPharm, the Company’s wholly owned subsidiary as of April 2008,
was named as a defendant in Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06 (New York
Supreme Court, Queens County). The original proceeding claimed that
ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to
own, the sum of $118,928.15 plus interest and counsel fees on a series
promissory notes that were allegedly executed in 2001 and 2002. On
August 23, 2007, the Queens County New York Supreme Court issued a decision
denying Plaintiffs motion for summary judgment in lieu of a complaint,
concluding that there were issues of fact concerning the enforceability of the
promissory notes. On May 23, 2008, the Plaintiffs filed an amended
complaint in which they reasserted their original claims and asserted new claims
seeking damages of no less than $768,506 on their claims that in or about June
2004 ReceptoPharm breached its fiduciary duty to the Plaintiffs as shareholders
of ReceptoPharm by wrongfully canceling certain of their purported ReceptoPharm
share certificates.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
In
late 2009, Plaintiffs filed a motion seeking to further amend their
complaint alleging that ReceptoPharm violated Plaintiffs contractual and
statutory rights by cancelling additional share certificates and failing to
permit the Plaintiffs to exercise dissenting shareholder rights with respect to
those share certificates.
The
Plaintiffs were seeking an additional 1,214,800 Receptopharm shares. The damages
associated with the Plaintiff’s claims could rise as the result of
increases in the Company’s share price as the Receptopharm shares may be
convertible into the Company’s common shares.
ReceptoPharm believes
the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, breach
of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes. In addition, Receptopharm has opposed the
Plaintiffs' recent motion to amend and the motion is currently pending
before the Court. Discovery in this matter is ongoing. The
Company intends to vigorously contest this matter.
Concentrations
During
the fourth quarter of 2009 the Company made product sales of $583,955 to a
single customer which represented approximately 94% of total revenue for the
year ended December 31, 2008. At December 31, 2009, $233,055 was due
from this customer. This amount was subsequently paid-in full during
January and February 2010.
Operating
Leases
In
February 2010, the Company entered into an operating lease for the use of office
space. The lease requires monthly payments of $8,287 during the first
year and expires in January 2013. The Company incurred rent expense
of $54,000 and $72,000 during 2008 and 2009 related to the lease of the
ReceptoPharm office and lab. This office lease expires in May
2010. Future minimum payments under all lease agreements are as
follows:
$121,157
in 2010
$101,801
in 2011
$104,373
in 2012
11. SUBSEQUENT
EVENTS
Repayment of Officer
Loan
Subsequent
to December 31, 2009, the Company repaid $100,000 of a loan due to its President
Rik Deitsch. As a result of this repayment, as of March 31, 2010, the
Company owed Mr. Deitsch $1,062,306.
NUTRA
PHARMA CORP.
Notes
to Consolidated Financial Statements
December
31, 2008 and 2009
Stock Based
Compensation
On
February 26, 2010, the Company issued 2.5 million shares to a consultant for
services to be rendered during 2010. Of this total, 2.0 million shares
were restricted and 500,000 shares were free-trading pursuant to the Company’s
S-8. The shares were valued at $0.51 per share which was the fair market
value of the Company’s common stock on February 26, 2010.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Other
Expenses of Issuance and Distribution
The
following table sets forth the costs and expenses payable by us in connection
with the issuance and distribution of the securities being registered
hereunder. No expenses shall be borne by the selling
shareholder. All of the amounts shown are estimates, except for the
SEC Registration Fees.
SEC
registration fees
|
|
$ |
402 |
|
Printing
expenses
|
|
$ |
860 |
|
Accounting
fees and expenses
|
|
$ |
5,000 |
|
Legal
fees and expenses
|
|
$ |
38,500 |
|
Miscellaneous
|
|
$ |
240 |
|
Total
|
|
$ |
45,002 |
|
Our
Certificate of Incorporation provides that our directors will be protected from
personal liability to the fullest extent permitted by law.
Section
317 of the California Corporations Code, as amended, provides for the
indemnification of our officers, directors, employees and agents under certain
circumstances, for any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative; and "expenses"
includes without limitation attorneys' fees and any expenses, against
expenses, judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with the proceeding if that person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of the person was
unlawful. Section 317(d) of the California Corporation Code governs
mandatory indemnification by corporations of corporate officers, directors and
agents for "expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred. Section 317(d) mandates indemnification only to the
extent that the prospective indemnitee: (1) was sued because he/she is or was an
agent of the corporation, (2) acted in good faith and in a manner believed to be
in the best interests of the corporation in the conduct giving rise to the suit
and (3) was successful on the merits in the proceeding. Corp. Code. The "success
on the merits" requirement renders a determination of the indemnity issue
premature until a final and favorable termination of the proceedings on the
merits.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Recent
Sales of Unregistered Securities
On
November 8, 2010, we signed a $10 million Purchase Agreement with
LPC. Upon signing the agreement, we received $200,000 from LPC as an
initial purchase under the $10 million commitment in exchange for 1,666,667
shares of our common stock and warrants to purchase 1,666,667 shares of common
stock at an exercise price of $0.15 per share. We also entered into a
Registration Rights Agreement with LPC whereby we agreed to file a registration
statement related to the transaction with the SEC covering the shares that may
be issued to LPC under the Purchase Agreement. After the SEC has declared
effective the registration statement, we have the right, in our sole discretion,
over a 30-month period to sell shares of common stock to LPC in amounts up to
$500,000 per sale, depending on certain conditions as set forth in the Purchase
Agreement, up to an additional $9.8 million. In consideration for
entering into the $10 million agreement, we issued to LPC 400,000 shares as a
commitment fee and will issue up to 2,600,000 shares pro rata as LPC purchases
additional shares. The Purchase Agreement may be terminated by us at any time at
our discretion without any cost to it. The securities offered and
sold or to be sold to LPC are exempt from registration as set forth under Rule
506 promulgated under the Act. LPC is an accredited investor, and there was no
general solicitation or advertising.
Exhibits
and Financial Statement Schedules.
|
|
|
|
Incorporated by Reference
|
|
|
Exhibit No.
|
|
Exhibit Description
|
|
Form
|
|
Date
|
|
Number
|
|
Filed or Furnished Herewith
|
3.1
|
|
Certificate
of Articles of Incorporation
|
|
SB-2
|
|
4/6/01
|
|
3.1
|
|
|
3.2
|
|
Certificate
of Amendment to Articles of Incorporation ended and Restated
Bylaws
|
|
SB-2
|
|
4/6/01
|
|
3.2
|
|
|
3.3
|
|
Amended
and Restated Bylaws
|
|
10-QSB
|
|
8/21/06
|
|
3.3
|
|
|
5.1
|
|
Legal
Opinion of Law Office of Frederick M. Lehrer. P. A.
|
|
|
|
|
|
|
|
Filed
|
10.1
|
|
Agreement
and Plan of Merger – ReceptoPharm Inc.
|
|
8-K
|
|
4/14/08
|
|
10.1
|
|
|
10.1
|
|
Lincoln
Park Purchase Agreement
|
|
8-K
|
|
11/8/10
|
|
10.1
|
|
|
10.2
|
|
Lincoln
Park Registration Rights Agreement
|
|
8-K
|
|
11/8/10
|
|
10.2
|
|
|
10.4
|
|
Lincoln
Park Warrant
|
|
8-K
|
|
11/8/10
|
|
10.4
|
|
|
10.18
|
|
Patent
Assignment Agreement (Nanologix)
|
|
10-K
|
|
12/31/06
|
|
10.18
|
|
|
10.19
|
|
International
License Agreement (Nanologix)
|
|
10-K
|
|
12/31/06
|
|
10.19
|
|
|
14.1
|
|
Code
of Ethics
|
|
10-K/A
|
|
5/7/04
|
|
14.1
|
|
|
20.3
|
|
License
Agreement (Biotherapeutics)
|
|
10-KSB
|
|
4/20/04
|
|
20.3
|
|
|
20.4
|
|
Amended
License Agreement (Biotherapeutics)
|
|
10-KSB
|
|
4/20/04
|
|
20.4
|
|
|
21.1
|
|
List
of Subsidiaries
|
|
10-K
|
|
4/15/10
|
|
23.1
|
|
|
23.1
|
|
Consent
of Kingery & Crouse, P. A.
|
|
|
|
|
|
|
|
Filed
|
23.2
|
|
Consent
of Law Office of Frederick M. Lehrer, P. A.
|
|
|
|
|
|
|
|
Filed
|
*
Contained in Exhibit 5.1.
|
(a)
|
The
undersigned registrant hereby
undertakes:
|
|
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
|
i.
|
To
include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
|
|
ii.
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the Calculation of Registration Fee table in
the effective registration
statement.
|
|
iii.
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
|
2.
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
|
3.
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
|
4.
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser each prospectus filed pursuant to Rule 424(b) as part of
a registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use. each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other
than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use. each prospectus filed pursuant to Rule 424(b) as
part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses
filed in reliance on Rule 430A, shall be deemed to be part of and included
in the registration statement as of the date it is first used after
effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
|
|
(b)
|
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
|
|
(c)
|
The
undersigned registrant hereby
undertakes:
|
|
1.
|
For
purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared
effective.
|
|
2.
|
For
the purpose of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering
thereof.
|
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, has duly caused
this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the City of Coral Springs, State of
Florida, on January 6, 2011.
|
NUTRA
PHARMA CORP
|
|
|
|
|
By:
|
/s/
Rik Deitsch
|
|
|
|
Rik
Deitsch
|
|
|
Chief
Executive Officer
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Rik
J. Deitsch
|
|
Chairman
of the Board, President,
Chief
Executive Officer,
Principal
Financial Officer,
|
|
January
6, 2011
|
Rik
J. Deitsch
|
|
Principal
Accounting Officer
|
|
|
|
|
|
|
|
/s/
Garry R. Pottruck
|
|
Director
|
|
January
6, 2011
|
|
|
|
|
|
/s/
Stewart Lonky
|
|
Director
|
|
January
6, 2011
|
Stewart
Lonky
|
|
|
|
|
|
|
|
|
|
/s/
Harold H. Rumph
|
|
Director
|
|
January
6, 2011
|
Harold
H. Rumph
|
|
|
|
|