e10qsb
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2005
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TRANSITION REPORT PURSUANT OF SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period _________ to____________
Commission file number: 000-32141
NUTRA PHARMA CORP.
(Exact name of small business issuer as specified in its charter)
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California
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91-2021600 |
(State or other jurisdiction of
incorporation or organization)
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(IRS Employer I.D. Number)
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3473 High Ridge Road, Boynton Beach, FL
(Address of principal executive offices)
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33426
(Zip Code) |
Issuers telephone number: (954) 509-0911
1829 Corporate Drive, Boynton Beach, FL 33426
(Former address)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No x
There were 69,297,182 shares of common stock outstanding as of November 18, 2005.
Transitional Small Business Disclosure Format (check one): Yes o No x
TABLE OF CONTENTS
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Balance Sheet Unaudited
September 30, 2005
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ASSETS |
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Current assets: |
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Cash |
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$ |
17,440 |
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Property and equipment, net |
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57,827 |
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Other assets: |
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Investments at cost |
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235,000 |
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Other |
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18,365 |
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253,365 |
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$ |
328,632 |
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LIABILITIES AND STOCKHOLDERS (DEFICIT) |
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Current liabilities: |
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Accounts payable |
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$ |
141,223 |
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Accrued expenses |
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316,557 |
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Due to stockholders |
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33,000 |
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Total current liabilities |
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490,780 |
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Stockholders (deficit): |
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Common stock, $0.001 par value, 2.0 billion shares
authorized; 69,147,182 shares issued and outstanding |
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69,147 |
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Additional paid-in capital |
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15,254,687 |
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(Deficit) accumulated during the development stage |
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(15,485,982 |
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(162,148 |
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$ |
328,632 |
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See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Operations Unaudited
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For the |
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Period From |
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February 1, |
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2000 |
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(Inception) |
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Through |
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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September 30, |
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2004 |
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2005 |
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2004 |
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2005 |
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2005 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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$ |
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Costs and expenses: |
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General and administrative |
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303,074 |
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419,299 |
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667,523 |
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1,328,488 |
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4,751,048 |
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Research and development |
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4,135 |
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66,320 |
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947,799 |
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171,819 |
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1,276,787 |
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Stock based compensation |
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282,900 |
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555,385 |
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1,875,100 |
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1,355,190 |
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4,221,186 |
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Write-off of advances to potential acquiree |
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629,000 |
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Finance costs |
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786,000 |
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Interest expense |
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269,684 |
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274,390 |
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Amortization of license agreement |
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155,210 |
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Amortization of intangibles |
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188,758 |
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549,599 |
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656,732 |
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Losses on settlements |
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955,069 |
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955,069 |
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1,261,284 |
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Write-down of investment in Infectech, Inc. |
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620,805 |
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620,805 |
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620,805 |
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Equity in loss of unconsolidated subsidiary |
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853,540 |
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Total costs and expenses |
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2,354,741 |
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1,041,004 |
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5,615,895 |
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3,125,181 |
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15,485,982 |
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Net loss before provision (benefit) for income taxes |
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(2,354,741 |
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(1,041,004 |
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(5,615,895 |
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(3,125,181 |
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(15,485,982 |
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Provision (benefit) for income taxes |
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(75,503 |
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(219,840 |
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Net loss |
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$ |
(2,279,238 |
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$ |
(1,041,004 |
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$ |
(5,396,055 |
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$ |
(3,125,181 |
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$ |
(15,485,982 |
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Per share information basic and diluted |
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Loss per common share |
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$ |
(0.04 |
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$ |
(0.02 |
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$ |
(0.11 |
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$ |
(0.05 |
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Weighted average common shares outstanding |
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50,683,619 |
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67,900,878 |
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50,099,300 |
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62,863,086 |
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See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Cash Flows Unaudited
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For the |
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Period From |
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February 1, |
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2000 |
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(Inception) |
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Through |
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Nine Months Ended September 30, |
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September 30, |
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2004 |
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2005 |
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2005 |
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Cash flows from operating activities: |
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Net cash (used in) operating activities |
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$ |
(1,296,229 |
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$ |
(1,369,678 |
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$ |
(2,985,865 |
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Cash flows from investing activities: |
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Cash reduction due to deconsolidation of Infectech, Inc. |
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(2,997 |
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(2,997 |
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Cash acquired in acquisition of Infectech, Inc. |
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3,004 |
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Acquisition of property and equipment |
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(5,114 |
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(62,205 |
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Investments carried at cost |
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(130,000 |
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(235,000 |
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Net cash (used in) investing activities |
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(2,997 |
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(135,114 |
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(297,198 |
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Cash flows from financing activities: |
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Common stock issued for cash |
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177,650 |
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1,079,800 |
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2,027,500 |
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Proceeds from convertible loans |
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73,000 |
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304,750 |
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Loans from stockholders |
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1,038,513 |
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33,000 |
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968,253 |
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Net cash provided by financing activities |
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1,289,163 |
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1,112,800 |
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3,300,503 |
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Net increase (decrease) in cash |
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(10,063 |
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(391,992 |
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17,440 |
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Cash beginning of period |
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47,131 |
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409,432 |
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Cash end of period |
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$ |
37,068 |
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$ |
17,440 |
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$ |
17,440 |
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See the accompanying notes to the financial statements.
NUTRA PHARMA CORP.
(A Development Stage Company)
Notes to Unaudited Consolidated Financial Statements September 30, 2005
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP) for interim financial information and Item 310(b) of
Regulation S-B. They do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have been included. The
results of operations for the periods presented are not necessarily indicative of the results to be
expected for the full year. For further information, refer to the financial statements of the
Company as of December 31, 2004, and for the two years then ended, including notes thereto included
in the Companys Form 10-KSB.
The accompanying financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America which require management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expense. Actual results may differ from these estimates.
Principles of Consolidation
The consolidated financial statements presented herein include the accounts of Nutra Pharma and its
subsidiary ReceptoPharm, Inc. (collectively, the Company). In addition, the Company consolidated
Nanologix, Inc. during the period from January 1, 2004 through June 30, 2004 (see Note 3). All
intercompany transactions and balances have been eliminated in consolidation.
Income (Loss) per Share
The Company calculates net income (loss) per share as required by Statement of Financial Accounting
Standards (SFAS) 128, Earnings per Share. Basic earnings (loss) per share, is calculated by
dividing net income (loss) by the weighted average number of common shares outstanding for the
period. Diluted earnings(loss) per share is calculated by dividing net income (loss) by the
weighted average number of common shares and dilutive common stock equivalents outstanding. During
periods in which the Company incurs losses common stock equivalents, if any, are not considered, as
their effect would be anti dilutive.
2. BASIS OF REPORTING
The Companys financial statements are presented on a going concern basis, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of business. For the
nine months ended September 30, 2005, the Company incurred a net loss of $3,125,181. At September
30, 2005, the Company had negative working capital of $473,340 and an accumulated deficit of
$15,485,982.
The Companys 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
Companys ability to continue as a going concern must be considered in light of the problems,
expenses and complications frequently encountered in established markets and the competitive
environment in which the Company operates.
The Company is pursuing financing for its operations and seeking additional investments. In
addition, the Company is seeking to establish a revenue base. Failure to secure such financing or
to raise additional equity capital and to establish a revenue base may result in the Company
depleting its available funds and not being able to pay its obligations.
The financial statements do not include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a going concern.
3. NANOLOGIX, INC. (FORMERLY INFECTECH, INC.)
On September 19, 2003, the Company entered into an agreement (Acquisition Agreement) to acquire
up to 100% of the issued and outstanding common stock of Nanologix, Inc., a Delaware corporation
(Nanologix). Nanologix is a development stage company based in Sharon, Pennsylvania, which is
engaged in the development of diagnostic test kits used for the rapid identification of infectious
human and animal diseases. Nanologix owns patented technologies, which allow for the rapid
detection of disease-causing pathogens. Nanologix also owns a patented technology designed for use
in the bioremediation of contaminated soil and water.
The Acquisition Agreement provided for the acquisition by the Company of up to 100% of the issued
and outstanding common stock of Nanologix, through an exchange of one (1) share of the Companys
common stock for every two (2) shares of Nanologix common stock. The Company recorded the
acquisition of Nanologix as the purchase of assets, principally patents and other intangibles. The
value of the Companys common stock issued in connection with this transaction was $0.85 per share,
which was the market value of the Companys common stock on September 22, 2003, the date the terms
of the acquisition were agreed to and announced.
Through December 31, 2003, the Company issued an aggregate of 4,502,549 shares of its common stock
in exchange for 9,005,098 shares of Nanologix common stock. This initial exchange resulted in the
Company owning approximately 58% of the issued and outstanding common
stock of Nanologix. In January 2004, the Company issued an additional 426,275 shares of its common
stock, in exchange for 852,550 shares of Nanologix common stock. In September 2004, the Company
issued an additional 293,288 shares of its common stock in exchange for 586,576 shares of Nanologix
common stock. These exchanges increased the Companys ownership interest in Nanologix from 58% to
67%.
On September 28, 2004, the Company transferred 6,000,000 shares of Nanologix, Inc. common stock to
a shareholder of Nutra Pharma, to discharge a $1,384,931 demand loan from such shareholder. After
giving effect to this transfer, the Company owned a total of 4,444,224 shares or approximately 29%
of the issued and outstanding common stock of Nanologix (which was 15,537,050 shares).
Subsequent to September 28, 2004, the Company owned a minority interest in Nanologix and
accordingly, applied the equity method of accounting to its investment in Nanologix. The Companys
share of Nanologixs earnings or losses is included in its statement of operations as a single
amount. During the year ended December 31, 2004, Nanologix incurred a loss of $6,658,838. The
Companys portion of the loss using the equity method of accounting of $1,664,710 exceeded the
carrying value of the Companys investment which was $853,540 at December 31, 2004, and as such,
the $853,540 was charged to operations at December 31, 2004. This charge reduced the carrying value
of the Companys investment in Nanologix to $0.
At December 31, 2004, the Company owned a total of 4,556,174 shares or approximately 25% of the
issued and outstanding common stock of Nanologix. During the nine months ended September 30, 2005,
Nanologix issued additional shares of its common stock reducing the Companys ownership to
approximately 12% at September 30, 2005.
The aggregate market value of the Companys 4,556,174 shares of Nanologix common stock, based on
the trading price of Nanologix common stock as quoted on the pink sheets of $0.17 and $0.13 per
share at September 30, 2005, and November 11, 2005, was $774,550 and $592,303 respectively.
4. ACQUISITION OF RECEPTOPHARM, INC.
On December 12, 2003, the Company entered into an acquisition agreement (the Agreement), whereby
it agreed to acquire a 49.5% interest in ReceptoPharm, Inc. (ReceptoPharm), a privately held
biopharmaceutical company based in Ft. Lauderdale, Florida. ReceptoPharm is a development stage
company engaged in the research and development of proprietary therapeutic proteins for the
treatment of several chronic viral, autoimmune and neuro-degenerative diseases.
The closing of this transaction was subject to the approval of ReceptoPharms board of directors,
which was obtained on February 20, 2004. Pursuant to the Agreement, the Company is acquiring up to
49.5% of ReceptoPharms common equity for $2,000,000 in cash. ReceptoPharm intends to use such
funds to further research and development, which could significantly impact future results of
operations.
The Company is purchasing its interest in a series of installments. At September 30, 2005, the
Company had funded an aggregate of $1,860,000 to ReceptoPharm under the Agreement, which
represented a 37% interest in ReceptoPharm.
For accounting purposes, the Company is treating its capital investment in ReceptoPharm as a
vehicle for research and development. Because the Company is solely providing financial support to
further the research and development of ReceptoPharm, such amounts are being charged to expense as
incurred by ReceptoPharm. ReceptoPharm presently has no ability to fund these activities and is
dependent on the Company to fund its operations. In these circumstances, ReceptoPharm is considered
a variable interest entity and has been consolidated. The creditors of ReceptoPharm do not have
recourse to the general credit of the Company.
5. CONVERTIBLE LOANS
In November 2004, in accordance with the terms of completed Subscription Agreements, the Company
received total proceeds of $206,750 from four (4) investors. These agreements provide that upon the
expiration of a 6 month term from the date of execution, each of the four investors has the option
of: (a) being repaid the amount of their investment together with 15% interest per annum; (b)
converting their investment into shares of the Companys common stock at a conversion price of
$0.17 per share up to an aggregate of 1,216,176 shares, if all four investors convert; or (c)
converting their investment into a number of shares of common stock of the Company equal to the sum
of the principal and accrued interest on the note, divided by the conversion price equal to a price
which is 35% below (i) the average of the last reported sales prices for the shares of Common Stock
on the NASDAQ National Market, the American Stock Exchange, the NASDAQ Small Cap Market or the
Over-the-Counter Bulletin Board for the 5 trading days immediately prior to such date or (ii) if
there have been no sales on any such market on any applicable day, the average of the highest bid
and lowest ask prices on such market at the end of any applicable day, or (iii) if the market value cannot be calculated as of such date on any of the foregoing bases, the
Market Price will be at the fair market value as reasonably determined in good faith by our Board
of Directors.
Each investor had piggyback registration rights that would have required the Company to register
any shares held by them if the Company voluntarily filed a registration statement, or immediately
if an investor decided to convert their investment into shares of common stock.
In May 2005, the loan holders amended their original agreements. The new agreements released the
Company from its requirements to register the loan holders shares. Each loan holder received
approximately ten percent in additional shares as part of the new agreement. In full settlement of
the debt, the Company issued an aggregate of 1,458,000 shares of common stock to settle the debt.
The fair value of these shares at the date of the settlement was $481,140. The Company recorded
interest expense of $261,782 for the value of the shares in excess of the debt settled. (See Note
6.)
6. STOCKHOLDERS DEFICIT
During the quarter ended March 31, 2005, the Company issued 6,105,000 shares which were subscribed
for at December 31, 2004.
During the quarter ended March 31, 2005, the Company sold 790,000 shares of restricted common stock
at $0.17 per share and received proceeds of $134,300. Of the shares sold, 90,000 were issued at
March 31, 2005 and the remaining 700,000 were recorded as a subscription and the amount received is
included in additional paid-in capital. The remaining 700,000 shares were issued during the quarter
ended June 30, 2005.
During the quarter ended March 31, 2005, the Company issued 100,000 shares of restricted common
stock to a consultant for services rendered. The Company recorded stock-based compensation expense
of $34,000 based on the market value of the Companys common stock on the date of the grant.
During the quarter ended March 31, 2005, the Company issued 500,000 shares of restricted common
stock to a Director for services rendered. The Company recorded stock-based compensation expense of
$200,000 based on the market value of the Companys common stock on the date of the grant.
During the quarter ended June 30, 2005, the Company sold 3,377,500 shares of restricted common
stock at $0.20 per share and received proceeds of $675,500.
During the quarter ended June 30, 2005, the Company issued an aggregate of 1,287,000 shares of
restricted common stock to consultants for services rendered. The Company recorded stock-based
compensation expense of $453,305 based on the market value of the Companys common stock on the
respective dates of grant.
During the quarter ended June 30, 2005, the Company issued an aggregate of 1,458,000 shares of
common stock to settle the debt described in Note 5. The fair value of these shares at the date of
the settlement was $481,140. The Company recorded a charge to interest expense of $261,782 for the
value of the shares in excess of the debt settled.
During the quarter ended June 30, 2005, ReceptoPharm issued 250,000 shares of its common stock to a
consultant for services rendered. The shares were valued at their fair market value of $0.45 per
share and the Company recorded a charge to operations of $112,500.
During the quarter ended September 30, 2005, the Company sold 1,350,000 shares of restricted common
stock at $0.20 per share and received proceeds of $270,000.
During the quarter ended September 30, 2005, the Company issued 120,000 shares of restricted common
stock to a consultant for services rendered. The Company recorded stock-based compensation expense
of $31,200 based on the market value of the Companys common stock on the date of grant.
During the quarter ended September 30, 2005, ReceptoPharm issued 1,100,000 shares of its common
stock to two of its executive officers for services rendered. The shares were valued at their fair
market value of $0.45 per share and the Company recorded a charge to operations of $495,000.
During the quarter ended September 30, 2005, ReceptoPharm issued 65,000 shares of its common stock
to a consultant for services rendered. The shares were valued at their fair market value of $0.45
per share and the Company recorded a charge to operations of $29,185.
7. STOCK OPTIONS
On June 1, 2005 the Company retained Doherty & Company, LLC (Doherty & Company), to provide the
services of Michael Doherty as executive Chairman of the Company. Concurrently, the Company also
retained Doherty & Company to act as the Companys agent in connection with prospective private
capital-raising activities.
The Company granted a five year option to purchase Thirteen Million Six Hundred Thousand
(13,600,000) shares of the Companys common stock at an exercise price equal to $0.27 per share,
vesting over a two year period. The option expires on May 31, 2010. The option becomes exercisable
with respect to 6,800,000 shares commencing on May 31, 2006, provided the Company has raised at
least $500,000 of additional equity, debt or equity linked financing prior to October 31, 2005, and
the balance becomes exercisable in twelve equal monthly installments thereafter. The options are
being granted to Doherty & Company for providing the services of Mr. Doherty.
Mr. Doherty will serve as Chairman for two years but will not be required to devote more than 20
hours per week to the Company. Mr. Doherty will also serve as a member of the Companys Board of
Directors. Additionally, Mr. Doherty will be entitled to cash compensation from the Company
commensurate with his position when and if the Companys other executives begin to receive such
compensation.
In addition, Doherty & Company will be entitled to a fee equal to 8% of the gross proceeds received
from investors in any financing arranged by Doherty & Company together with three year options to
purchase a number of securities equal to 10% of the amount received from
investors in any such financing. The Company will reimburse Doherty & Company for its expenses,
including legal fees, not to exceed $25,000. The Company has also agreed to indemnify Doherty &
Company against claims relating to its engagement by the Company and the services to be provided to
the Company.
The Company will charge the difference between the fair value of the shares underlying the options
of $0.36 and the exercise price of $0.27 to operations over the vesting period commencing if and
when the Company receives proceeds of $500,000.
8. INVESTMENTS
Letter of Intent to Acquire Portage BioMed LLC
On October 28, 2004, the Company entered into a non-binding letter of intent to acquire 100% of the
issued and outstanding common stock of Portage BioMed LLC, a biotechnology research company
(Portage Biomed). The proposed terms reflected in the non-binding letter of intent are: (i)
beginning on November 1, 2004, the Company will pay $40,000 per month to Portage BioMed for working
capital, until such time that Portage BioMed generates sufficient cash flow to sustain its
operations; (ii) the Company will issue an aggregate of 1,000,000 shares of its restricted common
stock to Portage BioMeds four members in exchange for their interest in Portage BioMed; (iii) the
Company will also issue an aggregate of 550,000 shares of its restricted common stock to Portage
BioMeds four members for four consecutive quarters commencing six months from the closing date of
the transaction and upon the completion of certain agreed upon quarterly milestones; and
(iv) Rik J. Deitsch, the Companys Chief Executive Officer, will be appointed to Portage BioMeds Board of
Directors and one current Portage BioMed Director will be appointed as a Director of the Company.
As of September 30, 2005 the Company has made payments totaling $60,000 to Portage BioMed in
connection with the letter of intent. As of September 30, 2005, the Company has not entered into a
definitive agreement with Portage BioMed. This investment is included in other assets in the
accompanying financial statements.
Investment in XenaCare LLC
On November 1, 2004, the Company completed an agreement with XenaCare LLC XenaCare, a healthcare
management company engaged in the business of manufacturing and distributing non-prescription
pharmaceuticals to physicians offices. This agreement provides that the Company make an investment
of up to $250,000 in 15 Site of Care physician locations to be managed by XenaCare.
As of September 30, 2005, the Company has made payments totaling $175,000 to XenaCare in connection
with this agreement. This investment is included in other assets in the accompanying financial
statements.
9. CONTINGENCIES
On April 4, 2005, a Motion to Enforce Settlement Agreement was filed against the Company in the
Circuit Court of Broward County Florida by Bio Therapeutics, Inc. f/k/a Phylomed Corp. in Nutra
Pharma Corp. v. Bio Therapeutics, Inc. (17th Judicial Circuit, Case No. 03-008928 (03). This
proceeding results from the Companys alleged breach of a settlement agreement that was entered
into between Bio Therapeutics and the Company in resolution of a previous lawsuit between the
Company and Bio Therapeutics that was resolved by entering into a Settlement Agreement. The Company
also entered into a related License Agreement and Amendment to the License Agreement (License
Agreement) with Bio Therapeutics. In the April 4, 2005 motion, Bio Therapeutics alleges that the
Company breached certain provisions of the License Agreement and requests that the Court grant its
motion to enforce the Settlement Agreement by declaring the License Agreement terminated, enjoining
the Company from further use of license products that was granted to the Company by the License
Agreement, and awarding attorneys fees and costs to Bio Therapeutics. This matter is set for a
hearing to hear a motion to set a motion for an evidential hearing.
The Company intends to defend against this action. The Company does not believe that this action
will have a material effect upon its operations; and if the license agreement is terminated does
not believe there will be a material negative impact on the Company.
10. SBI BRIGHTLINE XII LLC AGREEMENT
On August 17, 2005, the Company entered into a stock purchase agreement with SBI Brightline XII LLC
(SBI) that obligated SBI to purchase, upon the Companys election, up to 24,000,000 shares of our
common stock for an aggregate purchase price of $9.6 million. The agreement is comprised of 24
equally sized putable tranches with exercise prices at $0.30, $0.40 and $0.50 per share. The
agreement limits the Company from exercising a tranche that would result in SBI exceeding 9.8%
total beneficial ownership of Nutra Pharma. Additionally, SBI will be issued 2,000,000 warrants
exercisable at $0.30; 2,000,000 warrants exercisable at $0.40; and, 2,000,000 warrants exercisable
at $0.50 for a total of 6,000,000 warrants. If fully exercised, the warrants will provide the
Company with an additional $2,400,000. The agreement requires that the shares be registered with
the Securities and Exchange Commission. As of September 30, 2005, the Company had not filed a
registration statement with the Securities and Exchange Commission and therefore, the Company has
not sold any common stock to SBI pursuant to the agreement. On November 21, 2005, the board of
directors authorized management to terminate the agreements and to seek alternative financing.
11. SUBSEQUENT EVENTS
On October 3, 2005, the Company sold 100,000 shares of restricted common stock at $0.20 per share
and received proceeds of $20,000.
On November 2, 2005, the Company sold 50,000 shares of restricted common stock at $0.20 per share
and received proceeds of $10,000.
On October 28, 2005 Nutra Pharma Corp. entered into a one year agreement with Xinhua Financial
Network Ltd. (XFN) where XFN will
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introduce the Company to potential strategic and operational partners, as well as
suppliers, manufacturers, customers, and other relationships in The Peoples Republic of
China (China) and elsewhere in Asia; and |
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otherwise assist the Company with advancing the business objectives of the Company in
China and elsewhere in Asia. |
The Company and XFN shall agree to specific compensation arising out of any transaction with which
XFN assists the Company. In addition, the Company issued to XFN ten million (10,000,000) warrants
for the right to purchase shares of the Companys common stock at $.70 per share, a premium to the
market price. The warrants expire September 30, 2010 and are redeemable by the Company for $1.00 if
the market price for the Companys common stock exceeds $1.00.
Item 2. Managements Discussion and Analysis of Financial Condition or Plan of Operations
Forward-Looking Statements
The following discussion and analysis contains forward-looking statements and should be read in
conjunction with our financial statements and
related notes. For purposes of this Plan of
Operations, Nutra Pharma Corp. is referred to herein as we, us, or our. This discussion and
analysis contains forward-looking statements based on our current expectations, assumptions,
estimates and projections overview. The words or phrases believe, expect, may, should,
anticipates or similar expressions are intended to identify forward-looking statements. Actual
results could differ materially from those projected in the forward-looking statements as a result
of the following risks and uncertainties, including: (a) we have experienced recurring net losses
and a working capital deficiency which raises substantial doubt about our ability to continue as a
going concern; (b) our history of losses makes it difficult to evaluate our current and future
business and our future financial results; (c) our continued operations are dependent upon
obtaining equity or other financing and should we be unable to obtain such financing, we will be
unable to continue our operations; (d) our inability to retain and attract key personnel could
adversely affect our business; (e) we are subject to substantial Federal Drug Administration and
other regulations and related costs which may adversely affect our operations; (f) a market for our
potential products may never develop; (g) if we fail to adequately protect our patents, we may be
unable to proceed with development of potential drug products; (h) we are dependent upon patents,
licenses and other proprietary rights from third parties; should we
lose such rights our operations will be negatively affected; (h) we may be unable to compete
against our competitors in the medical device and
biopharmaceutical markets since many of our competitors have superior financial and technical
resources; (i) issuance of shares of our common stock to consultants has and may in the future have
a dilutive effect on the value of our common stock and may negatively effect the trading price of
our common stock; (j) our Plan of Operations has been substantially delayed due to lack of
financing; (k) our management decisions are made by our Chief Executive Officer, Rik Deitsch and,
if we lose his services, our operations will be negatively impacted; (l) we have entered into
acquisition agreements which were later rescinded, which has delayed and otherwise negatively
affected our operations; and (m) we are subject to a substantial funding commitment of $140,000 due
to ReceptoPharm in connection with the ReceptoPharm acquisition agreement and should we fail to
meet this commitment, we may lose a portion of our ownership interest in ReceptoPharm and become
unable to enact a substantial part of our Plan of Operations.
PLAN OF OPERATIONS
Nutra Pharma Corporation is a biopharmaceutical company specializing in the acquisition, licensing
and commercialization of pharmaceutical products and technologies for the management of
neurological disorders, cancer, autoimmune and infectious diseases. Nutra Pharma Corp. through its
subsidiaries and investments carries out basic drug discovery research and clinical development and
also seeks strategic licensing partnerships to reduce the risks associated with the drug
development process. Nutra Pharma continues to identify and seek to acquire intellectual property
and companies in the biotechnology arena.
We currently have one operating subsidiary (ReceptoPharm, Inc.) as well as investments in Nanologix
and XenaCare.
On August 17, 2005, we entered into a stock purchase agreement with SBI Brightline XII LLC that
obligated SBI to purchase, upon our election, up to 24,000,000 shares of our common stock for an
aggregate purchase price of up to $9.6 million before fees and expenses. The agreement requires
registration of the shares which is expected to be completed in the fourth quarter of 2005.
Additionally, the agreement provides SBI with up to 6,000,000 warrants. If fully issued and
exercised, these warrants will provide the Company with an additional $2,400,000 before fees and
expenses. The SBI Britghtline XII LLC transaction is subject to an effective registration statement
and there is no guarantee that such registration statement will be declared effective by the SEC.
On November 21, 2005, the board of directors authorized management to terminate the agreements and
to seek alternative financing. Our estimate of these cash requirements is as follows:
We anticipate that our total estimated cash requirements of $970,000 for the next 12 months,
pending adequate financing, will include: (a) $755,000 pertaining directly to our own operations;
(b) funding of $140,000 for ReceptoPharm; and (c) $75,000 pertaining to our investment in Xenacare.
Specifically, our planned expenditures pertaining to (a) and (b) are:
OUR DIRECT EXPENDITURES
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Type Expenditure |
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Total Expenditure |
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Monthly Expenditure |
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Salaries* |
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$ |
212,000 |
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$ |
17,667 |
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Travel related
expenses pertaining
to research and due
diligence |
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$ |
40,000 |
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$ |
3,333 |
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Consulting Fees |
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$ |
180,000 |
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$ |
15,000 |
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Office-related
expenditures |
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$ |
58,000 |
|
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$ |
4,833 |
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|
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Professional
Fees -Legal
and Accounting |
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$ |
265,000 |
|
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$ |
22,083 |
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Total |
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$ |
755,000 |
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$ |
62,916 |
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* |
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Salaries include the following: |
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(a) |
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Chief Executive Officer $130,000; |
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(b) |
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Administrative Assistant $45,000; and |
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(c) |
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Research Assistant $37,000 |
FUNDING OF RECEPTOPHARM, INC.
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Type Expenditure |
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Total Expenditure |
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Monthly Expenditure |
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Operating Expenses |
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(Rent, supplies,
utilities) |
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$ |
10,000 |
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$ |
833 |
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|
|
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Salaries |
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|
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|
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(CEO, President,
Chief Science
Officer, and
Administrative
Assistant) |
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$ |
10,000 |
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$ |
834 |
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Clinical Studies |
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(HIV, MS, AMN) |
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$ |
120,000 |
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$ |
10,000 |
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Total: |
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$ |
140,000 |
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$ |
11,667 |
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FUNDING OF XENACARE
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Type Expenditure |
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Total Expenditure |
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Monthly Expenditure |
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Funding of Site of Cares |
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$ |
75,000 |
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$ |
6,250 |
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OUR TWELVE-MONTH PLAN OF OPERATIONS
We intend to accomplish the following regarding our Plan of Operations over the next twelve months.
Clinical Studies
Adrenomyeloneuropathy (AMN)
Adrenomyeloneuropathy (AMN) is a genetic disorder that affects the central nervous system. The
disease causes neurological disability that is slowly progressive over several decades. Throughout
our twelve month Plan of Operations and for 3 months thereafter, ReceptoPharm plans to
conduct a Phase IIb/IIIa clinical study of its Adrenomyeloneuropathy (AMN) drug, which is currently
under development. ReceptoPharm have an agreement with the Charles Dent Metabolic Unit located in
London, England to conduct a clinical study that consists of:
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Recruitment of 20 patients with AMN; |
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Administering the ReceptoPharms AMN drug under development; and |
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Monitoring patients throughout a 15-month protocol. |
The clinical study is classified as a Phase III study and is the final step required for regulatory
approval of the drug.
HIV and MS
ReceptoPharm also plans to conduct Phase II clinical studies of its HIV and MS drugs under
development. These studies will provide data to demonstrate the preliminary efficacy of
ReceptoPharmss HIV/MS drugs under development. ReceptoPharm will seek to secure agreements with
third parties to conduct such clinical studies.
ReceptoPharm
Completed Pre-Clinical Work
The Company has completed pre-clinical studies with various companies that ReceptoPharm has
agreements with pertaining to ReceptoPharms Multiple Sclerosis (MS) and HIV drugs, which consisted
of the following:
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MS Drug under Development ReceptoPharm conducted microarray and histoculture studies and
related analysis of the cells of Multiple Sclerosis patients to ascertain how certain drugs affect
the cells of these patients. Microarray analysis is the study of the gene expression of cells.
Histoculture is the study of the entire cellular environment. ReceptoPharm continues to conduct
these studies through our agreement with Eno Research and Development, a clinical research
organization; and |
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HIV Drug under Development Viral isolates are common mutations of HIV. |
We conducted these studies through our agreement with ReceptoPharm. ReceptoPharm has an agreement
with the University of California, San Diego, to study the effect of ReceptoPharms drug under
development on different viral isolates to determine the drugs efficacy in mutated forms of the
HIV virus.
Liquidity and Capital Resources
We have experienced a significant loss from operations. Our ability to continue as a going concern
is dependent on our ability to secure additional financing, increase ownership equity, and attain
profitable operations. Additionally, our independent registered public accounting firm has issued a
going concern opinion on our audited financial statements for the fiscal year ended December 31,
2004 since we have experienced recurring net losses and at December 31, 2004, a working capital
deficiency. We have estimated expenses of $970,000 pertaining to our twelve month Plan of
Operations or $80,833 of monthly expenditures. Based upon our current cash position of
approximately $15,000, we have sufficient funds to conduct our operations for only approximately 3
weeks. We intend to satisfy our estimated cash requirements of $970,000 for our twelve month Plan
of Operations pending adequate financing through a private placement of our equity securities and
through our agreement with SBI Brightline XII LLC that obligated SBI to purchase, upon our
election, up to 24,000,000 shares of our common stock for an aggregate purchase price of $9.6
million. However, the SBI Britghtline XII LLC transaction is subject to an effective registration
statement and there is no guarantee that such registration statement will be declared effective by
the SEC. Should the registration statement not be declared effective by the SEC, the Company will
have to seek alternative financing.
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this
Quarterly Report on Form 10-QSB, we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures. This evaluation was carried out by our
sole executive officer Rik Deitsch, who is our chief executive officer and chief financial officer,
and a member of our board of directors. Based upon his evaluation, Mr. Deitsch concluded that our
disclosure controls and procedures are effective.
There have been no changes in our system of internal control over financial reporting in connection
with the evaluation by our principal executive officer and principal financial officer during our
fiscal quarter ended June 30, 2005 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On April 4, 2005, a Motion to Enforce Settlement Agreement was filed against us in the Circuit
Court of Broward County Florida by Bio
Therapeutics, Inc. f/k/a Phylomed Corp. in Nutra Pharma Corp. v. Bio Therapeutics, Inc. (17th
Judicial Circuit, Case No. 03-008928 (03)). This proceeding results from our alleged breach of a
settlement agreement that was entered into between Bio Therapeutics
and us in resolution of a previous lawsuit between us and Bio Therapeutics. We also entered into a
related License Agreement and Amendment to the License Agreement (License Agreement) with Bio
Therapeutics.
In the motion, Bio Therapeutics alleges that we breached certain provisions of the License
Agreement and requests that the Court grant its motion to enforce the Settlement Agreement by
declaring the License Agreement terminated, enjoining us from further use of license products that
were granted to us by the License Agreement, and awarding attorneys fees and costs to Bio
Therapeutics. This matter was set for a hearing on April 28, 2005 to hear a motion to set a motion
for an evidential hearing. However, such hearing was cancelled and a new hearing date has not been
set.
We intend to defend against this action. We do not believe that this action will have a material
effect upon our operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 1, 2005, we sold 50,000 shares of our common stock at $0.20 per share or an aggregate of
$10,000 to an accredited investor.
On August 9, 2005, we sold 125,000 shares of our common stock at $0.20 per share or an aggregate of
$25,000 to two accredited investors.
On August 10, 2005, we sold 150,000 shares of our common stock at $0.20 per share or an aggregate
of $30,000 to an accredited investor.
On August 12, 2005, we sold 250,000 shares of our common stock at $0.20 per share or an aggregate
of $50,000 to an accredited investor.
On August 17, 2005, we sold 275,000 shares of our common stock at $0.20 per share or an aggregate
of $55,000 to an accredited investor.
On August 23, 2005, we sold 500,000 shares of our common stock at $0.20 per share or an aggregate
of $100,000 to an accredited investor.
On September 16, 2005, we issued 120,000 shares of our restricted common stock to JPU Ventures in
return for consulting services, specifically due diligence relating to potential acquisitions, that
they rendered to us. The restricted shares were valued at $0.26 per share or an aggregate of
$31,200.
On October 3, 2005, we sold 100,000 shares of our common stock at $0.20 per share or an aggregate
of $20,000 to an accredited investor.
On November 2, 2005, we sold 50,000 shares of our common stock at $0.20 per share or an aggregate
of $10,000 to an accredited investor.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
SBI Brightline XII Agreement
On August 17, 2005, we entered into a stock purchase agreement with SBI Brightline XII LLC that
obligated SBI to purchase, upon our election, up to 24,000,000 shares of our common stock for an
aggregate purchase price of $9.6 million. The agreement is comprised of 24 equally sized putable
tranches with exercise prices at $0.30, $0.40 and $0.50 per hare. The agreement limits the Company
from exercising a tranche that would result in SBI exceeding 9.8% total beneficial ownership of
Nutra Pharma. Additionally, SBI will be issued 2,000,000
warrants exercisable at $0.30; 2,000,000 warrants exercisable at $0.40; and, 2,000,000 warrants
exercisable at $0.50 for a total of 6,000,000 warrants. If fully exercised, the warrants will
provide the Company with an additional $2,400,000. The agreement required that the shares be
registered with the Securities and Exchange Commission. The Company is currently preparing a
registration statement for submission. On November 21, 2005, the board of directors authorized
management to terminate the agreements and to seek alternative financing.
Item 6. Exhibits
The following exhibits are filed herewith or are incorporated by reference to exhibits previously
filed with the SEC:
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4.2
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Xinhua Financial Network Warrant (xiv) |
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10.16
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Consulting Agreement by and among Nutra Pharma Corp. and XFN (xiv) |
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31.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 |
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(i) |
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Incorporated by reference to the Companys Registration Statement on Form SB-2/A
(Registration No. 33-44398) filed on April 6, 2001 |
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(the Registration Statement). |
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(ii) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed December 26,
2001 |
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(iii) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed February 28,
2002 |
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(iv) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed September 9,
2002 |
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(v) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed October 31,
2002 |
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(vi) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed October 20,
2003 |
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(vii) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed March 8, 2004 |
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(viii) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed November 5,
2002 |
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(ix) |
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Incorporated by reference to the Companys Report on Form 10-KSB, filed April 20, 2004 |
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(x) |
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Incorporated by reference to the Companys Report on Form 10-KSB/A, filed May 7, 2004 |
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(xi) |
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Incorporated by reference to the Companys Report on Form 10-QSB, filed December 21, 2004 |
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(xii) |
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Incorporated by reference to the Companys Report on Form 10-KSB, filed May 2, 2005 |
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(xiii) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed June 6, 2005 |
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(xiv) |
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Incorporated by reference to the Companys Current Report on Form 8K, filed November 10,
2005 |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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NUTRA PHARMA CORP.
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/s/ Rik J. Deitsch
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Rik J. Deitsch, President |
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Chief Executive Officer and Chief Financial Officer |
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Dated: November 21, 2005