UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MARCH 31, 2006
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to ________
Commission file number 000-32141
NUTRA PHARMA CORP.
(Name of registrant as specified in its charter)
CALIFORNIA 91-2021600
(State or Other Jurisdiction (IRS Employer
of Organization) Identification Number)
791 PARK OF COMMERCE BLVD, SUITE 300, BOCA RATON, FL 33487
(Address of principal executive offices)
(954) 509-0911
(Issuer's telephone number)
3473 HIGH RIDGE ROAD, BOYNTON BEACH, FL 33426
(Former name, former address and former fiscal year,
if changed since last report)
Check 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 registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
[X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 19, 2006, there were 71,797,182 shares of common stock issued and
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2006 1
Consolidated Statements of Operations for the three months ended
March 31, 2006 and 2005 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 2006 and 2005 3
Notes to Unaudited Consolidated Financial Statements -
March 31, 2006 4
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operations 9
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits 14
SIGNATURES 15
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Balance Sheet - Unaudited
March 31, 2006
ASSETS
Current assets:
Cash $ 276,078
------------
Total current assets 276,078
------------
Property and equipment, net 51,029
Other assets 28,029
------------
TOTAL ASSETS $ 355,136
============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities:
Accounts payable $ 144,126
Accrued expenses 445,133
Due to officers 427,178
------------
Total current liabilities 1,016,437
------------
Stockholders' (deficit):
Common stock, $0.001 par value, 2.0 billion shares
authorized; 69,447,182 shares issued and outstanding 69,447
Additional paid-in capital 17,507,137
(Deficit) accumulated during the development stage (18,237,885)
------------
Total stockholders' (deficit) (661,301)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 355,136
============
See the accompanying notes to the financial statements.
1
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Operations - Unaudited
For the
Period From
February 1,
2000
(Inception)
Three Months Ended March 31, Through
---------------------------- March 31,
2005 2006 2006
------------ ------------ ------------
Revenue $ -- $ -- $ --
------------ ------------ ------------
Costs and expenses:
General and administrative 381,907 351,739 5,342,240
Research and development 49,615 120,431 1,449,748
General and administrative - stock based compensation 234,000 252,750 5,973,936
Write-off of advances to potential acquiree -- -- 629,000
Finance costs -- -- 786,000
Interest expense 7,902 -- 274,390
Amortization of license agreement -- -- 155,210
Amortization of intangibles -- -- 656,732
Losses on settlements -- -- 1,261,284
Write-down of investment in subsidiary -- -- 620,805
Equity in loss of unconsolidated subsidiary -- -- 853,540
Write-off of investment in Portage BioMed -- -- 60,000
Write-off of investment in Xenacare -- -- 175,000
------------ ------------ ------------
Total costs and expenses 673,424 724,920 18,237,885
------------ ------------ ------------
Net loss before provision (benefit) for income taxes (673,424) (724,920) (18,237,885)
Provision (benefit) for income taxes -- -- --
------------ ------------ ------------
Net loss $ (673,424) $ (724,920) $(18,237,885)
============ ============ ============
Per share information - basic and diluted:
Loss per common share $ (0.01) $ (0.01)
============ ============
Weighted average common shares outstanding 58,724,862 69,430,515
============ ============
See the accompanying notes to the financial statements.
2
NUTRA PHARMA CORP.
(A Development Stage Company)
Consolidated Statements of Cash Flows - Unaudited
For the
Period From
February 1,
2000
(Inception)
Years Ended
Three Months Ended March 31, Through
----------------------------- March 31,
2005 2006 2006
----------- --------------------------
Cash flows from operating activities:
----------- ----------- -----------
Net cash (used in) operating activities $ (442,127) $ (451,805) $(3,597,469)
----------- ----------- -----------
Cash flows from investing activities:
Cash reduction due to deconsolidation of Nanologix -- -- (2,997)
Cash acquired in acquisition of Nanologix -- -- 3,004
Acquisition of property and equipment (3,228) -- (86,140)
Amounts paid for investments (80,000) -- (235,000)
----------- ----------- -----------
Net cash (used in) investing activities (83,228) -- (321,133)
----------- ----------- -----------
Cash flows from financing activities:
Common stock issued for cash 134,300 470,000 2,527,500
Proceeds from convertible loans -- -- 304,750
Loans from stockholders, net of repayments -- 188,856 1,362,430
----------- ----------- -----------
Net cash provided by financing activities 134,300 658,856 4,194,680
----------- ----------- -----------
Net increase (decrease) in cash (391,055) 207,051 276,078
Cash - beginning of period 409,432 69,027 --
----------- ----------- -----------
Cash - end of period $ 18,377 $ 276,078 $ 276,078
=========== =========== ===========
See the accompanying notes to the financial statements.
3
Nutra Pharma Corp.
Notes to Consolidated Unaudited Financial Statements
March 31, 2006
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,
2005, and for the two years then ended, including notes thereto included in the
Company's Form 10-KSB.
The accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense. Actual results may differ from
these estimates.
Principles of Consolidation
The consolidated financial statements presented herein include the accounts of
Nutra Pharma and its subsidiaries ReceptoPharm, Inc. and Designer Diagnostics
Inc. (collectively, the "Company").
Income (Loss) per Share
The Company calculates net income (loss) per share as required by Statement of
Financial Accounting Standards (SFAS) 128, "Earnings per Share." Basic earnings
(loss) per share, is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share, is calculated by dividing net income (loss) by the weighted
average number of common shares and dilutive common stock equivalents
outstanding. During periods in which the Company incurs losses common stock
equivalents, if any, are not considered, as their effect would be anti dilutive.
2. BASIS OF REPORTING
The Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the three months ended March 31, 2006, the
Company incurred a net loss of $724,920. At March 31, 2006, the Company had
negative working capital of $740,359 and an accumulated deficit of $18,237,885.
In addition, the Company has no revenue generating operations.
The Company's ability to continue as a going concern is contingent upon its
ability to secure additional financing, increase ownership equity and attain
profitable operations. In addition, the Company's ability to continue as a going
concern must be considered in light of the problems, expenses and complications
frequently encountered in established markets and the competitive environment in
which the Company operates.
The Company is pursuing financing for its operations and seeking additional
investments. In addition, the Company is seeking to establish a revenue base.
Failure to secure such financing or to raise additional equity capital and to
establish a revenue base may result in the Company depleting its available funds
and not being able to pay its obligations.
4
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
3. NANOLOGIX, INC. (FORMERLY INFECTECH, INC.)
On September 19, 2003, the Company entered into an agreement ("Acquisition
Agreement") to acquire up to 100% of the issued and outstanding common stock of
Nanologix, Inc., a Delaware corporation ("Nanologix"). Nanologix is a
development stage company based in Sharon, Pennsylvania, which is engaged in the
development of diagnostic test kits used for the rapid identification of
infectious human and animal diseases. Nanologix owns patented technologies,
which allow for the rapid detection of disease-causing pathogens. Nanologix also
owns a patented technology designed for use in the bioremediation of
contaminated soil and water.
The Acquisition Agreement provided for the acquisition by the Company of up to
100% of the issued and outstanding common stock of Nanologix, through an
exchange of one (1) share of the Company's common stock for every two (2) shares
of Nanologix common stock. The Company recorded the acquisition of Nanologix as
the purchase of assets, principally patents and other intangibles. The value of
the Company's common stock issued in connection with this transaction was $0.85
per share, which was the market value of the Company's common stock on September
22, 2003, the date the terms of the acquisition were agreed to and announced.
Through December 31, 2003, the Company issued an aggregate of 4,502,549 shares
of its common stock in exchange for 9,005,098 shares of Nanologix common stock.
This initial exchange resulted in the Company owning approximately 58% of the
issued and outstanding common stock of Nanologix. In January 2004, the Company
issued an additional 426,275 shares of its common stock, in exchange for 852,550
shares of Nanologix common stock. In September 2004, the Company issued an
additional 293,288 shares of its common stock in exchange for 586,576 shares of
Nanologix common stock. These exchanges increased the Company's ownership
interest in Nanologix from 58% to 67%.
On September 28, 2004, the Company transferred 6,000,000 shares of Nanologix,
Inc. common stock to a shareholder of Nutra Pharma, to discharge a $1,384,931
demand loan from such shareholder. After giving effect to this transfer, the
Company owned a total of 4,444,224 shares or approximately 29% of the issued and
outstanding common stock of Nanologix (which was 15,537,050 shares).
Subsequent to September 28, 2004, the Company owned a minority interest in
Nanologix and accordingly, applied the equity method of accounting to its
investment in Nanologix. The Company's share of Nanologix's earnings or losses
is included in its statement of operations as a single amount. During the year
ended December 31, 2004, Nanologix incurred a loss of $6,658,838. The Company's
portion of the loss using the equity method of accounting of $1,664,710 exceeded
the carrying value of the Company's investment which was $853,540 at December
31, 2004, and as such, the $853,540 was charged to operations at December 31,
2004. This charge reduced the carrying value of the Company's investment in
Nanologix to $0.
At December 31, 2005, the Company owned a total of 4,556,174 shares of the
issued and outstanding common stock of Nanologix. The aggregate market value of
the Company's 4,556,174 shares of Nanologix common stock, based on the trading
price of Nanologix common stock as quoted on the pink sheets of $.08 per share
at December 31, 2005, was $364,494.
5
On January 25, 2006, the Company and Nanologix entered into a definitive
agreement pursuant to which Nanologix agreed to assign its ownership of 11
patents to the Company which protect Nanologix' infectious disease diagnostic
test kit technology. Nanologix also granted the Company a license to utilize 18
additional patents related to the diagnostic test kits. As consideration, the
Company agreed to return 100% or 4,556,174 shares of common stock of Nanologix
that it owned to Nanologix. In addition, the Company agreed to pay Nanologix a
royalty of 6% of gross sales of any products that are developed which utilize
any of the 29 licensed patents. The Company also issued Nanologix a five-year
option to purchase 1,000,000 of the Company's common stock at an exercise price
of $.20. This option vested immediately on January 25, 2006, the date of grant.
These options were valued at their market value of $210,000 (see Note 7).
4. ACQUISITION OF RECEPTOPHARM, INC.
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, Inc. ("ReceptoPharm"), a privately held biopharmaceutical company
based in Ft. Lauderdale, Florida. ReceptoPharm is a development stage company
engaged in the research and development of proprietary therapeutic proteins for
the treatment of several chronic viral, autoimmune and neuro-degenerative
diseases.
The closing of this transaction was subject to the approval of ReceptoPharm's
board of directors, which was obtained on February 20, 2004. Pursuant to the
Agreement, the Company is acquiring its interest in ReceptoPharm's common equity
for $2,000,000 in cash which equates to a purchase price of $.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 an aggregate 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. At March 31, 2006 the
Company owned 4,444,445 shares or 38% of the issued and outstanding common
equity of ReceptoPharm. In March 2006, the Company loaned $200,000 to
ReceptoPharm for working capital purposes.
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. DUE TO OFFICERS
During the quarter ended March 31, 2006, the Company borrowed an additional
$233,375 from its President, Rik Deitsch increasing the total amount owed under
to Mr. Deitsch to $323,375. This demand loan is unsecured and non-interest
bearing.
During the quarter ended March 31, 2006, the Company's subsidiary ReceptoPharm
repaid an aggregate of $44,519 to its officers under demand loans made by such
officers to ReceptoPharm during 2005. At March 31, 2006, the balance of the
demand loans owed to the officers of ReceptoPharm was $103,803. These demand
loans are unsecured and bear interest at a rate of 4.25%.
6. STOCKHOLDERS' DEFICIT
During the quarter ended March 31, 2006, the Company issued 150,000 shares of
restricted common stock to a consultant for services rendered. The Company
recorded stock-based compensation expense of $31,500 based on the market value
of the Company's common stock on the date of the grant.
6
During the quarter ended March 31, 2006, the Company sold an aggregate of
2,350,000 shares of restricted common stock at $0.20 per share to four
accredited investors and received proceeds of $470,000. At March 31, 2006, these
shares were recorded as a subscription and the amount received is included in
additional paid-in capital. The shares were subsequently issued to the investors
during the quarter ended June 30, 2006.
7. STOCK OPTIONS
Nanologix Inc.
On January 25, 2006, the Company and Nanologix entered into a definitive
agreement pursuant to which Nanologix agreed to assign its ownership of 11
patents to the Company which protect Nanologix' infectious disease diagnostic
test kit technology (See Note 3.) In connection with this agreement, the Company
also issued Nanologix a five-year option to purchase 1,000,000 of the Company's
common stock at an exercise price of $.20. This option vested immediately on
January 25, 2006, the date of grant. The recorded stock based compensation
expense of $210,000 to reflect the fair value of the option grant. The fair
value of the option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: expected
volatility 125%; risk-free interest rate of 4.0%; expected life of 5 years; and
no expected dividends.
Doherty & Company, LLC
On June 1, 2005 the Company retained Doherty & Company, LLC ("Doherty &
Company"), to provide the services of Michael Doherty as executive Chairman of
the Company. Concurrently, the Company also retained Doherty & Company to act as
the Company's agent in connection with prospective private capital-raising
activities.
The Company granted a five year option to purchase Thirteen Million Six Hundred
Thousand (13,600,000) shares of the Company's common stock at an exercise price
equal to $0.27 per share, vesting over a two year period. The option expires on
May 31, 2010. The initial vesting of 6,800,000 options was contingent on the
Company, through the efforts of Mr. Doherty and Doherty & Company, raising at
least $500,000 of additional equity, debt or equity linked financing prior to
October 31, 2005. This contingency was not met. And as of December 31, 2005,
none of the 13,600,000 options were vested.
On April 1, 2006, the Company and Mr. Doherty entered into a termination
agreement whereby Mr. Doherty agreed to resign his position as Chairman of Board
of the Company. Upon the effectiveness of the termination agreement on April 1,
2006, the Company issued a five-year option to Mr. Doherty to purchase 2,000,000
shares of common stock at an exercise price of $.27 per share. The option vested
immediately on the date of grant.
8. CONTINGENCIES
On April 4, 2005, a Motion to Enforce Settlement Agreement was filed against the
Company in the Circuit Court of Broward County Florida by Bio Therapeutics, Inc.
f/k/a Phylomed Corp. in Nutra Pharma Corp. v. Bio Therapeutics, Inc. (17th
Judicial Circuit, Case No. 03-008928 (03). This proceeding results from the
Company's alleged breach of a settlement agreement that was entered into between
Bio Therapeutics and the Company in resolution of a previous lawsuit between the
Company and Bio Therapeutics that was resolved by entering into a Settlement
Agreement. The Company also entered into a related License Agreement and
Amendment to the License Agreement ("License Agreement") with Bio Therapeutics.
In the April 4, 2005 motion, Bio Therapeutics alleges that the Company breached
certain provisions of the License Agreement and requests that the Court grant
its motion to enforce the Settlement Agreement by declaring the License
Agreement terminated, enjoining the Company from further use of license products
that was granted to the Company by the License Agreement, and awarding attorneys
fees and costs to Bio Therapeutics.
7
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.
9. SUBSEQUENT EVENTS
On April 18, 2006, the Company issued 2,350,000 shares of its common stock that
were subscribed for at March 31, 2006.
From April 1, 2006 through May 4, 2006, the Company sold 710,000 shares of
restricted common stock at a price of $0.20 per share and received total
proceeds of $142,000.
8
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operations
Forward-Looking Statements
The following discussion and analysis contains forward-looking statements and
should be read in conjunction with our financial statements and related notes.
For purposes of this Plan of Operations, Nutra Pharma Corp. is referred to
herein as "we," "us," or "our." This discussion and analysis contains
forward-looking statements based on our current expectations, assumptions,
estimates and projections overview. The words or phrases "believe," "expect,"
"may," "should," "anticipates" or similar expressions are intended to identify
"forward-looking statements". Actual results could differ materially from those
projected in the forward-looking statements as a result of the following risks
and uncertainties, including: (a) we have experienced recurring net losses and a
working capital deficiency which raises substantial doubt about our ability to
continue as a going concern; (b) our history of losses makes it difficult to
evaluate our current and future business and our future financial results; (c)
our continued operations are dependent upon obtaining equity or other financing
and should we be unable to obtain such financing, we will be unable to continue
our operations; (d) our inability to retain and attract key personnel could
adversely affect our business; (e) we are subject to substantial Federal Drug
Administration and other regulations and related costs which may adversely
affect our operations; (f) a market for our potential products may never
develop; (g) if we fail to adequately protect our patents, we may be unable to
proceed with development of potential drug products; (h) we are dependent upon
patents, licenses and other proprietary rights from third parties; should we
lose such rights our operations will be negatively affected; (i) 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; (j) 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;
(k) our Plan of Operations has been substantially delayed due to lack of
financing; (l) our management decisions are made by our Chief Executive Officer,
Rik Deitsch and, if we lose his services, our operations will be negatively
impacted; and (m) we have entered into acquisition agreements which were later
rescinded, which has delayed and otherwise negatively affected our operations
PLAN OF OPERATIONS
Pending adequate financing, we plan on spending total estimated expenses of
$500,000 for the next 12 months, which will include: (a) $380,000 pertaining
directly to our own operations and (b) $120,000 pertaining to funding Designer
Diagnostics' operations.
EXPENSES PERTAINING TO OUR OPERATIONS
Total Monthly
Type Expenditure Expenditure Expenditure
---------------- ----------- -----------
Salaries* $ 175,000 $ 14,583
--------- --------
Travel related expenses for our Chief Executive Officer $ 40,000 $ 3,333
pertaining to research and due diligence --------- --------
Professional Fees -Legal and Accounting $ 165,000 $ 13,750
--------- --------
Total $ 380,000 $ 31,666
* Salaries include the following: (a) Chief Executive Officer - $130,000; and
(b) Administrative Assistant - $45,000
9
FUNDING OF DESIGNER DIAGNOSTICS, INC.
Total Monthly
Type Expenditure Expenditure Expenditure
---------------- ----------- -----------
Operating Expenses
(Rent, supplies, utilities) $ 50,000 $ 4,167
-------- -------
Salaries (President) $ 70,000 $ 5,833
-------- -------
Total: $120,000 $10,000
OUR PLAN OF OPERATIONS TO DATE:
To date, we have accomplished the following in our Plan of Operations:
o In February 2006, we completed the funding of ReceptoPharm.
o In January 2006, we established Designer Diagnostics to sell
NonTuberculois Mycobacterium test kits.
o To date, we invested a total of $175,000 of a $250,000 committed
investment in XenaCare for the investment in 15 Site of Care
physician's offices with XenaCare, LLC, a healthcare management
company.
o On January 24, 2006, we obtained NanoLogix's intellectual property
pertaining to the manufacture of test kits for the rapid isolation,
detection and antibiotic sensitivity testing of certain
microbacteria, which includes reassignment to us of 11 key patents
protecting the diagnostics test kit technology and NanoLogix
licensing to us the remaining 18 patents that protect the
diagnostics test kit technology.
o Designer Diagnostics held a Continuing Medical Education Seminar at
the Mahatma Gandhi Institute in India on March 24, 2006 during the
World Stop TB Day. At that meeting, Designer Diagnostics officially
began marketing their test kits for the rapid isolation, detection
and antibiotic-sensitivity testing of microbacteria. In March 2006,
we made our first sales of Designer Diagnostics' test kits.
o In approximately October 2005, we completed pre-clinical studies
with various companies that ReceptoPharm has agreements with
pertaining to ReceptoPharm's Multiple Sclerosis (MS) and HIV drugs,
which consisted of (a) and (b) below: (a) MS Drug under Development
(RPI-78M) - ReceptoPharm conducted microarray and histoculture
studies and related analysis of the cells of Multiple Sclerosis
patients to ascertain how RPI-78M affected the cells of these
patients. Microarray analysis is the study of the gene expression of
cells. Histoculture is the study of the entire cellular environment.
We measured the effect of RPI-78M on gene expression using cDNA
microarray technology to identify any potentially unique changes in
gene expression that may be caused by RPI-78M. After statistical
evaluation of the data, the researchers found more than sixty genes
with significant changes in expression as compared to the control.
In analyzing the affected genes, at least thirty of them may have a
specific role in the progression of the disease and symptoms of MS;
and (b) HIV Drug under Development (RPI-MN) - Viral isolates are
common mutations of HIV. ReceptoPharm, through an agreement with the
University of California, San Diego, conducted research to study the
effect of ReceptoPharm's drug under development on different viral
isolates to determine the drug's efficacy in mutated forms of the
HIV virus. The ability of the HIV virus to establish resistance to
therapeutic drugs through genetic mutation is a major concern in the
treatment of HIV/AIDS. HIV does not always make perfect copies of
itself. With billions of viruses being made every day, lots of
small, random differences can occur. The differences are called
mutations and these mutations can prevent drugs from working
effectively. When a drug no longer works against HIV, this is called
drug resistance and the virus with the mutation is considered to be
`resistant' to the drug. With the increasing number of
drug-resistant patients, it is of great importance in the
development of new HIV/AIDS therapeutics that they will be effective
against HIV of known resistance characteristics. The inhibition of
multi-resistant HIV-1 strains by RPI-MN preparations was
investigated at the La Jolla Institute of Molecular Medicine. The
results from these trials indicate that the drug is effective
against drug-resistant strains of HIV.
10
OUR TWELVE-MONTH PLAN OF OPERATIONS PENDING ADEQUATE FINANCING
We intend to accomplish the following regarding our Plan of Operations over the
next twelve months.
Designer Diagnostics, Inc.
Designer Diagnostics' NTM Test Kits are now being marketed and will continue to
be marketed to a global audience, including:
o Hospitals;
o Pharmaceutical companies;
o Biotechnology companies;
o Medical device distributors; and
o Governmental organizations.
Over the next twelve months, Designer Diagnostics will attempt to distribute the
Test Kits to provide a revenue stream that we will use to fund drug research and
clinical studies in the area of MS and HIV.
Third-party researchers are currently validating Designer Diagnostics' TB Test
Kit and we expect the research to be complete by the end of our second quarter
of 2006. Designer Diagnostics has an agreement with Svizera Pharmaceuticals in
India for the distribution of these Test Kits. This distribution agreement is
contingent upon a thirty-day test of the TB Test Kits and required validation.
Svizera is the exclusive supplier of current TB diagnostic kits to the World
Health Organization. During 2005, Svizera supplied over 15 million of those kits
to the World Health Organization.
Designer Diagnostics' President will attempt to develop a distribution network
and actively market the test kits to supply administrators of hospitals,
pharmaceutical and biotechnology companies, medical device distributors, and
governmental organizations. Additionally, Designer Diagnostics will attempt to
acquire other medical diagnostic products to market primarily to distributors,
but also to pharmaceutical and biotechnology companies and government
organizations.
Our President
Our President's responsibilities will primarily focus on seeking license
agreements to develop revenue streams in the area of drug discovery, drug
development, and new medical device technologies.
ReceptoPharm
Clinical Studies
ReceptoPharm plans to conduct the clinical studies described in (a) and (b)
below:
(a) 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 clinical studies of
its Adrenomyeloneuropathy (AMN) drug, which is currently under development.
ReceptoPharm has an agreement with the Charles Dent Metabolic Unit located in
London, England to conduct a clinical study that provides for:
o Recruitment of 20 patients with AMN;
o Administering ReceptoPharm's AMN drug under development; and
o 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.
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(b) HIV and MS
ReceptoPharm also 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 ReceptoPharms's HIV/MS drugs under development.
ReceptoPharm is in the process of attempting to secure agreements with third
parties to conduct such clinical studies.
Liquidity and Capital Resources
Our independent registered public accounting firm has issued a going concern
opinion on our audited financial statements for the fiscal year ended December
31, 2005 since we have experienced recurring net losses and at December 31,
2005, a working capital deficiency. Further, as stated in Note 1 to our
consolidated financial statements for the year ended December 31, 2005, we have
experienced recurring net losses, and at December 31, 2005 we have a working
capital deficiency that raises substantial doubt about our ability to continue
as a going concern.
We have estimated expenses of $500,000 pertaining to our twelve month Plan of
Operations or $41,666 of monthly expenditures. Based upon our current cash
position at March 31, 2006 of $276,078, as well as our current outstanding
obligations, we have funds sufficient to conduct our operations for only six
months.
We will attempt to satisfy our estimated cash requirements for our twelve month
Plan of Operations through the sale of Designer Diagnostics' test kits. If sales
do not achieve adequate levels to provide for our operations, we may raise
additional capital through divestiture of assets, a private placement of our
equity securities or, if necessary, possibly through shareholder loans or
traditional bank financing or a debt offering; however, because we are a
development stage company with a limited operating history and a poor financial
condition, we may be unsuccessful in obtaining shareholder loans, conducting a
private placement of equity or debt securities, or in obtaining bank financing.
In addition, if we only have nominal funds by which to conduct our operations,
we may have to curtail our research and development activities, which will
negatively impact development of our possible products. We have no alternative
Plan of Operations. In the event that we do not obtain adequate financing to
complete our Plan of Operations or if we do not adequately implement an
alternative plan of operations that enables us to conduct operations without
having received adequate financing, we may have to liquidate our business and
undertake any or all of the following actions:
o Sell or dispose of our assets, if any;
o Pay our liabilities in order of priority, if we have available cash
to pay such liabilities;
o If any cash remains after we satisfy amounts due to our creditors,
distribute any remaining cash to our shareholders in an amount equal
to the net market value of our net assets;
o File a Certificate of Dissolution with the State of California to
dissolve our corporation and close our business;
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic
and other required reports with the Securities and Exchange
Commission, if, in fact, we are a reporting company at that time;
and
o Make the appropriate filings with the Securities and Exchange
Commission so that we will no longer be required to file periodic
and other required reports with the Securities and Exchange
Commission, if, in fact, we are a reporting company at that time;
and
o Make the appropriate filings with the National Association of
Security Dealers to effect a delisting of our common stock, if, in
fact, our common stock is trading on the Over-the-Counter Bulletin
Board at that time.
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Based upon our current assets, however, we will not have the ability to
distribute any cash to our shareholders. If we have any liabilities that we are
unable to satisfy and we qualify for protection under the U.S. Bankruptcy Code,
we may voluntarily file for reorganization under Chapter 11 or liquidation under
Chapter 7. Our creditors may also file a Chapter 7 or Chapter 11 bankruptcy
action against us. If our creditors or we file for Chapter 7 or Chapter 11
bankruptcy, our creditors will take priority over our shareholders. If we fail
to file for bankruptcy under Chapter 7 or Chapter 11 and we have creditors, such
creditors may institute proceedings against us seeking forfeiture of our assets,
if any.
We do not know and cannot determine which, if any, of these actions we will be
forced to take. If any of these foregoing events occur, you could lose your
entire investment in our shares.
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 March 31, 2006
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
There are no legal proceedings that occurred during the quarter ending March 31,
2006 that are reportable or material developments regarding the legal proceeding
previously reported in our Form 10-KSB for the year ending December 31, 2005 and
also in Note 8 to our financial statements included herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2006, and later, from April 1, 2006
through May 4, 2006, we issued or sold shares of our restricted common stock for
cash and for services rendered. We relied upon Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended ("the Act") in connection with the
sales/issuances of these shares. We believed Sections 4(2) and 4(6) were
available because:
o We are not and were not a blank check company at the time of the
offer or sale;
o The investors had business experience and were accredited investors
as defined by Rule 501 of Regulation D of the Act;
o All offers and sales of the investment were made privately and no
party engaged in any general solicitation or advertising of the
proposed investment;
o Each investor had a preexisting social, personal or business
relationship with us and members of our management;
o The investors were provided with all information sufficient to allow
them to make an informed investment decision;
o The investors had the opportunity to inspect our books and records
and to verify statements made to induce them to invest;
o The securities representing the investment were issued with a
restrictive legend indicating the securities represented by the
certificate have not been registered; and
o No party received any transaction based compensation such as
commissions in regard to locating any investor for the venture.
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The issuances/sales of our restricted common stock were as follows: On January
11, 2006, we issued 100,000 shares of our restricted common stock to a
consultant in exchange for services rendered. These shares were valued at $0.21
per share which was equal to the market value of our common stock on the date of
issuance.
On January 11, 2006, we issued 50,000 shares of our restricted common stock to a
consultant in exchange for services rendered. These shares were valued at $0.21
per share which was equal to the market value of our common stock on the date of
issuance.
On February 28, 2006, we sold 250,000 shares of our restricted common stock to
an accredited investor at a price of $0.20 per share or an aggregate of $50,000.
On March 13, 2006, we sold 50,000 shares of our restricted common stock to an
accredited investor at a price of $0.20 per share or an aggregate of $10,000.
On March 24, 2006, we sold 2,000,000 shares of our restricted common stock to an
accredited investor at a price of $0.20 per share or an aggregate of $400,000.
On March 28, 2006, we sold 50,000 shares of our restricted common stock to an
accredited investor at a price of $0.20 per share or an aggregate of $10,000.
On April 20, 2006, we sold 50,000 shares of our restricted common stock to an
accredited investor at a price of $0.20 per share and received cash proceeds of
$10,000.
On May 4, 2006, we sold 660,000 shares of our restricted common stock to an
accredited investor at a price of $0.20 per share and received cash proceeds of
$132,000.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
Exhibit No. Title
31.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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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.
Dated: May 22, 2006
NUTRA PHARMA CORP.
Registrant
/s/ Rik J. Deitsch
------------------
Rik J. Deitsch
Chief Executive Officer and Chief Financial Officer
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