Form 10-QSB/A Nutra Pharma Corp.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
( ) 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 registrant as specified in its charter)
California 91-2021600
(State or other jurisdiction of (IRS Employer I.D. Number)
incorporation or organization)
1829 Corporate Drive, Boynton Beach, FL 33426
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (954) 509-0911
Indicate by check mark whether the registrant (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 [ ]
There were 50,271,152 shares of Common Stock outstanding as of August 26, 2004.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART 1 FINANCIAL INFORMATION
NUTRA PHARMA CORP.
(A Development Stage Company)
Condensed Consolidated Balance Sheets - Unaudited
June 30,
----------------------------
2003 2004
------------ -------------
As Restated
(See Note B)
ASSETS
Current assets:
Cash $ - $ 128,021
------------ -------------
Total current assets - 128,021
Patents and other intangibles, net - 4,635,499
Other assets - 28,817
------------ -------------
$ - $ 4,792,337
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (CAPITAL DEFICIT)
Current liabilities:
Accounts payable $ - $ 249,930
Accrued expenses - 16,007
Demand loans - stockholders 41,693 1,586,631
------------ -------------
Total current liabilities 41,693 1,852,568
Deferred income taxes - 614,199
------------ -------------
Total liabilities 41,693 2,466,767
------------ -------------
Commitments and contingencies
Stockholders' equity (capital deficit):
Common stock, $0.001 par value, 2.0 billion shares
authorized, 41,572,000 and 50,271,152 shares
outstanding at June 30, 2003 and 2004 respectively 41,573 50,271
Additional paid-in capital 2,848,869 9,766,064
Deficit accumulated during the development stage (2,932,135) (7,490,765)
------------ -------------
(41,693) 2,325,570
------------ -------------
$ - $ 4,792,337
============ =============
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See notes to condensed financial statements 1
NUTRA PHARMA CORP.
(A Development Stage Company)
Condensed Consolidated Statements of Operations - Unaudited
For the
Period From
February 1,
2000
(Inception)
Through
Three Months Ended June 30, Six Months Ended June 30, June 30,
-------------------------- -------------------------- ------------
2003 2004 2003 2004 2004
------------ ------------ ------------ ------------ ------------
As Restated As Restated
(See Note B) (See Note B)
Revenue $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
Costs and expenses:
General and administrative 97,080 224,161 356,143 1,956,649 4,389,892
Research and development - 205,169 - 943,664 943,664
Write-off of advances to potential - - - - 629,000
acquiree
Finance costs 786,000 - 786,000 - 786,000
Amortization of license agreement - - - - 155,210
Amortization of intangibles - 183,066 - 360,841 467,974
Losses on settlements - - 229,500 - 306,215
------------ ------------ ------------ ------------ ------------
Total costs and expenses 883,080 612,396 1,371,643 (3,261,154) 7,677,955
------------ ------------ ------------ ------------- ------------
Net loss before provision (benefit)
for income taxes - (612,396) - (3,261,154) (7,677,955)
Provision (benefit) for income taxes - (73,227) - (144,337) (187,190)
------------ ------------- ------------ ------------- ------------
Net loss $ (883,080) $ (539,169) $ (1,371,643) $ (3,116,817) $ (7,490,765)
============ ============ ============ ============ ============
Loss per common share - basic and $ (0.03) $ (0.01) $ (0.04) $ (0.06)
diluted ============ ============ ============ ============
Weighted average common shares
outstanding 34,553,111 50,273,330 33,548,958 48,518,482
============ ============ ============ ============
-------------------------------------------------------------------------------------------------------------
See notes to condensed financial statements 2
NUTRA PHARMA CORP.
(A Development Stage Company)
Condensed Consolidated Statements of Changes in Stockholders' Equity (Capital Deficit) - Unaudited
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Par Value Capital Stage Total
----------- --------- ------------ ------------ -----------
Balance - December 31, 2003 47,668,877 47,669 7,814,132 (4,373,948) 3,487,853
Issuance of common stock in exchange
for services ($.59 to $.66 per share) 2,480,000 2,480 1,589,720 - 1,592,200
Cancellation of common stock issued
in connection with rescission of
Acquisition (180,000) (180) 180 - -
Cancellation of common stock issued
in connection with settlement with
third parties (120,000) (120) 120 - -
Issuance of common stock in connection
with acquisition ($.85 per share) 426,275 426 361,908 - 362,334
Net loss - - - (2,577,648) (2,577,648)
----------- --------- ------------ ------------ -----------
Balance - March 31, 2004 50,275,152 50,275 9,766,060 (6,951,596) 2,864,739
Cancellation of common stock issued
in connection with rescission of
Acquisition (4,000) (4) 4 - -
Net loss - - - (539,169) (539,169)
----------- --------- ------------ ------------ -----------
Balance - June 30, 2004 50,271,152 $ 50,271 $ 9,766,064 $ (7,490,765) $ 2,325,570
=========== ========= ============ ============ ===========
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See notes to condensed financial statements 3
NUTRA PHARMA CORP.
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows - Unaudited
For the
Period From
February 1,
2000
(Inception)
Through
Six Months Ended June 30, June 30,
--------------------------- ------------
2003 2004 2004
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (1,371,643) $ (3,116,817) $ (7,490,765)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred taxes - (144,337) (187,190)
Amortization of intangibles - 360,841 467,974
Amortization of license agreement - - 155,210
Write-off of advances to potential acquiree - - 629,000
Stock-based compensation 314,450 1,592,200 3,700,947
Finance costs in connection with conversion
of stockholder loan into common stock 786,000 - 786,000
Expenses paid by stockholder 41,693 355,000 474,140
Losses on settlements 229,500 - 306,215
Changes in operating assets and liabilities:
(Increase) decrease in other assets - (28,817) (28,817)
Increase (decrease) in accounts payable - 108,699 134,344
Increase (decrease) in accrued expenses - (59,831) 16,007
------------ ------------ ------------
Net cash used in operating activities - (933,062) (1,036,935)
------------ ------------ ------------
Cash flows from investing activities:
Cash acquired in acquisition of Infectech - - 3,004
------------ ------------ ------------
Net cash provided by investing activities - - 3,004
------------ ------------ ------------
Cash flows from financing activities:
Common stock issued for cash - - 25,000
Loans from stockholders - 1,013,952 1,136,952
------------ ------------ ------------
Net cash provided by financing activities - 1,013,952 1,161,952
------------ ------------ ------------
Net increase in cash - 80,890 128,021
Cash - beginning of period - 47,131 -
------------ ------------ ------------
Cash - end of period $ - $ 128,021 $ 128,021
============ ============ ============
Non-cash investing and financing activities:
Assumption of obligation under license
agreement $ 1,750,000
Value of shares issued as consideration in
acquisition of Nutra Pharma, Inc. $ 112,500
Payments of license fee obligation by
stockholder $ 208,550
Conversion of stockholder loan to common stock $ 862,012
Expenses paid by stockholder $ 41,693 $ 355,000 $ 474,140
Loan advances to Bio Therapeutics, Inc. by
stockholder $ 629,000
Value of common stock issued as consideration
in acquisition of Infectech, Inc. $ 362,334 $ 4,189,501
Liabilities assumed in acquisition of
Infectech, Inc. $ 115,586
Cancellation of common stock $ 2,055 $ 304 $ 14,791
Value of common stock issued by stockholder
to third party in connection with
settlement $ 229,500 $ 229,500
Value of common stock issued by stockholder
to employee for services rendered $ 75,000
Net deferred taxes recorded in connection
with Acquisition $ 241,556 $ 801,389
See Note F with respect to stockholder funding
---------------------------------------------------------------------------------------------
See notes to condensed financial statements 4
Nutra Pharma Corp.
(A Development Stage Company)
Notes to Condensed Consolidated Financial Statements - Unaudited
NOTE A - COMPANY FORMATION AND BASIS OF PRESENTATION
Nutra Pharma Corp., a development stage company ("Nutra Pharma" or "the Parent")
is a holding company that owns intellectual property and operations in the
biotechnology industry. The Company incorporated under the laws of the state of
California on February 1, 2000 under the original name of Exotic-Bird.com. In
October 2001, the Company changed its name to Nutra Pharma Corp.
The unaudited consolidated financial statements include the accounts Nutra
Pharma and its subsidiaries Infectech, Inc., and ReceptoPharm, Inc.
(collectively "the Company"). At June 30, 2004, the Company owned approximately
63% of Infectech, Inc. (see Note D) and 31% of ReceptoPharm, Inc. (see Note E).
All intercompany transactions and balances have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has experienced
recurring net losses and at June 30, 2004, has a working capital deficiency that
raise substantial doubt about the Company's ability to continue as a going
concern. Management intends to raise additional equity capital to continue
funding its ongoing operations. If it is not successful in raising additional
equity capital, the Company may seek to borrow additional funds from its
stockholders. However, there can be no assurances that the Company will raise
additional capital or additional loans from its stockholders on terms acceptable
to the Company or at all. The consolidated financial statements do not include
any adjustments relating to the recoverability or classification of recorded
asset amounts or the amount and classification of liabilities that might be
necessary as a result of this uncertainty.
NOTE B - RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED FINANCIAL STATEMENTS
[1] Restatement of June 30, 2004 condensed financial statements
The Company is restating its previously issued condensed financial statements
for the three and six months ended June 30, 2004 and for the period from
February 1, 2000 (inception) through June 30, 2004.
In January 2004, the Company erroneously issued 852,550 shares of its common
stock in exchange for 852,550 shares of Infectech. This exchange was made on a
one (1) for one (1) basis instead of a one (1) for two (2) basis per the
acquisition agreement discussed in Note D herein. In January 2004, the Company
sent correspondence to those shareholders that had been issued the 852,550
shares in error, requesting that they return the certificates representing the
shares issued in error to the Company for cancellation and in their stead
receive new certificates reflecting the correct share amount. On December 20,
2004, the Company's Board of Directors adopted a resolution authorizing its
transfer agent to cancel the certificates that were issued in error and to
reissue new certificates representing the correct share amount. The transfer
agent refused to cancel the certificates issued in error, stating that they
required physical possession of the certificates to effect cancellation;
however, the transfer agent suggested that while we were still attempting to
obtain the certificates issued in error from these shareholders, that we should
issue stop transfer instructions to the transfer agent regarding those
certificates, which we did in January 2005. As a result of the error described
above, the Company incorrectly accounted for the issuance of common stock in
January 2004.
Management has corrected this error by accounting for the issuance of 426,275
shares, which is the number of shares that should have been issued in the one
for two exchange in connection with the Infectech agreement.
[2] Restatement of June 30, 2003 condensed financial statements
The Company is restating its previously issued condensed financial statements
for the three months ended June 30, 2003 and for the period from February 1,
2000 (inception) through June 30, 2003. This restatement relates principally to
the accounting treatment applied to stock-based compensation as charges had not
previously been recognized for such stock-based transactions.
Set forth below is a comparison of the previously reported and restated
condensed statements of operations and condensed balance sheets.
For the Period From
February 1, 2000
Three Months Ended Six Months Ended (inception) Through
June 30, 2003 June 30, 2003 June 30, 2003
----------------------- ------------------------ -----------------------
Previously Previously Previously
Reported Restated Reported (a) Restated Reported (a) Restated
---------- ---------- ----------- ----------- ----------- -----------
Revenue $ 0 $ 0 $ 0 $ 0
Costs and expenses 103,822 883,080 1,371,643 2,932,135
Net (loss) income (103,822) (883,080) (1,371,643) (2,932,135)
(Loss) income per common
share - basic and diluted $ 0 $ (0.03) $ (0.04)
========== ========== =========== ===========
Balance Sheet Data:
-------------------
Current assets 819,327 0 0
Total assets 819,327 0 0
Current liabilities 106,222 41,693 41,693
Total liabilities 106,222 41,693 41,693
Total stockholders' equity
(capital deficit) 713,105 (41,693) (41,693)
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(a) The Company did not present these periods in its previously filed Form
10-QSB for the quarter ended June 30, 2003 and amendments thereto.
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5
NOTE C - SIGNIFICANT ACCOUNTING POLICIES
[1] Use of estimates:
The accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America which requires
management to make estimates and assumptions that 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 during the reporting period. Such estimates were used in the preliminary
allocation of asset valuations in connection with the Infectech, Inc.
acquisition. Actual results could differ from those estimates.
[2] Income taxes:
The Company accounts for income taxes in accordance with provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes,
which requires the recognition of deferred tax assets and liabilities expected
to be in effect when these balances reverse. Future tax benefits attributable to
temporary differences are recognized to the extent that realization of such
benefits is more likely than not. The Company does not file a consolidated
federal return with Infectech, Inc., its majority-owned subsidiary.
[3] Loss per share:
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. The Company
has no securities exercisable or convertible into common stock.
[4] Intangible assets:
Intangible assets, principally patents, are being amortized on a straight-line
basis over a period of 7 years. Amortization for the three and six months ended
June 30, 2004 was $183,066 and $360,841 respectively. Annual amortization
amounts to approximately $800,000.
NOTE D - ACQUISITION OF INFECTECH, INC.
On September 19, 2003, the Company entered into an Acquisition Agreement to
acquire up to 100% of the issued and outstanding common stock of Infectech,
Inc., a Delaware corporation ("Infectech"). Infectech 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. Infectech owns patented technologies, which allow for the rapid
detection of disease causing pathogens. Infectech's other patents include
technology designed for use in the bioremediation of contaminated soil and
water. Additionally, Infectech also owns a patent for the nontoxic induction of
apoptosis in cancer cells utilizing hydrophobic hydrocarbons. Apoptosis is a
method for inducing a genetically based induction of "cell suicide" in cells. It
therefore serves as the foundation for cancer therapy.
The Acquisition Agreement provides for the acquisition by the Company of up to
100% of the issued and outstanding common stock of Infectech, through an
exchange of one (1) share of the Company's common stock for every two (2) shares
of Infectech common stock. On October 31, 2003, the Company issued 4,502,549
shares of its common stock in exchange for 9,005,098 shares of Infectech common
stock owed by the officers, directors and affiliates of Infectech. This initial
exchange resulted in the Company owning 58% of the issued and outstanding stock
of Infectech.
In January 2004, the Company issued an additional 426,275 shares of its common
stock in exchange for 852,550 shares of Infectech common stock, which increased
the Company's ownership of Infectech to 63%.
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6
The Company has recorded the acquisition of Infectech as the purchase of assets,
principally patents and other intangibles. The value of the Company's common
shares issued in connection with this transaction is $4,189,501. The market
value of the Company's common stock was based on the closing price of $0.85 on
September 22, 2003, the date the terms of the acquisition were agreed to and
announced.
In December 2003, two of the former principal stockholders of Infectech became
directors of the Company.
NOTE E - 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 the board of
directors of ReceptoPharm, which was obtained on February 20, 2004. Pursuant to
the Agreement, the Company is acquiring 49.5% of the common equity of
ReceptoPharm for $2,000,000 in cash. ReceptoPharm intends to use such funds to
further research and development, which could significantly impact future
results of operations.
The Company is purchasing its 49.5% ownership interest in a series of
installments. At June 30, 2004, the Company had funded an aggregate of $900,000
to ReceptoPharm under the Agreement. The $900,000 paid to ReceptoPharm was
funded by demand loans from a stockholder of the Company of which the
stockholder paid a total of $355,000 directly to ReceptoPharm and loaned
$545,000 to the Company, which it in turn advanced to ReceptoPharm. In August
2004, the Company funded an additional $100,000 to ReceptoPharm which increased
the total amount funded under the Agreement to $1,000,000 and increased the
Company's ownership of ReceptoPharm to 33%.
Under the terms of the Agreement, the Company was required to fund a total of
$1,600,000 of the $2,000,000 obligation to ReceptoPharm by July 15, 2004.
Additionally, the Company is required to complete the remaining $1,000,000
funding obligation by October 1, 2004. The Company is currently in discussions
with ReceptoPharm regarding a modification to the payment schedule contained in
the Agreement.
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's potential drug candidates, such amounts are being charged to
expense as incurred by ReceptoPharm since ReceptoPharm presently has no ability
to fund these activities. In these circumstances, ReceptoPharm is considered a
variable interest entity and has been consolidated. During the three and six
month periods ended June 30, 2004, the Company recognized research and
development expenses of $205,169 and $943,664 respectively, in connection with
its investment and ReceptoPharm's underlying operating activities.
NOTE F - DEMAND LOAN - STOCKHOLDER/OPUS INTERNATIONAL
Since its inception, the Company has not generated any revenues. The Company has
funded its ongoing operational costs through loans from certain stockholders.
These loans are non-interest bearing and are payable on demand. The aggregate
amount owed under these demand loans at June 30, 2004 is $1,586,631, $1,384,931
of which is owed to our former Chairman of the Board, Zirk Engelbrecht. On or
about August 1, 2004, Mr. Engelbrecht assigned the loan to Opus International,
LLC. On or about August 9, 2004, a Managing Member of Opus International, LLC
made a formal demand for repayment of the loan made to the Company in the amount
of $1,384,931. The Company is currently reviewing its options for settlement of
the demand loan.
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7
NOTE G - STOCKHOLDERS' EQUITY
In the fourth quarter of 2003, the Company issued a total of 4,502,549 shares of
common stock in connection with its acquisition of Infectech, Inc., which was
valued at $3,827,167. In January 2004, the Company issued an additional 426,275
shares of common stock which was valued at $362,334.
In January 2004, the Company issued 2,480,000 of common stock to various
consultants in exchange for services rendered. These issuances were made
pursuant to the Company's Employee/Consultant Stock Compensation Plan. The
Company recorded stock-based compensation expense of $1,592,200 to reflect the
fair market value of the common stock issued. Fair market value was based on the
closing price of the Company's common stock on the date of each grant. During
the current quarter, certain of such consultants returned 980,000 of the
2,480,000 shares and the Company replaced such shares by issuing 980,000 shares
of restricted common stock to the same consultants.
During the quarter ended June 30, 2004 the Company received and cancelled 4,000
shares of common stock in connection with the rescission of the NPI Agreement.
In August 2004, the Company sold 739,118 shares of restricted common stock at
$.17 per share and received proceeds of $125,650.
Item 2. Plan of Operation
Management's Discussion and Analysis of Financial Condition and 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, Inc. 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;
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 our competitors have superior financial and
technical resources than we do; (i) issuance of shares of our common stock to
consultants will have a dilutive effect on the value of our common stock and
will 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; 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; (m) we are subject to
a substantial funding obligation of $1,000,000 due to ReceptoPharm by October 1,
2004 in connection with the ReceptoPharm acquisition agreement; (n) we are
subject to substantial indebtedness including $1,384,931 owed to Opus
International, LLC, who has made a demand for the $1,384,931 owed to them, for
which we do not have available funds.
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8
We have estimated expenses of $1,770,000 pertaining to our twelve month Plan of
Operations. We can continue to satisfy our estimated monthly cash requirements
of $147,500 for less than one month through our existing cash of approximately
$11,000 as of August 23, 2004 and $128,021 as of June 30, 2004. We anticipate
that our total estimated cash requirements, pending adequate financing, will
include: (a) $370,000 pertaining directly to our own operations; (b) funding of
$1,000,000 for ReceptoPharm; and (c) funding of $400,000 for Infectech.
Specifically, our planned expenditures pertaining to (a) - (c) are:
OUR DIRECT EXPENDITURES
Type Expenditure Total Expenditure Monthly Expenditure
--------------------- ----------------- -------------------
Salaries* $ 165,000 $ 13,750
--------------------- ----------------- -------------------
Travel related
expenses for our
Chief Executive
Officer pertaining to
research and due
diligence $ 40,000 $ 3,333
--------------------- ----------------- -------------------
Professional
Fees -Legal
and Accounting $ 165,000 $ 13,750
--------------------- ----------------- -------------------
Total $ 370,000 $ 30,833
* Salaries include the following: (a) Chief Executive Officer - $130,000; and
(b) Administrative Assistant - $35,000
FUNDING OF RECEPTOPHARM, INC.
Type Expenditure Total Expenditure Monthly Expenditure
--------------------- ----------------- -------------------
Operating Expenses
(Rent, supplies,
utilities) $ 150,000 $ 12,500
--------------------- ----------------- -------------------
Salaries
(CEO, President,
Chief Science
Officer, and
Administrative
Assistant) $ 300,000 $25,000
--------------------- ----------------- -------------------
Pre-Clinical
Related Consulting $ 80,000 $ 6,666
--------------------- ----------------- -------------------
Clinical Studies
(HIV, MS, AMN) $ 470,000 $ 39,167
--------------------- ----------------- -------------------
Total: $ 1,000,000 $ 83,333
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9
FUNDING OF INFECTECH, INC.
Initial Inventory
Cost (Purchasing
Raw materials and
Related manufacturing
Of Identikits) $ 180,000 $ 15,000
--------------------- ----------------- -------------------
Sales/Marketing
Consulting $ 20,000 $ 1,667
--------------------- ----------------- -------------------
Salaries
(CEO, President) $ 120,000 $ 10,000
--------------------- ----------------- -------------------
Office Expenses
(utilities, supplies) $ 30,000 $ 2,500
--------------------- ----------------- -------------------
Legal and
Accounting $ 40,000 $ 3,333
--------------------- ----------------- -------------------
FDA related
Expenses $ 10,000 $ 833
--------------------- ----------------- -------------------
Total: $ 400,000 $ 33,333
We intend to satisfy these estimated cash requirements of $1,770,000 for our
twelve month Plan of Operations pending adequate financing through a private
placement of our equity securities or, if necessary, possibly through
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 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 National Association of Security
Dealers to affect a delisting of our common stock, if, in fact, our
common stock is trading on the Over-the-Counter Bulletin Board at that
time.
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.
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10
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.
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.
ReceptoPharm
Pre-Clinical Related Consulting
Throughout our Plan of Operations, we will conduct pre-clinical consulting
pertaining to ReceptoPharm's HIV and Multiple Sclerosis (MS) drugs under
development. This will consist of the following:
o MS Drug under Development - Microarray analysis is the study of the
gene expression of cells. Histoculture is the study of the entire
cellular environment. We will employ microarray and histoculture
studies to the cells of Multiple Sclerosis patients to ascertain the
mechanism of action of these drugs. We will accomplish this through
our agreement with Eno Research and Development, a clinical research
organization; and
o HIV Drug under Development - ReceptoPharm has an agreement with the
University of California, San Diego, to study the effect of
ReceptoPharm's drug under development on different viral isolates,
which are common mutations of HIV, to determine the drug's efficacy in
mutated forms of the virus.
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 6 months thereafter, ReceptoPharm will conduct clinical studies of its
Adrenomyeloneuropathy (AMN) drug under development. We have an agreement with
the Charles Dent Metabolic Unit located in London, England that will conduct a
clinical study that consists of:
o Recruitment of 20 patients with AMN;
o Administering the ReceptoPharm's AMN drug under development; and
o Monitoring patients throughout an 18 month protocol.
The clinical study is classified as a Phase III study and is the final step
required for regulatory approval.
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 will seek to secure agreements with third parties to conduct such
clinical studies.
Infectech
Revalidation
Revalidation of patented technology of the IdentiKit that identifies
mycobacterium, which is a particular family of 32 different bacteria. Of these
bacteria, we are seeking to validate the IdentiKit technology with:
o Tuberculosis;
o Para-Tuberculosis;
o Mycobacterium Avium Intracellulare, which is a leading cause of death
in HIV patients;
o Nocardia, which may result from hospital based infections; and
o Pseudomonas, which can affect burn victims.
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Since approximately July 2004, a third party academic research group has been
revalidating the technology. We expect that this revalidation process will be
completed by approximately December 2004.
Submission to Federal Drug Administration
We will then submit the revalidation studies to the Federal Drug Administration
for the purpose of obtaining approval of the IdentiKit as a Medical Device. This
approval is necessary to initiate our sales and marketing plan
Sales and Marketing Plan
The IdentiKits are going to be marketed through third parties to the following:
o hospitals;
o clinical laboratories;
o medical research institutions;
o medical schools;
o pharmaceutical companies;
o diagnostic centers;
o pharmacy wholesalers;
o government agencies; and
o physician's offices
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 over financial reporting. 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. However, Mr. Deitsch did recommend to the board of directors that
the Company should seek to hire an experienced chief financial officer, which
would improve the review process of our controls and procedures.
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, 2004
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
None
Item 2. Changes in Securities
In connection with a September 19, 2003 Acquisition Agreement between us and
Infectech, Inc., in January 2004, the Company erroneously issued 852,550 shares
of its common stock in exchange for 852,550 shares of Infectech. This exchange
was made on a one (1) for one (1) basis instead of a one (1) for two (2) basis
per the acquisition agreement discussed in Note D herein. As previously
described in Note B, in January 2004, the Company sent correspondence to those
shareholders that had been issued the 852,550 shares in error, requesting that
the Shareholders return the certificates representing the shares issued in error
to the Company for cancellation and in their stead receive new certificates
reflecting the correct share amount. On December 20, 2004, the Company's Board
of Directors adopted a resolution authorizing its transfer agent to cancel the
certificates that were issued in error and to reissue new certificates
representing the correct share amount. The transfer agent refused to cancel the
certificates issued in error, stating that they required physical possession of
the certificates to effect cancellation; however, the transfer agent suggested
that while we were still attempting to obtain the certificates issued in error
from these shareholders, that we should issue stop transfer instructions to the
transfer agent regarding those certificates, which we did in January 2005. As a
result of the error, the Company incorrectly accounted for the issuance of
common stock in January 2004. Management has corrected this error as of the date
of the original issuance.
These 852,550 shares were issued to the following individuals:
1) 60,000 shares issued to William E. and Rose M. Brest;
2) 4,750 shares issued to Edward B. and Sandra F. Ceremuga;
3) 5,000 shares issued to David A. and Betty L. Geisel;
4) 399,500 shares issued to Ulrike I. Howe;
5) 16,000 shares issued to Robert D. Nehlen and Sheridan L. Nehlen;
6) 365,000 shares issued to Robert Weissman; and
7) 2,300 shares issued to Sandra Whitmore.
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On February 23, 2004, we cancelled 100,000 shares of our common stock previously
issued to a consultant, Ralph Giannella, doing business as Xology 2000.
On February 23, 2004, we cancelled 20,000 shares of our common stock previously
issued to a consultant, Basic Investors, Inc.
On August 17, 2004, we sold 294,118 shares of our common stock at $0.17 per
share or an aggregate of $50,000 to an accredited investor.
On August 18, 2004, we sold 50,000 shares of our common stock at $0.17 per share
or an aggregate of $8,500 to an accredited investor.
On August 23, 2004, we sold 395,000 shares of our common stock at $0.17 per
share or an aggregate of $67,150 to 3 accredited investors.
On August 24, 2004, we issued 600,000 shares of our common stock to Andre
Nazarian in return for due diligence related consulting services pertaining to
possible acquisitions that Mr. Nazarian rendered to us. These shares were
reissued to Mr. Nazarian as restricted shares after the cancellation of shares
we had previously issued to him under our Employee/Consultant Stock Plan (See
Note G). The restricted shares were valued at $0.63 per share or an aggregate of
$378,000, which is the same value assigned to the Employee/Consultant Stock Plan
shares under Regulation S-8.
On August 24, 2004, we issued 300,000 shares of our common stock to Stacie
Marchetti in return for due diligence related consulting services pertaining to
possible acquisitions that Ms. Marchetti rendered to us. These shares were
reissued to Ms. Marchetti as restricted shares after the cancellation of shares
we had previously issued to her under our Employee/Consultant Stock Plan (See
Note G). The restricted shares were valued at $0.59 per share or an aggregate of
$177,000, which is the same value assigned to the Employee/Consultant Stock Plan
shares under Regulation S-8.
On August 24, 2004, we issued 80,000 shares of our common stock to Charles
Johnson in return for due diligence related consulting services pertaining to
possible acquisitions that Mr. Johnson rendered to us. These shares were
reissued to Mr. Johnson as restricted shares after the cancellation of shares we
had previously issued to him under our Employee/Consultant Stock Plan (See Note
G). The restricted shares were valued at $0.59 per share or an aggregate of
$47,200, which is the same value assigned to the Employee/Consultant Stock Plan
shares under Regulation S-8.
As to the above sales and issuances, we relied upon Section 4(2) of the
Securities Act of 1933, as amended for the above issuances. None of these
issuance involved underwriters, underwriting discounts or commissions or any
public offer in the United States. We placed restrictive legends on all
certificates issued. We believed that Section 4(2) were available because:
o We are an operational company and not a blank check company;
o Sales were not made by general solicitation or advertising;
o The sales did not involve a public offering;
o Sales were made only to an accredited investor or investor who
represented that he or she was a sophisticated enough investor to
evaluate the risks of the investment;
o We placed legends on the certificates stating that the securities were
not registered under the Securities Act of 1933 and set forth the
restrictions on their transferability and sale.
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Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Demand Loan
Since its inception, we have not generated any revenues. We have funded our
ongoing operational costs through loans from certain stockholders. These loans
are non-interest bearing and are payable on demand. The aggregate amount owed
under these demand loans at June 30, 2004 is $1,586,631, $1,384,931 of which is
owed to Opus International, LLC. The original loan was made to us from our
former Chairman of the Board, Zirk Engelbrecht, from funds derived from entities
that he controlled. As a result of the inquiry referenced immediately below, we
learned that on or about August 1, 2004, Mr. Engelbrecht assigned the loan to
Opus International, LLC, a company that Mr. Engelbrecht claims is controlled by
his wife, Marcy Engelbrecht. On or about August 9, 2004, a Managing Member of
Opus International, LLC made a formal demand for repayment of the loan made to
us in the amount of $1,384,931. Our Board of Directors is currently reviewing
its options for the proposed settlement of this loan account with Opus
International, LLC. Failure to come to a settlement with Opus International, LLC
may result in a lawsuit against us seeking recovery of $1,384,931. Should such a
lawsuit be filed against us, our operations and financial condition may be
negatively affected.
Collateralized Stock
Opus International LLC/Clarisco Stiftung
During late June 2004, we received copies of correspondence from our former
corporate counsel addressed to our transfer agent in which our former corporate
counsel issued a Rule 144 opinion regarding a certain stock certificate
representing Opus International's ownership of 11,692,556 shares of our common
stock. In that correspondence, our former corporate and securities counsel
represented that "he is the attorney for Nutra Pharma Corp and Opus
International, LLC" and that Credito Antigiano Bank (an Italy based financial
institution) "has requested our opinion with respect to whether it may publicly
sell without registration the above referenced stock certificate" representing
11,692,556 shares. Our Chief Executive Officer then initiated an inquiry
regarding this matter and instructed our transfer agent not to issue the share
certificate to Credito Antigiano Bank. Although it appeared at the time of our
discovery of this matter that the stock certificate had been pledged as
collateral with Credito Antigiano Bank, our former corporate counsel claims that
on or about December 1, 2002 this stock certificate was rather pledged as
collateral with Clarisco Stiftung, a Switzerland-based Company, in connection
with a $2.5 million loan made by that Switzerland company to Opus International,
LLC. Because these shares since March 20, 2002 have represented approximately 22
to 23% of our outstanding shares of common stock, which is a greater share
percentage than any of our other shareholders, the risk of loss of those shares
upon a loan default, would result in a change in control to that Swiss company.
Alternatively, if the loan was assigned by the Switzerland based company to the
Italy based financial institution, the risk of loss of those shares upon a loan
default, would result in a change in control to that Italy based financial
institution.
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Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the SEC:
3.1 Certificate of Incorporation dated February 1, 2000. (i)
3.2 Certificate of Amendment to Articles of Incorporation dated July 5,
2000. (i)
3.3 Certificate of Amendment to Articles of Incorporation dated October
31, 2001. (ix)
3.4 Bylaws of the Company. (i)
4.1 Form of Stock Certificate (i)
5.1 Opinion of Kenneth Eade, Attorney at Law on SB-2 Registration (i)
5.2 Opinion of Kenneth Eade, Attorney at Law on issuance of stock under
plan and consent dated December 4, 2003 (vi)
6 Specimen of Stock Certificate (i)
10.1 Acquisition Agreement between Cyber Vitamin.com and Desert Corporate
Services dated November 26, 2001 (ii)
10.2 Share Exchange Agreement between Nutra Pharma Corp. and Nutra Pharma,
Inc. dated November 26, 2001 (ii)
10.3 Joint Venture Agreement between Nutra Pharma Corp. and Terra Bio
Pharma dated January 29, 2002 (iii)
10.4 Definitive Agreement for Exchange of Common Stock dated August 20,
2002 by and among Nutra Pharma Corp. and Bio Therapeutics, Inc. (iii)
10.5 Closing Agreement for the Exchange of Common Stock dated August 20,
2002 by and between Nutra Pharma Corp. and Bio Therapeutics, Inc. (iv)
10.6 Amendment to Closing Agreement for the Exchange of Common Stock dated
September 27, 2002 (v)
10.7 Acquisition Agreement dated September 19, 2003 between Nutra Pharma
Corp. and Infectech, Inc. (vi)
10.8 Acquisition Agreement between Nutra Pharma Corp. and ReceptoPharm,
Inc. dated February 20, 2004 (vii)
14.1 Code of Ethics of the Company (x)
20.1 Rescission, Settlement and Release Agreement between George Minto and
Zirk Engelbrecht (viii)
20.2 Offer to Purchase for Cash up to 2,000,000 shares of Nutra Pharma
Corp. for $.80 cash per share (viii)
20.3 License Agreement dated October 3, 2003 between Biotherapeutics, Inc.
and Nutra Pharma Corp. (ix)
20.4 Addendum to license Agreement dated October 3, 2003 between
Biotherapeutics, Inc. and Nutra Pharma Corp. (ix)
23.1 Independent Accountants Consent (ix)
31.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
----------------
(i) Incorporated by reference to the Company's Registration Statement on Form
SB-2/A (Registration No. 33-44398) filed on April 6, 2001 (the "Registration
Statement").
(ii) Incorporated by reference to the Company's Current Report on Form 8K, filed
December 26, 2001
(iii) Incorporated by reference to the Company's Current Report on Form 8K,
filed February 28, 2002
(iv) Incorporated by reference to the Company's Current Report on Form 8K, filed
September 9, 2002
(v) Incorporated by reference to the Company's Current Report on Form 8K, filed
October 31, 2002
(vi) Incorporated by reference to the Company's Current Report on Form 8K, filed
October 20, 2003
(vii) Incorporated by reference to the Company's Current Report on Form 8K,
filed March 8, 2004
(viii) Incorporated by reference to the Company's Current Report on Form 8K,
filed November 5, 2002
(ix) Incorporated by reference to the Company's Report on Form 10-KSB, filed
April 20, 2004
(x) Incorporated by reference to the Company's Report on Form 10-KSB/A, filed
May 7, 2004
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Item 6. Exhibits and Reports on Form 8-K (continued)
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during the three months ended
June 30, 2004
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NUTRA PHARMA CORP.
/s/ Rik J. Deitsch
Rik J. Deitsch, Chairman, President
Chief Executive Officer and Chief Financial Officer
Dated: February 11, 2005
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