Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.
State the aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the registrant’s most recently completed second quarter:
$9,833,758
Nutra Pharma Corp and its wholly owned
subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics, Inc. (“Designer Diagnostics”)
are referred to herein as “we”, “our” or “us” (ReceptoPharm and Designer Diagnostics are also
individually referred to herein).
This Annual Report on Form 10-K for the
period ending December 31, 2013 contains forward-looking statements that involve risks and uncertainties
,
most significantly,
Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operation), as well as assumptions that,
if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such
forward-looking statements. The words or phrases "would be," "will allow, "intends to," "will likely
result," "are expected to," "will continue," "is anticipated," "estimate," "project,"
or similar expressions are intended to identify "forward-looking statements.” All statements other than statements of
historical fact, are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin,
expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives
of management for future operations; and any statement concerning developments, plans, or performance. Unless otherwise required
by applicable law, we do not undertake and we specifically disclaim any obligation to update any forward-looking statements to
reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
PART I
Item 1. Business
Introduction
We were incorporated in California on February
1, 2000. We have conducted our operations since October 2003. We are a biopharmaceutical company that engages in the acquisition,
licensing and commercialization of pharmaceutical products and technologies as well as homeopathic and ethical drugs for the management
of pain, neurological disorders, cancer, autoimmune and infectious diseases. Homeopathic drugs are natural products that contain
ingredients listed in the HPUS (Homeopathic Pharmacopoeia of the United States). An ethical drug is a licensed drug that has obtained
Federal Drug Administration (“FDA”) approval after extensive pre-clinical and clinical testing. We seek strategic licensing
partnerships to reduce the risks associated with the drug development process.
Our wholly owned subsidiary and drug discovery
arm, ReceptoPharm, has carried out our homeopathic and drug discovery research and clinical development and has fully developed
three homeopathic drugs for the treatment of pain:
|
·
|
Cobroxin
®
, an over-the-counter pain reliever designed to treat moderate to severe (Stage 2) chronic pain; and
|
|
·
|
Nyloxin
®
and Nyloxin
®
Extra Strength: stronger versions of Cobroxin
®
|
Our business plan will continue its efforts
to produce, market and distribute our Cobroxin
®
and Nyloxin
®
branded products both domestically and
internationally.
From October 2009 until December 31, 2013,
our operations have centered on the marketing of Cobroxin
®
and Nyloxin
®
and Nyloxin
®
Extra Strength, from which we have earned accumulated net revenues of $2,381,370, which includes a reduction of $503,958 for Nyloxin
®
sold during 2011 and returned in 2012. During fiscal year 2013, we earned revenues of $119,898 from sales of Nyloxin
®
and $2,300 from sales of Cobroxin
®.
Additionally, ReceptoPharm has developed
two drug candidates:
|
·
|
RPI-78M, to treat neurological diseases, including Multiple Sclerosis (MS), Adrenomyeloneuropathy (AMN), Amyotrophic Lateral Sclerosis (ALS or
Lou Gehrig’s disease
) and Myasthenia Gravis; and
|
|
·
|
RPI-MN, to treat viral diseases, including HIV/AIDS and Herpes.
|
ReceptoPharm has developed proprietary
therapeutic protein products primarily for the prevention and treatment of viral and neurological diseases, including Multiple
Sclerosis (MS), Adrenomyeloneuropathy (AMN), Human Immunodeficiency Virus (HIV) and pain in humans. These potential products are
subject to FDA approval.
Our wholly owned subsidiary, Designer Diagnostics,
has developed diagnostic test kits designed to be used for the rapid identification of infectious diseases, such as Nontuberculous
Mycobacteria (NTM). These diagnostic test kits are currently being validated by National Jewish Hospital in Denver, Colorado. This
process of validation has been ongoing since 2007. While these outside tests have proceeded, our business has exclusively focused
on our drugs and we have not continued any activity in our Designer Diagnostics division since June, 2011. As results become available
through the validation process and funding becomes available, we may revisit the technology and re-engage our efforts in Designer
Diagnostics.
We continue to identify biotechnology related
intellectual property and companies with which we may potentially be able to enter into arrangements, agreements or to potentially
acquire.
Industry Overview of the Pain Market
Pain is the most common symptom for patients
seeking medical attention. Acute and chronic pain affects large numbers of Americans, with approximately 100 million U.S. adults
burdened by chronic pain alone. The annual national economic cost associated with chronic pain is estimated to be $560-635 billion.
(Institute of Medicine,
Relieving Pain in America
, 2011).
The global market for pain management products,
including prescription and nonprescription analgesics, reached over $50 billion in 2009 according to an August 2010 article published
in the journal
Nature Reviews Drug Discovery.
The current market for pain drugs is expected to continue to grow according
to Global Industry Analysts Inc., a market research firm that believes the aging baby boomer population will continue to trigger
growth in this market resulting in a $35.5 billion US market size by 2015.
Our Products
Cobroxin
®
We offer Cobroxin
®
, our
over-the-counter pain reliever that has been clinically proven to treat moderate to severe (Stage 2) chronic pain. Cobroxin
®
is not currently being marketed. In August 2009, we completed an agreement with XenaCare Holdings (“XenaCare”) granting
it the exclusive license to market and distribute Cobroxin
®
within the United States. In mid-October 2009, XenaCare
began selling Cobroxin
®
online through its product website, www.Cobroxin.com.
In November 2009, XenaCare began selling
Cobroxin
®
to brick-and-mortar retailers, including distribution to CVS in March 2010 and Walgreens in May 2010.
On April 1, 2011, we notified our Cobroxin Distributor, XenaCare that they were in breach of our agreement. As a result of this,
the distribution agreement was terminated effective April 10, 2011. XenaCare had a large stock of the product that they had ordered
from us and we had allowed them to continue to market their existing inventory of Cobroxin. In October 2011 we discontinued their
website at www.Cobroxin.com. All current traffic to that website is now redirected to www.Nyloxin.com. On June 10, 2013, we announced
a new licensing agreement for the distribution of Cobroxin
®
with Cobra Pharmaceuticals, LLC. The new distributors
expect to begin a direct response campaign by the end of 2014 with an eventual return to retail stores.
Cobroxin
®
is currently available
as a two ounce topical gel for treating joint pain and pain associated with arthritis and repetitive stress, and as a one ounce
oral spray for treating lower back pain, migraines, neck aches, shoulder pain, cramps, and neuropathic pain. Both the topical gel
and oral spray are packaged and sold as a one-month supply.
Cobroxin
®
offers several
benefits as a pain reliever. With increasing concern about consumers using opioid and acetaminophen-based pain relievers, Cobroxin
®
provides an alternative that does not rely on opiates or non-steroidal anti-inflammatory drugs, otherwise known as NSAIDs, for
its pain relieving effects. Cobroxin
®
also has a well-defined safety profile. Since the early 1930s, the active
pharmaceutical ingredient (API) of Cobroxin
®
, Asian cobra venom, has been studied in more than 46 human clinical
studies. The data from these studies provide clinical evidence that cobra venom provides an effective treatment for pain with few
side effects and has the following benefits:
|
·
|
safe and effective;
|
|
|
|
|
·
|
all natural;
|
|
|
|
|
·
|
long-acting;
|
|
|
|
|
·
|
easy to use;
|
|
|
|
|
·
|
non-narcotic;
|
|
|
|
|
·
|
non-addictive; and
|
|
|
|
|
·
|
analgesic and anti-inflammatory.
|
Potential side effects from the use of
Cobroxin
®
are rare, but may include headache, nausea, vomiting, sore throat, allergic rhinitis and coughing.
Nyloxin
®
/Nyloxin
®
Extra Strength
Nyloxin
®
and Nyloxin
®
Extra Strength are similar to Cobroxin
®
because they both contain the same active ingredient as Cobroxin
®
,
Asian cobra venom. The primary difference between Nyloxin
®
, Nyloxin
®
Extra Strength and Cobroxin
®
is the dilution level of the venom. The approximate dilution levels for Nyloxin
®
, Nyloxin
®
Extra
Strength and Cobroxin
®
are:
Nyloxin
®
|
·
|
Topical Gel: 30 mcg/mL
|
|
|
|
|
·
|
Oral Spray: 70 mcg/mL
|
Nyloxin
®
Extra Strength
|
·
|
Topical Gel: 60 mcg/mL
|
|
|
|
|
·
|
Oral Spray: 140 mcg/mL
|
Cobroxin
®
|
·
|
Topical Gel: 20 mcg/mL
|
|
|
|
|
·
|
Oral Spray: 35 mcg/mL
|
In December 2009, we began marketing Nyloxin
®
and Nyloxin
®
Extra Strength at www.nyloxin.com. Both Nyloxin
®
and Nyloxin
®
Extra Strength
are packaged in a roll-on container, squeeze bottle and as an oral spray. Additionally, Nyloxin
®
topical gel is
available in an 8 ounce pump bottle.
In September of 2012 we began distributing
Nyloxin
®
through TCN International, a Network Marketing Company. TCN distributes products and software applications
to approximately 400,000 independent agents in more than 30 countries, including more than 40,000 agents in the United States.
During June of 2013, we announced that
New Vitality, a marketing and distribution company, had begun a test radio campaign to gauge the market acceptance of Nyloxin
®
.
The 60-second ads ran for several weeks on radio stations throughout the United States. As a result of positive testing, New Vitality
added Nyloxin
®
to their e-commerce website as they continue to advertise the product. In August of 2013, New Vitality
had placed and received their first order of Nyloxin
®
. The order was pursuant to New Vitality's successful test
radio campaign to gauge the market acceptance of the product. New Vitality will continue this campaign over the coming months and
is expected to add television advertising in the second quarter of 2014.
In December of 2013, we announced an agreement
with MyNyloxin.com for the exclusive rights to market and distribute Nyloxin
®
in the Network Marketing channel.
MyNyloxin.com provides a business opportunity to their Distributors to earn commissions on the sale of our products through their
Distributor groups. In January of 2014, we announced the first product shipments to the MyNyloxin Independent Entrepreneurs (MIEs).
MyNyloxin conducts webinars, conference calls and live meetings to support recruitment of new MIEs as well as to provide product
and business education.
We are currently marketing Nyloxin
®
and Nyloxin
®
Extra Strength as treatments for moderate to severe chronic pain. Nyloxin
®
is available
as an oral spray for treating back pain, neck pain, headaches, joint pain, migraines, and neuralgia and as a topical gel for treating
joint pain, neck pain, arthritis pain, and pain associated with repetitive stress. Nyloxin
®
Extra Strength is available
as an oral spray and gel application for treating the same physical indications, but is aimed at treating the most severe (Stage
3) pain that inhibits one’s ability to function fully.
In December 2012, we announced the availability
of Nyloxin
®
Military Strength for sale to the United States Military and Veteran's Administration
.
Over the past few years, the U.S. Department of Defense has been reporting an increase in the use and abuse of prescription
medications, particularly opiates. In 2009, close to 3.8 million prescriptions for pain relievers were written in the military.
This staggering number was more than a 400% increase from the number of prescriptions written in the military in 2001. But prescription
drugs are not the only issue. The most common and seemingly harmless way to treat pain is with non steroidal, anti-inflammatory
drugs (NSAIDS). But there are risks. Overuse can cause nausea, vomiting, diarrhea, heartburn, ulcers and internal bleeding. In
severe cases chest pain, heart failure, kidney dysfunction and life-threatening allergic reactions can occur. It is reported that
approximately 7,600 people in America die from NSAID use and some 78,000 are hospitalized. Ibuprofen, also an NSAID has been of
particular concern in the military. The terms “Ranger Candy” and “Military Candy” refer to the service
men and women who are said to use 800mg doses of Ibuprofen to control their pain. But when taking anti-inflammatory Ibuprofen in
high doses for chronic pain, there is potential for critical health risks; abuse can lead to serious stomach problems, internal
bleeding and even kidney failure. There are significantly greater health risks when abuse of this drug is combined with alcohol
intake. Our goal is that with Nyloxin, we can greatly reduce the instances of opiate abuse and overuse of NSAIDS in high risk groups
like the US military. The Nyloxin
®
Military Strength represents the strongest version of Nyloxin
®
available and is approximately twice as strong as Nyloxin
®
Extra Strength. We are working with outside consultants
to register Nyloxin
®
Military Strength and the other Nyloxin
®
products for sale to the US government
and the various arms of the military as well as the Veteran's Administration. We expect to complete this registration process by
the end of the second quarter of 2014.
We are pursuing international drug registrations
in Canada, Mexico, India, Central and South America and Europe. Since European rules for homeopathic drugs are different than the
rules in the US, we cannot estimate when this process will be completed. Additionally, we plan to complete two human clinical studies
aimed at comparing the ability of Nyloxin Extra Strength to replace prescription pain relievers. We originally believed that these
studies would begin during the second quarter of 2010; however, these studies have been delayed because of lack of funding. We
cannot provide any timeline for these studies until adequate financing is available.
To date, our marketing efforts have been
limited due to lack of funding. As sales increase, we plan to begin marketing more aggressively to increase the sales and awareness
of our products.
Pet Pain-Away
During June of 2013, we announced the launch
of our new homeopathic formula for the treatment of chronic pain in companion animals, Pet Pain-Away. Pet Pain-Away is a homeopathic,
non-narcotic, non-addictive, over-the-counter pain reliever, primarily aimed at treating moderate to severe chronic pain in companion
animals. It is specifically indicated to treat pain from hip dysplasia, arthritis pain, joint pain, and general chronic pain in
dogs, cats and horses. We are seeking distributors for the product now as we begin manufacturing for eventual sales in the second
quarter of 2014.
Equine Nyloxin
®
In October of 2013, we announced that we
were in the process of launching the newest addition to our line of homeopathic treatments for chronic pain,
Equine Nyloxin
®
,
a topical therapy for horses that is packaged as a two piece kit:
Nyloxin
®
Topical Gel
comprises Step 1 and
a solution of DMSO (dimethylsulfoxide) comprises Step 2. We have been working with trainers and veterinarians in the equine industry
and have already identified distributors for the product. The
Equine Nyloxin
®
represents the Company's first
topical solution for the animal market. We expect to have it available in the second quarter of 2014.
Regulation
The active pharmaceutical ingredient (API)
in Cobroxin
®
, Nyloxin
®
and Nyloxin
®
Extra Strength, Asian cobra venom, has an approved
United States monograph under the Homeopathic Pharmacopoeia of the United States (HPUS), which allowed us to register them with
the FDA as homeopathic drugs. A United States monograph is a prescribed formulation for the production of any drug or product that
is recognized by law for a specific application and that may be introduced into commerce. The FDA requires this registration process
to maintain full compliance of companies marketing and selling medicines classified as homeopathic. In August 2009, we successfully
completed submission of final packaging and labeling to the FDA to begin selling our over-the-counter pain reliever, Cobroxin
®
.
In December 2009, we completed our submission of final packaging and labeling to the FDA of Nyloxin
®
and Nyloxin
®
Extra Strength.
Manufacturing
ReceptoPharm oversees Cobroxin
®
and Nyloxin
®
’s manufacturing activities, both at its Good Manufacturing Practice ("GMP") certified
facility and at a third-party manufacturing and bottling facility. ReceptoPharm is also responsible for acquiring appropriate amounts
of Asian cobra venom required to manufacture Cobroxin
®
and Nyloxin
®
.
Subject to availability of funds, ReceptoPharm
also plans to begin additional clinical studies for our pain relievers. These studies will be designed to compare the efficacy
of Nyloxin™ Extra Strength to other prescription strength pain relievers. A ReceptoPharm study published in
Toxicon
,
which is the journal of the International Society of Toxinology, showed that ReceptoPharm’s leading drug product for the
treatment of pain (RPI-78) had pain-reducing effects that lasted four times as long as morphine without the negative side effects
associated with opioid-based pain relievers. Another study published in the journal Neuropharmacology showed a new mechanism on
the use of Alpha-Cobratoxin as a treatment for pain. Alpha-Cobratoxin is the main component of the cobra venom used in Nyloxin
®
and Cobroxin
®
.
The FDA requires those companies manufacturing
homeopathic medicines to have their facilities certified as GMP. As of October 2005, ReceptoPharm’s manufacturing and laboratory
facility has been fully compliant with its GMP certification. In March 2009, ReceptoPharm received an ISO Class 5 certification
for its clean room facility. An ISO Class 5 certification is a type of classification granted for a clean room facility according
to the number and size of particles permitted per volume of air. An ISO Class 5 clean room has at most, 3,500 particles per square
meter.
Manufacturing Cobroxin
®
and Nyloxin
®
entails a two-step process, the first of which consists of ReceptoPharm manufacturing the bulk raw
materials and completing the dilution levels of Cobroxin
®
’s and Nyloxin
®
’s active pharmaceutical
ingredient ("API") as provided for in the Homeopathic Pharmacopeia of the United States, which is a compilation of continuously
updated statements of Homeopathic Pharmacopoeia standards and monographs as recognized by that organization. Once this process
is completed, the second step entails transport of raw materials to a third-party manufacturer that completes the final mixing,
bottling and shipping processes.
We began limited manufacturing of Nyloxin
®
in November 2010. We scaled up manufacturing in the first quarter of 2011. Our production level is contingent upon product demand
level and we can scale up as sales demand increases.
Marketing and Distribution
In August 2009, we completed an agreement
with XenaCare granting them the exclusive license to market and distribute Cobroxin
®
within the United States. To
maintain this market exclusivity, XenaCare was required to meet certain minimum performance requirements. On April 1, 2011, we
notified our Cobroxin
®
Distributor, XenaCare Holdings that they were in breach of our agreement. As a result of
this, the distribution agreement was terminated effective April 10, 2011. XenaCare had a large stock of the product that they had
ordered from us and we have allowed them to continue to market their existing inventory of Cobroxin
®
. In October
2011 we discontinued their website at www.Cobroxin.com. All current traffic to that website is now redirected to www.Nyloxin.com.
We plan to begin marketing and distributing Cobroxin
®
again. To that end, On June 10, 2013, we announced a new licensing
agreement for the distribution of Cobroxin
®
with Cobra Pharmaceuticals, LLC. The new distributors expect to begin
a direct response campaign by the end of 2014 with an eventual return to retail stores.
In December 2009, we began marketing Nyloxin
®
and Nyloxin
®
Extra Strength at www.Nyloxin.com. We began generating sales through the website in July, 2010. In
September of 2012 we began distributing Nyloxin through TCN International, a Network Marketing Company. TCN distributes products
and software applications to approximately 400,000 independent agents in more than 30 countries, including more than 40,000 agents
in the United States.
During June of 2013, we announced that
New Vitality, a marketing and distribution company, had begun a test radio campaign to gauge the market acceptance of Nyloxin
®
.
The 60-second ads ran for several weeks on radio stations throughout the United States. As a result of positive testing, New Vitality
added Nyloxin
®
to their e-commerce website as they continue to advertise the product. In August of 2013, New Vitality
had placed and received their first order of Nyloxin
®
. The order was pursuant to New Vitality's successful test
radio campaign to gauge the market acceptance of the product. New Vitality will continue this campaign over the coming months and
is expected to add television advertising in the second quarter of 2014.
In December of 2013, we announced an agreement
with MyNyloxin.com for the exclusive rights to market and distribute Nyloxin
®
in the Network Marketing channel.
MyNyloxin.com provides a business opportunity to their Distributors to earn commissions on the sale of our products through their
Distributor groups. In January of 2014, we announced the first product shipments to the MyNyloxin Independent Entrepreneurs (MIEs).
MyNyloxin conducts webinars, conference calls and live meetings to support recruitment of new MIEs as well as to provide product
and business education.
We are continuing our efforts to find strategic
partnerships for the promotion, marketing, registration, licensing and sales of our products domestically and internationally.
Dependence on one or a Few Major Customers
With respect to Nyloxin
®
and Nyloxin
®
Extra Strength, we have been distributing the products online and to various retailers. We are seeking
both domestic and international distributors for these products. It may be that a larger distributor may require exclusivity in
the US or any particular foreign market. If so, we would be dependent on that distributor for those Nyloxin
®
sales.
Currently, MyNyloxin.com is the exclusive global Nyloxin
®
Distributor in the Network Marketing channel.
International Drug Registrations
We are continuing our efforts to complete
the registration process internationally. While many countries adopt similar regulation to the United States for registering homeopathic
drugs, the international application process is more complex and may be lengthier. We will continue to seek qualified, well-funded
distributors for the international distribution of Cobroxin
®
and Nyloxin
®
.
ReceptoPharm’s Homeopathic Drug Pain Relief Studies
MS Neuropathic Pain Phase IV
Pending adequate financing or revenues,
we will continue our research and development into this area, with the ultimate goal of improving product claims for Nyloxin™
Extra Strength, which is a treatment for stage 3 pain. Our original start and completion dates were March 2010 and September 2010,
respectively, which includes a 10-week patient trial period. We have thus far incurred costs of $5,000 with a total estimated budget
of $130,000. Due to our poor financial condition, we have currently discontinued all of our clinical activities. We have no way
of knowing at this time, if or when we will have adequate funding to reinitiate these trials.
Chronic Back Pain Phase I
Pending adequate financing or revenues,
we will continue our research and development in this area, with the ultimate goal of completing development of our future product,
Recet, which is an injectable version of Cobratoxin. Our original start and completion dates were April 2010 and November 2011,
respectively, which includes a 4-week patient trial period. We have thus far incurred costs of $25,000 with a total estimated budget
of $250,000. Due to our poor financial condition we have currently discontinued all of our clinical activities. We have no way
of knowing at this time, if or when we will have adequate funding to reinitiate these trials.
Chr
onic Back Pain Phase IV
Pending adequate financing or revenues,
we will continue our research and development, with this ultimate goal of improving product claims for Nyloxin
®
Extra Strength, which is a treatment for stage 3 pain. Our original start and completion dates were April 2010 and November 2010,
respectively, which includes a 4-week patient trial period. We have an estimated budget of $250,000. We have not yet incurred any
costs associated with the Chronic Back Pain Phase IV project. Due to our poor financial condition, we have currently discontinued
all of our clinical activities. We have no way of knowing at this time, if or when we will have adequate funding to reinitiate
these trials.
All of these studies have been delayed
since June of 2010 due to our lack of revenues and funding. We will reassess our start and completion dates upon generating a sufficient
amount of revenues, if ever.
ReceptoPharm – Research and Development
ReceptoPharm was engaged in the research
and development of novel anticholinergic therapeutic protein products for the treatment of autoimmune and neurologic disorders,
including Human Immunodeficiency Virus (HIV), Multiple Sclerosis (MS) Adrenomyeloneuropathy (AMN), Rheumatoid Arthritis (RA) and
pain.
Drug Applications
We have set forth below a summary of ReceptoPharm’s proposed
drugs and their potential applications.
Drug
|
|
Potential Applications
|
RPI-78M
|
|
MS, AMN, Myasthenia Gravis (MG) and Amyotrophic Lateral Sclerosis (ALS)
|
|
|
|
RPI-MN
|
|
HIV, general anti-viral applications
|
|
|
|
RPI-78
|
|
Pain, Arthritis
|
|
|
|
RPI-70
|
|
Pain
|
We believe that ReceptoPharm’s pharmaceutical
products have a wide range of applications in a number of chronic, inherited and/or life-threatening viral, autoimmune and neuromuscular
degenerative diseases, even though none of these products have FDA or other approval for the treatment of such diseases. These
disorders target nerve cells, especially one specific type of cell receptor that is sensitive to the neurotransmitter,
acetylcholine,
which plays an important role in the transmission of nerve impulses at synapses and myoneural (muscle-nerve) junctions.
Primary Disease Targets
Through ReceptoPharm’s research program,
our goal is to obtain required regulatory approvals of ReceptoPharm’s HIV, MS, and AMN products, so that they can be marketed.
We plan to apply for Orphan drug status with the FDA to expedite approval for our AMN product; however there is no assurance we
will obtain such status. ReceptoPharm secures confidentiality agreements prior to initiating contract research in order to protect
any patentable opportunities.
Human Immunodeficiency Virus (HIV) Infection
The analytic firm GBI Research reported
in November 2012 that the HIV/AIDS therapeutics market reached $13.5 billion in 2011 in seven top markets: the United States,
the United Kingdom, Germany, France, Italy, Spain and Japan. GBI Research predicts these markets will continue to grow to reach
$21.8 billion by 2018. According to UNAIDS, an estimated 35.3 million people were living with HIV in 2012 with 69% of all HIV
sufferers in sub-Saharan Africa. There were 2.3 million new infections in 2012 and 1.6 million people died of AIDS-related illnesses.
Since the beginning of the epidemic, more than 75 million people have contracted HIV and nearly 36 million have died of HIV-related
causes. Growth in the HIV therapy market will continue to be driven by the rapidly growing HIV and AIDS population. In the absence
of therapeutic intervention, the vast majority of individuals infected with HIV will ultimately develop AIDS, on average in about
10 years, which has a mortality rate approaching 100%. Experts say that the drugs currently available may extend life as much
as 40 years, but all of these therapies have negative side effects and fail over time as the virus mutates. These facts make new
therapies a necessity. The foregoing information was obtained from the World Health Organization website at www.who.int and the
UNAIDS website at www.unaids.org.
To cause infection, HIV needs to gain entry
into cells through the attachment to receptors on the cell membrane. These receptors are called
chemokine receptors
. There
are two principal types, CCR5 and CXCR4. Different HIV strains use one of these types. A single drug that would block all of the
chemokine receptors ("tropism-independent") could be more useful, for several reasons, than a mixture of molecules that
would have to be used to do the same.
HIV infection therapy currently uses antiviral
drug therapies that are associated with the virus’s attachment, fusion with and entry into the host cell. At the present
time, there are 35-licensed antiretroviral drugs employed to combat HIV-1 infection and two licensed by the FDA that act as binding/entry
inhibitory drugs.
New drugs and adjunct therapies with novel
mechanisms of action or unique resistance profiles are needed in the fight against HIV. Constant innovation, in terms of efficacy,
side effect profile and dosing are occurring. Current research and development for HIV is focused on adjunctive therapy, which
when combined with existing HAART (Highly Active Anti-Retroviral Therapy) regimens reduce side effects, enhance the efficacy of
existing treatments and delay the progression of the HIV virus.
Both of ReceptoPharm’s drugs inhibited
HIV replication in MAGI cells by 50-60% and peripheral mononuclear cells by 90% in testing conducted by Dr. Juan Lama of the La
Jolla Institute for Molecular Medicine in San Diego, California. Separate Phase I studies by Cure Aids Now of Miami, Florida, were
conducted by Dr. Jamal with orally and parentally administered RPI-78M in HIV patients confirmed safety, tolerability and provided
preliminary evidence of efficacy.
RPI-MN demonstrated the ability to inhibit
the replication of highly drug-resistant strains of HIV isolates. Drug resistance has become a critical factor in long-term management
of HIV infection with some viral strains developing resistance in as little as 3 weeks.
Multiple Sclerosis (MS)
Multiple Sclerosis (MS) is thought to be
an autoimmune disease that primarily causes central nervous system problems. In MS, the insulating fatty material surrounding the
nerve fibers, also known as myelin, which functions to speed signaling from one end of the nerve cell to the other, is attacked
by cells of the immune system causing problems in signal transduction. MS is the most common of demyelinating disorders, having
a prevalence of approximately 1 per 1,000 persons in most of the United States and Europe. According to the Accelerated Cure Project
for Multiple Sclerosis, a national nonprofit organization, 400,000 people in the US are affected by MS and another 2 million globally,
with 10,000 new cases diagnosed in the US every year.
People with MS may experience diverse signs
and symptoms. MS symptoms may include pain, fatigue, cognitive impairment, tremors, loss of coordination and muscle control, loss
of touch sensation, slurred speech and vision impairment. The course of the disease is unpredictable and for most MS patients,
the disease initially manifests a "relapsing-remitting" pattern. Periods of apparent stability are punctuated by acute
exacerbations that are sudden unpredictable episodes that might involve impaired vision, diminished ability to control a limb,
loss of bladder control, or a great variety of other possible neurologic deficits. In relapsing-remitting MS, some or all of the
lost function returns, however, the patient sustains an unceasing, often insidious, accumulation of neuronal damage. As the burden
of neural damage grows, new lesions are more likely to produce irreversible impairment of function. Typically, about eight to fifteen
years after onset, MS patients enter the secondary-progressive phase. Eventually, progressive MS sufferers become wheelchair-bound,
and may become blind and even incapable of speech. There is currently no FDA approved drug that reverses the course of the progressive
form of MS.
RPI-78M has shown efficacy in animal models
(EAE) for MS and ReceptoPharm is planning new animal studies to gain more insight into the levels of protection that the drugs
afford. In one study conducted in August 2007, all members of an untreated animal control group developed signs of disease with
different levels of paralysis/muscle weakness. A similar group in the August 2007 study treated with RPI-78M showed no disease
in 90% of the animals in both acute and chronic applications of the test. Moreover, there were no toxicities reported though the
animals which received doses the equivalent of 280 times a human dose.
Furthermore, we believe that the ability
to modulate the host immunostimulatory environment could form the basis of an effective strategy for the long-term control of autoimmunity
in diseases like MS and Myasthenia gravis (MG) and is being studied as a therapeutic model for other neuromuscular diseases. Also,
we believe our data suggest that it is possible that our novel therapeutic proteins could have a general application in autoimmune
diseases based on human studies in Rheumatoid Arthritis and anecdotal reports from patients with Multiple Sclerosis.
In August of 1984, Biogenix applied for
and received an Intrastate Investigational Drug (FSDHRS Protocol RA-1 (002)) from the Department of Health and Rehabilitation (HRS)
in Florida that permitted the 4-week study of RPI-MN in 13 patients with Rheumatoid arthritis ranging in age from 49 to 81. Patients
were enrolled for a period of 4 weeks; the results showed 30% to 49% improvement in range of joint motion, early morning stiffness
and stamina (this data, along with other supporting intellectual property was acquired by ReceptoPharm from Biogenix). We believe
that the data obtained from the examination of clinical efficacy in these three diseases can augment information from prior clinical
studies and lead to the future investigation of treatments for other chronic conditions.
Adrenomyeloneuropathy (AMN) and Orphan
Indications
Adrenoleukodystrophy, or ALD, is a genetically
determined neurological disorder that, according to the Adrenoleukodystrophy Foundation, affects 1 in every 17,900 boys worldwide.
The presentation of symptoms occurs between the ages of 4 and 10, and affects the brain with demyelination, which is the stripping
away of the fatty coating that keeps nerve pulses confined and maintains the integrity of nerve signals. This process inhibits
the nerves’ ability to conduct properly, which causes neurological deficits, including visual disturbances, auditory discrimination,
impaired coordination, dementia and seizures. Demyelination is an inflammatory response and nerve cells throughout the brain are
destroyed.
Adrenomyeloneuropathy (AMN) is the most
common form of X-ALD, a maternally inherited type of ALD. AMN affects about 40-45% of X-ALD patients and usually presents itself
in adolescence or adult life and may be preceded by hypoadrenalism. It is characterized by spastic paraplegia and a peripheral
neuropathy, often being diagnosed as Multiple Sclerosis (MS). Nerve conduction studies in AMN show a predominant axonal neuropathy
and show a loss of all axons. Lorenzo’s oil, a mixture of glyceryltrioleate and glyceryltrierucate, has been used for over
a decade in an open, unblinded fashion with mixed results.
RPI-78M has been utilized in two clinical
studies, which were completed at the Charles Dent Metabolic Unit located in London, England. The last trial was classified as a
Phase IIb/IIIa study. These studies provided important safety data, showing RPI-78M to be well tolerated by the patients. Further
study is warranted to provide data on the potential efficacy of RPI-78M to treat the symptoms of AMN.
Pain and Arthritis
Protein or peptide-based drugs are penetrating
the pain market with neurotoxins taking the lead. Botox (Allergan) and Prialt (Elan) have the potential to substitute over the
long-term for morphine and other opiates in chronic pain indications. Opiates, though potent painkillers, suffer from drawbacks
because they are addictive, short acting, and drug-resistance inducing. We plan to assess the effects of several peptides in animal
models of pain in association with Soochow University in China. Several peptides have demonstrated positive effects and the research
and development continues.
August 2007 studies at Soochow University
proved the potential of ReceptoPharm’s drug candidates, RPI-78 and RPI-70. When compared to Dolantin, an opiate-based drug
subordinate to morphine, the effects were very encouraging. While Dolantin provided immediate pain relief it began wearing off
just as RPI-70 began to take effect. The effects of RPI-70 do not seem dramatic in contrast to Dolantin, considering the quantity
of drug employed in this animal model. The concentration of RPI-70 was approximately 100 times less than the opiate product. Also,
RPI-70 showed real potential for combining with other pain killing medications. RPI-78 was calculated to be 150,000 times more
potent than aspirin. This product can be injected systemically providing evidence of a more practical application than Prialt,
which must be administered intrathecally (into the spinal cord). Opiate drugs induce tolerance and dependence. This problem is
not encountered with RPI-70 and RPI-78.
In February 2009, ReceptoPharm filed a
patent application with the United States Patent and Trademark Office for the use of RPI-78 as a novel method for treating arthritis
in humans. Also in February 2009, ReceptoPharm, in collaboration with Soochow University in China published positive data from
its recent animal studies on the use of RPI-78 (Cobratoxin) as a method for treating arthritis. In March of 2011, ReceptoPharm
was issued a patent for the use of cobratoxin as an analgesic (US patent #7,902,152). In February of 2012, ReceptoPharm, in collaboration
with Soochow University published another study that demonstrated a novel mechanism of action for the use of RPI-78 as a treatment
for pain.
Market Values
Human Immunodeficiency Virus (HIV)
The analytic firm GBI Research reported
in November 2012 that the HIV/AIDS therapeutics market reached $13.5 billion in 2011 in seven top markets: the United States, the
United Kingdom, Germany, France, Italy, Spain and Japan. GBI Research predicts these markets will continue to grow to reach $21.8
billion by 2018. According to UNAIDS, an estimated 35.3 million people were living with HIV in 2012 with 69% of all HIV sufferers
in sub-Saharan Africa. There were 2.3 million new infections in 2012 and 1.6 million people died of AIDS-related illnesses. Since
the beginning of the epidemic, more than 75 million people have contracted HIV and nearly 36 million have died of HIV-related causes.
Growth in the HIV therapy market will continue to be driven by the rapidly growing HIV and AIDS population. In the absence of therapeutic
intervention, the vast majority of individuals infected with HIV will ultimately develop AIDS, on average in about 10 years, which
has a mortality rate approaching 100%. Experts say that the drugs currently available may extend life as much as 40 years, but
all of these therapies have negative side effects and fail over time as the virus mutates. These facts make new therapies a necessity.
The foregoing information was obtained from the World Health Organization website at www.who.int and the UNAIDS website at www.unaids.org.
According to the Centers for Disease Control
and Prevention, in the United States alone, an estimated 1,144,500 people are infected with an estimated 50,000 Americans becoming
infected with HIV each year. The majority undergoes treatment for HIV-related conditions at an individual cost of $14,000 (HAART)
to $34,000 (AIDS patients). According to DataMonitor; the HIV market was worth $9.3 billion in 2007. GBI Research predicts these
markets will continue to grow to reach $21.8 billion by 2018, driven by the increasing prevalence of HIV worldwide and the longer
life expectancy of patients receiving treatment.
Multiple Sclerosis (MS)
MS affects an estimated 2.5 million people
globally with approximately 400,000 sufferers in the United States. There are 5 approved drugs for the treatment of this disease.
The average annual cost of these drugs is $12,000 per person. In 2010, sales by one manufacturer, Biogen-Idec, were reported to
be $2.5 billion for its drug, Avonex. According to a report by Piribo (Pharmaceutical Market Research), the total worldwide market
for MS disease-modifying therapies is expected to grow at an 8.1% compound annual growth rate (CAGR) from 2010 through 2015, with
sales reaching nearly $16.7 billion by the end of 2015 from $11.3 billion in 2010. ReceptoPharm’s MS drug, RPI-78M is considered
to be a ‘Biologic’. Biologics represent the largest class of MS disease-modifying therapies by sales and by number
of approved therapies. This sector is valued at $7.8 billion in 2010 and is expected to increase at a 2.5% compound annual growth
rate (CAGR) to reach a value of $8.8 billion in 2015.
Adrenomyeloneuropathy (AMN)
AMN/ALD affects an estimated 30,000 people
in the US with some estimates exceeding this number.
Current Technologies
ReceptoPharm, operating in its capacity
as a clinical stage biotechnology company, created a process that safely modifies proteins derived from cobra venom. ReceptoPharm
also has rights to a drug delivery method that uses an aerosol formulation, which is administered under the tongue.
By using
this shared aerosol delivery technology, oral delivery is attainable, an important step for a biologic product.
The system
is 50% efficient and affects drug delivery in approximately 40% of patients in which it was tested. Topical preparations are being
examined for future applications in treatment of such conditions as pain and Rheumatoid Arthritis (RA).
Business Strategy
Pending adequate financing or revenues,
ReceptoPharm seeks to develop proprietary pharmaceutical products for human illnesses that qualify for “Fast-Track”
or “Orphan Drug” status under FDA regulations, which can expedite regulatory review. For some conditions, the FDA has
created the “two animal rule” which permits ReceptoPharm to collect data from ongoing animal research for human treatment
applications.
We believe the results from ReceptoPharm’s
research will assist in getting its applications processed through the FDA’s “Fast-Track” approval process and
enable ReceptoPharm to plan the commercialization of each product independently and/or through joint ventures, partnerships and
licensing arrangements.
“Fast-Track” denotes life-threatening illnesses, while “Orphan” status refers
to serious ailments affecting less than 200,000 individuals nationwide. AMN qualifies under both labels because it is considered
an orphan disease and has no known cure.
In the areas of HIV and MS, ReceptoPharm
plans to conduct clinical studies of its HIV and MS drugs under development. These "Phase II" studies will either prove
or disprove the preliminary efficacy of ReceptoPharm's HIV and MS drugs under development. ReceptoPharm is in the process of attempting
to secure agreements with third parties to conduct such clinical studies.
We believe that ReceptoPharm’s proposed
unique pharmaceutical products can be used alone or licensed for use in combination with other therapeutic products and may be
of interest to other established pharmaceutical companies as a means of extending the patent life of their proprietary products.
Short-term Goal
Although we focused our drug development
efforts from 2006 to 2008 on clinical trials for ReceptoPharm’s HIV drug, RPI-MN, our primary focus now is on RPI-78M for
the treatment of AMN and MS. In January of 2007, ReceptoPharm began their clinical study in AMN. The clinical study, which was
completed at the Charles Dent Metabolic Unit located in London, England, is classified as a Phase IIb/IIIa study. The study provided
important safety data, showing RPI-78M to be well tolerated by the patients. Further study is warranted to provide data on the
potential efficacy of RPI-78M to treat the symptoms of AMN.
Mid-term Goal
Our midterm strategy for the past three
years has been to license ReceptoPharm’s AMN, MS and HIV technologies in our attempt to bring these technologies to market
within 5 years, should we obtain adequate financing.
Long-Term Goal
Our long-term goal is the use of drugs
developed by ReceptoPharm in the field of neurological diseases, infectious diseases and autoimmune disorders. Due to our limited
financial and operational resources, this goal will require us to establish strategic partners or alliances with pharmaceutical
companies, academic institutions, biotechnology companies, and clinical diagnostic laboratories, which will: (a) complement ReceptoPharm’s
research and development efforts; (b) reduce the risks associated with undertaking the entire process of drug development and marketing;
and (c) generate licensing based revenue streams. Additionally, we plan to continue identifying intellectual property and companies
in the biotechnology arena as potential acquisition candidates.
Compassionate Release Programs
Certain countries, such as Canada and the
United Kingdom permit their citizens to have access to investigational medications without being approved for any applications
by their respective “FDA type” agencies, and permit physicians to prescribe drugs they believe are of possible benefits
to the patients. Through these “Compassionate Release Programs” ReceptoPharm has supplied RPI-78M, its drug under investigation
for MS and AMN, to physicians in the United Kingdom. The FDA does not offer this program.
Clinical Trial Applications
ReceptoPharm has developed Common Technical
Documents (CTD) for both RPI-78M and RPI-MN that are used to support any clinical trial application. The CTD is a complete history
of the individual drug, including all of the in-vitro and in-vivo work accomplished to date, as well as pre-clinical development
work on the drug. Having these completed documents allows for expedited due diligence from regulatory bodies reviewing ReceptoPharm’s
applications for trials and approvals. With these documents, ReceptoPharm has successfully applied for approval to conduct a clinical
investigation in the United Kingdom under the regulation of the Medicines Health and Regulatory Agency (MHRA), which is the British
equivalent of the US-FDA.
Current Research and Development
Projects
Neurological Studies
Pain Studies
In an effort to further support Nyloxin
®
Extra Strength, ReceptoPharm had planned to complete two human clinical studies aimed at comparing the ability of Nyloxin
®
Extra Strength to replace prescription pain relievers. ReceptoPharm originally estimated that these studies would begin during
the second quarter of 2010; however, these studies have been delayed because of lack of funding. We have no way of knowing at this
time, if or when we will have adequate funding to reinitiate these trials.
AMN Phase II
ReceptoPharm has been conducting research
and development in this area since February 2006 with an original expected completion date of September 2010, which includes a
12-month patient trial period that has already been completed. We have thus far expended approximately $400,000, because ReceptoPharm
has completed its AMN Phase II project, there is no further budget for this project.
AMN Phase III
ReceptoPharm had planned to continue research
and development, with the ultimate goal of completing development of its future drug, RPI-78M. ReceptoPharm’s originally
estimated start and completion dates are July 2010 and December 2011, respectively, which includes a 12-month patient trial period.
ReceptoPharm has thus far incurred costs of $5,000. ReceptoPharm has an estimated budget of $500,000. We have no way of knowing
at this time, if or when we will have adequate funding to reinitiate these trials.
MS Phase II
Pending adequate financing or revenues,
ReceptoPharm will continue its research and development, with the ultimate goal of completing development of its future drug, RPI-78M.
ReceptoPharm’s originally estimated start and completion dates are October 2010 and October 2012, respectively, which includes
a 12-month patient trial period. ReceptoPharm has thus far incurred costs of $40,000. ReceptoPharm has an estimated budget of $2,000,000.
We have no way of knowing at this time, if or when we will have adequate funding to reinitiate these trials.
Currently, ReceptoPharm’s total estimated
costs for all of the above projects are approximately $3,000,000.
All of these studies have been delayed
due to a lack of revenues and funding. Upon obtaining sufficient revenues, if ever, ReceptoPharm will provide updated estimates
of start and completion dates.
Research and Development
During 2013 and 2012, we had research and
development costs of $697 and $3,046, respectively.
Dependence on one or a Few Major Customers
We have no customers with respect to our
research and development projects since we have not received FDA approval for our drug candidates and have not licensed any of
our technologies.
Marketing
We currently do not have a marketing program
for our drug candidates because none of ReceptoPharm’s products have received FDA approval. Our lack of financing has hampered
our efforts to navigate the regulatory process in a timely fashion; however, if and when we have FDA-approved drug treatments,
we plan to develop a marketing strategy to market ReceptoPharm’s products through pharmaceutical companies, other biotechnology
companies, and diagnostic laboratories. Our Chief Executive Officer will market the treatments to licensing and development officers
of those companies and will otherwise direct our marketing program. Additionally, we will attempt to secure consulting agreements
with marketing consultants who will actively market our products to such companies and/or provide our Chief Executive Officer with
marketing guidance.
Potential Revenue Segments
Our potential revenue segments are composed
of our attempt to generate revenues from license agreements, joint ventures in foreign countries and drug sales.
To date, we have not earned any revenues
regarding any FDA drug candidate.
Product Liability
We maintain product liability insurance
for our commercial products. Even so, product liability claims may result in significant legal costs related to our defense of
such actions if damage amounts exceed our product liability insurance coverage. The design, development, and manufacture of drug
products or diagnostic tests involves an inherent risk of product liability claims and corresponding damage to our brand name reputation,
including claims of product failure or harm caused by the drug product.
Sources and Availability of Raw Materials
ReceptoPharm uses the raw material, cobra
venom, for the drugs that it studies and in Cobroxin
®
and Nyloxin
®
production. We currently have
one US supplier of cobra venom that we use according to product demand. In addition, there are other suppliers in China, Thailand
and India. ReceptoPharm’s management is responsible for locating cobra venom suppliers on an as-needed basis, which involves
obtaining a small test amount from a supplier for scientific validation of that raw material prior to purchase. Apart from cobra
venom, we do not currently use raw materials in our business.
Compliance with Government Regulations and Need for Government
Approval
The production and marketing of potential
drug products as well as research and development activities generally are subject to regulation by numerous governmental authorities
in the United States and other countries. In the United States, vaccines, drugs and certain diagnostic products are subject to
FDA review of safety and efficacy. The Federal Food, Drug and Cosmetic Act, the Public Health Service Act and other federal statutes
and regulations govern or influence the testing, manufacture, safety, labeling, storage, record keeping, approval, advertising
and promotion of such products. Noncompliance with applicable requirements can result in criminal prosecution and fines, recall
or seizure of products, total or partial suspension of production, or refusal of the government to approve Biological License Applications
("BLAs"), Product License Applications ("PLAs"), New Drug Applications ("NDAs") or refusal to allow
a company to enter into supply contracts. The FDA also has the authority to revoke product licenses and establishment licenses
previously granted.
In order to obtain FDA approval to market
a new biological or pharmaceutical product, proof of product safety, purity, potency and efficacy, and reliable manufacturing capability
must be submitted. This requires companies to conduct extensive laboratory, pre clinical and clinical tests. This testing, as well
as preparation and processing of necessary applications, is expensive, time-consuming and often takes several years to complete.
There is no assurance that the FDA will act favorably in making such reviews. Our potential partners, or we, may encounter significant
difficulties or costs in their efforts to obtain FDA approvals, which could delay or preclude from marketing any products that
may be developed. The FDA may also require post-marketing testing and surveillance to monitor the effects of marketed products
or place conditions on any approvals that could restrict the commercial applications of such products. Product approvals may be
withdrawn if problems occur following initial marketing, such as, compliance with regulatory standards is not maintained. Delays
imposed by governmental marketing approval processes may materially reduce the period during which a company will have the exclusive
right to exploit patented products or technologies. Refusals or delays in the regulatory process in one country may make it more
difficult and time consuming to obtain marketing approvals in other countries.
The FDA approval process for a new biological
or pharmaceutical drug involves completion of preclinical studies and the submission of the results of these studies to the FDA
in an Initial New Drug application, which must be approved before human clinical trials may be conducted. The results of preclinical
and clinical studies on biological or pharmaceutical drugs are submitted to the FDA in the form of a BLA, PLA or NDA for product
approval to commence commercial sales. In responding to a BLA, PLA or NDA, the FDA may require additional testing or information,
or may deny the application. In addition to obtaining FDA approval for each biological or chemical product, an Establishment License
Application ("ELA") must be filed and the FDA must inspect and license the manufacturing facilities for each product.
Product sales may commence only when both BLA/ PLA/ NDA and ELA are approved. In certain instances in which a treatment for a rare
disease or condition is concerned, the manufacturer may request the FDA to grant the drug product Orphan Drug status for a particular
use. "Orphan Drug" status refers to serious ailments affecting less than 250,000 individuals. In this event, the developer
of the drug may request grants from the government to defray the costs of certain expenses related to the clinical testing of such
drug and be entitled to marketing exclusivity and certain tax credits.
In order to gain broad acceptance in the
marketplace of a medical device, our partners or we will need to receive approval from the FDA and other equivalent regulatory
bodies outside of the United States. This approval will be based upon clinical testing programs at major medical centers. Data
obtained from these institutions will enable us, or our partners, to apply to the FDA for acceptance of its technology as a "device"
through a 510(k) application or exemption process. Once the data have been fully gleaned, it is expected that this process would
take ninety days.
According to the FDA, a "device"
is: "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article,
including a component part, or accessory which is recognized in the official National Formulary, or the United States Pharmacopoeia,
or any supplement to them, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment,
or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other
animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or
other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes."
The FDA classifies devices as either Class
I/II-exempt, Class II, or Class III.
Class III: Pre-Marketing Approval, or PMA:
A Pre-Marketing Approval or PMA is the most stringent type of device marketing application required by FDA. A PMA is an application
submitted to FDA to request clearance to market, or to continue marketing of a Class III medical device. A PMA is usually required
for products with which FDA has little previous experience and in such cases where the safety and efficacy must be fully demonstrated
on the product. The level of documentation is more extensive than for a 510(k) application and the review timeline is usually longer.
Under this level of FDA approval, the manufacturing facility will be inspected as well as the clinical sites where the clinical
trials are being or have been conducted. All the appropriate documents have to be compiled and available on demand by the FDA.
The manufacturing facility is registered with the FDA and the product or device is registered with the FDA.
Class II: 510(k). This is one level down
from the PMA and it is applied to devices with which the FDA has had previous experience. A 510(k) is a pre-marketing submission
made to FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally
marketed device that is not subject to pre-market approval. Applicants must compare their 510(k) device to one or more similar
devices currently on the U.S. market and make and support their substantial equivalency claims. The legally marketed device to
which equivalence is drawn is known as the "predicate" device. Applicants must submit descriptive data and, when necessary,
performance data to establish that their device is SE to a predicate device. Again, the data in a 510(k) is to show comparability,
that is, substantial equivalency (SE) of a new device to a predicate device. Under this level of approval, the manufacturing facility
is registered with the FDA and the product or device is registered with the FDA. Inspections under this classification are possible.
All the appropriate cGMP and clinical data backing the claims made must be on file and available on demand by the FDA.
Class I/II Exemption: This is the lowest
level of scrutiny. Most Class I devices and a few Class II devices are exempt from the pre-marketing notification requirements
subject to the limitations on exemptions. However, these devices are not exempt from other general controls. All medical devices
must be manufactured under a quality assurance program, be suitable for the intended use, be adequately packaged and properly labeled,
and have establishment registration and device listing forms on file with the FDA. However, as described above, all the appropriate
documentation including cGMP and clinical data supporting the claims being made has to be on hand and available on demand by the
FDA. The data must be available to support all the product claims.
Sales of biological and pharmaceutical
products and medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country
to country. Whether or not FDA approval has been obtained, approval of a product or a device by a comparable regulatory authority
of a foreign country must generally be obtained prior to the commencement of marketing in that country.
Effect of Compliance with Federal, State, and Local Provisions
for the Protection of the Environment
We have no present or anticipated direct
future costs associated with environmental compliance, since we are not and will not be directly involved in manufacturing drug
products as result of our research and development; however, we may be affected in the percentage licensing fees we receive, since
a company may consider the environmental expense as an offset to a determination of the percentage amount we receive. ReceptoPharm
produces a drug that has limited waste issues and related costs, but handles environmentally related matters through the FDA's
Good Manufacturing Practices, the FDA mandated guidelines pertaining to the production of drugs in the United States.
Ability to Compete
The biotechnology research and development
field is extremely competitive and is characterized by rapid change. Our competitors have substantially greater financial, scientific,
and human resources, and as a result greater research and product development capabilities. Our competitors have competitive advantages
with greater potential to develop revenue streams. Our competitors are located in the United States as well as around the world.
We will attempt to compete by establishing strategic partners or alliances with pharmaceutical companies, academic institutions,
biotechnology companies, and clinical diagnostic laboratories, which will enter into joint ventures, emphasizing that the drugs
RPI-MN and RPI-78M possess the following properties:
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They lack measurable toxicity but are still capable of attaching to and affecting the target site on the nerve cells. This means that patients cannot overdose.
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They display no significant adverse side effects following years of investigations in humans and animals.
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The products are stable and resistant to heat, which gives the drug a long shelf life. The drugs’ stability has been determined to be over 4 years at room temperature.
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RPI-78M can be administered orally; however,
ReceptoPharm has not yet developed an orally administered RPI-78M. RPI-78M has been routinely delivered by injection in a manner
similar to insulin, but research over the past two years has given rise to administration by mouth. Oral delivery presents patients
with additional “quality of life” benefits by eliminating or decreasing the requirements for routine injections. Should
we receive adequate funding, ReceptoPharm plans to develop an orally administered RPI-78M by initiating new trials with an oral
version of that drug.
Main Competitors (Biologics)
Competition is intense among companies
that develop and market products based on advanced cellular and molecular biology. ReceptoPharm’s competitors, including
Amgen, Sanofi-Aventis, Biogen-Idec, Cephalon, Genetech, Genzyme, Novartis, Regeneron and Bayer, which have far superior financial,
technological and operational resources. We face significant competition from these and other biotechnology and pharmaceutical
firms in the United States, Europe and elsewhere. Certain specialized biotechnology firms have also entered into cooperative arrangements
with major companies for development and commercialization of products, creating an additional source of competition.
Any products or technologies that successfully
address viral or neurological indications could negatively impact the market potential for RPI-78M or RPI-MN. These include products
that could receive approval for indications similar to those for which RPI-78M or RPI-MN seeks approval, development of biologic
or pharmaceutical treatments that are more effective than existing treatments and the development of other modalities with reduced
toxicity and side effects.
Interferon-based drugs and their indications
represent target markets for ReceptoPharm. Sales of interferon-based drugs annually exceed $6 billion and have attracted the participation
of several major drug companies, including Bayer and Roche. Currently, there are five interferon-based drugs licensed in Canada
and the U.S.; three for the treatment of the milder Relapsing-Remitting form of MS and two for Hepatitis C. These interferons are
also used in the treatment of other conditions where treatment options are limited. The interferons for MS are Betaseron (Bayer),
Avonex (Biogen-Idec) and Rebif (Serono and Pfizer). Since the launch of these drugs, the number of patients undergoing treatment
has stabilized at current levels, indicating that there is a high turnover rate of patients in the administration of these individual
drugs due to cost and side effects. Biogen developed Avonex in the early 1990’s and has been shipping the drug since late
1996. In the United Kingdom, the National Institute for Clinical Efficiency (NICE) has called for the withdrawal of Betaseron and
another unrelated drug, Copaxone (Teva), from the market based on poor cost/effectiveness.
Schering (a Merck subsidiary) manufactures
alpha-interferon (Intron-A) and Roche produces Roferon as the only treatments for Hepatitis C. Schering-Plough also developed the
drug Ribavirin as a general antiviral agent which, when combined, with Intron-A, is a treatment for Hepatitis C. This combination
is called Ribitron. Treatment with Intron-A costs $19,000 per year though initial treatment periods are usually for 12 months.
It is the high cost and significant side effects that prevents the widespread uptake of this drug by the 4 million Hepatitis C
sufferers in the US. Other companies producing interferon-based products include Amgen (INFERGEN) and Viragen.
Main Competitors (Venom-Based Drugs)
We view our main competitors as those who
also engage in the development of protein-based neurotoxins as therapeutics. Employing venoms as therapeutics is not new
.
A large number of well-known pharmaceutical companies are developing novel therapies derived from snake venoms and other reptiles.
Most of those using snake venoms employ the anticoagulant enzymes usually from viperids (adders and rattlesnakes) though elapids
(cobra family) are also being investigated.
We have set forth below a summary of venom-based
drugs and their potential applications.
Company
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Drug
|
Application
|
|
|
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Knoll Pharmaceutical
|
Ancrod
|
Anticoagulant from rattlesnakes
|
Sss
|
|
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Bristol-Myers Squibb
|
Capoten
|
Antihypertensive from Brazilian Pit Viper
|
|
|
|
Medicure
|
Aggrastat
|
Antiplatelet drug from vipers
|
|
|
|
Millennium Pharmaceutical
|
Integrilin
|
Antiplatelet drug from rattlesnakes
|
|
|
|
Amylin Pharmaceuticals
|
Byetta
|
Treatment for type 2 diabetes and obesity from Gila Monster
|
|
|
|
Elan Pharmaceuticals
|
Prialt
|
Intrathecal drug from cone snails for intractable pain
|
Current cobra venom-based therapies include
Keluoqu, a pain-killing drug on the market in China since 1978. Keluoque contains cobrotoxin as its primary ingredient and is used
to control severe pain in advanced cancer patients and for post-operative pain.
Designer Diagnostics
Designer Diagnostics developed diagnostic
test kits designed to be used for the rapid identification of infectious diseases, such as Nontuberculous Mycobacteria (NTM). Currently,
these test kits are being tested by National Jewish Hospital in Denver, Colorado. We will reassess our business plan with respect
to Designer Diagnostics upon completion of testing at National Jewish Hospital. This process of validation has been ongoing since
2007. While these outside tests have proceeded, the Company has focused on our drugs and has not continued any activity in the
Designer Diagnostics division since June, 2011. As results become available through the validation process and funding becomes
available, we will revisit the technology and may re-engage our efforts in Designer Diagnostics.
Nanologix
On January 24, 2006, we entered into an
agreement with NanoLogix whereby we exchanged our holding of NanoLogix common stock for the intellectual property pertaining to
the manufacture of test kits for the rapid isolation, detection and antibiotic sensitivity testing of certain microbacteria. Designer
Diagnostics owns 11 issued patents and has licensing rights to 18 issued patents related to the rapid isolation, growth, identification
and antibiotic sensitivity of disease causing pathogens such as Tuberculosis ("TB") and Mycobacterium avium-intracellulare
("MAI"). The patented technologies are related to a technique known as "paraffin baiting". The researchers
discovered that certain grades of paraffin wax, when used in conjunction with a microscope slide, and combined with a nutrient
broth, provides for the rapid isolation, growth and identification of various disease causing pathogens. Designer Diagnostics marketed
a diagnostic test kit based on this technology in 2006 and 2007.
Bio-Therapeutics, Inc.
On October 3, 2003, we entered into a non-assignable
license agreement between Bio-Therapeutics, Inc. and us, which was then amended to make the license agreement assignable. This
agreement was in settlement of a lawsuit that we filed against Bio-Therapeutics alleging that Bio-Therapeutics owed us $850,000
in connection with a merger agreement between Bio-Therapeutics and us that was cancelled.
The 2003 license agreement provides that
for a non-exclusive license to certain intellectual property of Bio-Therapeutics, Inc., which consists of the following two distinct
technology platforms:
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·
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Alteration of Proteins and Peptides - These include patented methods for altering the 3-Dimensional structure of certain proteins and peptides. The natural peptides bind to receptors in the body with toxic effects. This technology allows us to alter the structure of these peptides, preserving their receptor-binding characteristics, while making them non-toxic and therapeutic. Different receptors have various functions in many disease states. By the peptides binding to these receptors in a controlled fashion, certain disease symptoms may be treated. In connection with MS, binding to the acetylcholine receptor on the nerves allows for more efficient nerve conduction. With HIV, binding to chemokine receptors may prevent the virus from entering and infecting new cells.
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Non- Exclusive License for “Buccal Delivery System”(“Buccal”) – An innovative aerosolized drug delivery system that is patent pending. Many therapeutic agents cannot be effectively delivered by aerosol formulation due to their large size and/or irregular shapes. Since these therapeutic agents cannot be ingested orally without being degraded by the digestive system, patients have no alternative but to directly inject these drugs. We have a non-exclusive license to the Buccal patent pending proprietary aerosol formulation, which greatly enhances the permeability of the mucous membranes found on the roof of the mouth and the back of the throat. This allows for the easy and efficient systemic delivery into the bloodstream of a much wider variety of proteins and peptides. This non-exclusive license for "Buccal Delivery System" and patent pending application includes claims that identify the active mucosal enhancer, its combination with therapeutic agents and the mode of delivery through aerosol. This may allow for the effective and pain-free delivery of peptide and protein therapeutics for the treatment of HIV and MS.
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Patents, Trademarks, Licenses and
Intellectual Property
We have the following patents expiring
at various dates indicated below:
Bio-Therapeutics Patents
We hold the license to certain intellectual
property belonging to Bio-Therapeutics that has either been granted a patent or is in the patent application process as follows:
U.S. Patent No. 5,989,857, Polypeptide
compositions and methods was granted in November 1999 with 10 claims. The patent outlines a method of preparing a bioactive polypeptide
in a stable, inactivated form, the method comprising the step of treating the polypeptide with ozonated water in order to oxidize
and/or stabilize the cysteine residues, and in turn, prevent the formation of disulfide bridges necessary for bioactivity. This
patent expires on May 10, 2016.
U.S. Patent No. 6,670,148, Compositions
comprising bioactive peptides prepared without formation of native disulfide bonds was granted in December 2003, with 9 claims.
The patent further describes a method of preparing a bioactive polypeptide in a stable, inactivated form, the method comprising
the step of treating the polypeptide with ozonated water in order to oxidize and/or stabilize the cysteine residues, and in turn,
prevent the formation of disulfide bridges necessary for bioactivity. The method can involve the use of ozonated water to both
oxidize the disulfide bridges in a bioactive polypeptide, and to then stabilize the resultant cysteine residues. Optionally, and
preferably, the method can involve the use of ozonated water to stabilize the cysteine residues, and thereby prevent the formation
of disulfide bridges, in a polypeptide produced by recombinant means in a manner that allows the polypeptide to be recovered with
the disulfide bridges unformed. This Patent expires on May 10, 2016.
U.S. Patent Application Number 11/415377,
Buccal Delivery System, with 20 claims. The patent describes a delivery formulation and system for delivering inactivated bioactive
peptides to the body. The formulation includes effective amounts of the peptide as well as a mucosal permeation enhancer selected
from the group consisting of quaternary ammonium salts. The system can be used by spraying the formulation into the buccal cavity,
e.g., to the roof of the mouth. This application is currently listed as abandoned as of December 2009.
U.S. Patent Application Number 11/431126,
Immunokine composition and method with 31 claims. The patent describes a composition and method for preventing HIV infection of
mammalian cells. One aspect of the invention relates to an anti-immunodeficiency virus immunokine capable of binding to a cellular
protein in a manner that prevents HIV infection of that cell. The compositions can include either an active bioactive polypeptide,
such as native cobratoxin, and/or an inactivated bioactive polypeptide, such as cobratoxin in which one or more of the native disulfide
bridges have been prevented from forming. The term "immunokine" is used to refer to an inactivated bioactive polypeptide,
whether inactivated by chemical, genetic, and/or synthetic means as described herein, with the proviso that a corresponding active
bioactive polypeptides can be included where applicable (e.g., for in vitro use). This application is currently listed as abandoned
as of June 2009.
ReceptoPharm Patents
ReceptoPharm has three issued and several
patents pending with the United States Patent and Trademark Office. These patents include:
U.S. Patent No. 8,034,777, Modified Anticholinergic
Neurotoxins as Modulators of the Autoimmune Reaction was granted in October 2011with 7 claims. The patent describes a method of
treatment of a human patient suffering from Multiple Sclerosis comprising the administration of a disease-mitigating amount of
a composition consisting of detoxified and modified alpha-cobratoxin in a saline solution. This patent is meant to protect and
support our work in the production of drugs for the treatment of auto-immune diseases.
U.S. Patent No. 7,902,152, Use of cobratoxin
as an analgesic was granted in March 2011 with 16 claims. The patent describes a composition of matter for an analgesic and its
method of use is disclosed. The method of use is for the treatment of chronic pain, especially to the treatment of heretofore intractable
pain as associated with advanced cancer. The pain associated with neurological conditions, rheumatoid arthritis, viral infections
and lesions is also contemplated. The method includes administering to a host an alpha-neurotoxin that is characterized by its
ability to blocking of the action of acetylcholine at nicotinic acetylcholine receptors. Currently, this would be applied to the
Company's current and future drugs for the treatment of pain.
U.S. Patent No. 7,758,894, Modified elapid
venoms as stimulators of the immune reaction was granted in July, 2010 with 14 claims. The patent describes a method of protection
from infections by administering a detoxified and neurotropically active modified venom containing alpha-cobratoxin. Protection
includes bacterial, viral and parasitic infections. This patent is meant to protect and support our work in our production of anti-infective
treatments. Currently, this would be applied to RPI-MN and RPI-78.
U.S. Patent Application Number 11/217,713,
Modified venom and venom components as anti-retroviral agents with 10 claims was filed in September 2005. The present invention
describes a method of treatment of human subject suffering from infection with HIV, comprising administering a disease mitigating
amount of a detoxified, modified cobra venom composition in an amount effective to ameliorate at least one symptom of said infection.
This patent is meant to protect and support our work in the production of anti-viral treatments. Currently, this would be applied
to RPI-MN and RPI-78.
U.S. Patent Application Number 11/784,607,
Treatment of Autoimmune Disorders Using Detoxified Cobratoxin was filed in April 2007. The patent describes a method of treating
patients suffering from autoimmune disorders comprising the administration of detoxified cobra venom. This patent is meant to protect
and support our work in the production of drugs for the treatment of auto-immune diseases. Currently, this would be applied to
RPI-78MN.
U.S. Patent Application Number 12/317,115,
Alpha-neurotoxin Proteins with Anti-inflammatory Properties and Uses Thereof was filed in December 2008. The patent describes a
method of treating an arthritic condition comprising the administration to a subject in need thereof an effective amount of a pharmaceutical
composition comprising an isolated alpha-neurotoxin protein or an effective fragment thereof. This patent is meant to protect and
support our work in the production of drugs for the treatment of inflammatory diseases.
Patents Assigned to Us by Nanologix,
Inc. and Used by Designer Diagnostics
Because we have focused on our drugs, we
have not continued any activity in the Designer Diagnostics division since June, 2011. As results become available through the
validation process taking place at National Jewish Hospital in Denver and funding becomes available, we may revisit the technology
and re-engage our efforts in Designer Diagnostics.
On January 24, 2006 we entered into an
Agreement with NanoLogix whereby we exchanged our entire holding of NanoLogix common stock for intellectual property pertaining
to the manufacture of test kits for the rapid isolation, detection and antibiotic sensitivity testing of certain mycobacteria.
The agreement provides that: (a) NanoLogix has reassigned to us 11 key patents protecting the diagnostics test kit technology in
exchange for our entire holding of NanoLogix stock represented by 4,556,174 shares of that stock; (b) NanoLogix has licensed to
us the remaining 18 patents that protect the diagnostics test kit technology in exchange for a 6% royalty on the gross sales of
the products based on the licensed technology or escalating minimum payments starting at $20,000 annually; (c) we issued to NanoLogix
1 million options of our restricted common stock at $.20 per share; and (d) we will allow NanoLogix to continue their use of these
patents for development of their hydrogen technology and other technologies unrelated to medical diagnostic test kits.
On or about July 2009, we ceased paying
the minimum royalties to Nanologix for the licensed patents and have allowed full rights to those patents to revert back to Nanologix.
We own 11 issued U.S. patents covering
technologies related to growing, detecting, identifying, defining antibiotic sensitivity and designing apparatus for the detection
of 32 different paraffin-eating microorganisms that were assigned to us by Nanologix, Inc. These patents will be used by our wholly
owned subsidiary, Designer Diagnostics, should it again become operational.
U.S. Patent No. 5,989,902, Method for determining
the antimicrobial agent sensitivity of a nonparaffinophilic hydrophobic microorganism and an associated apparatus was granted in
November 1999 with 3 claims. The patent describes a method for determining a sensitivity of a nonparaffinophilic hydrophobic microorganism
to an antimicrobial agent. The method includes providing at least one receptacle containing an aqueous broth including a carbon
source and introducing the nonparaffinophilic hydrophobic microorganism into the receptacle. The method further includes placing
into the receptacle (i) a slide coated with a hydrophobic material and (ii) a predetermined quantity of the antimicrobial agent
to be tested. By observing the nonparaffinophilic hydrophobic microorganism growth or lack thereof on the slide, it can be determined
whether the predetermined quantity of the antimicrobial agent is effective in inhibiting growth of the nonparaffinophilic hydrophobic
microorganism on the slide. An associated apparatus is also disclosed. This Patent expires on November 13, 2017.
U.S. Patent No. 5,981,210, Method for determining
a presence or absence of a nonparaffinophilic hydrophobic microorganism in a body specimen by using a DNA extraction procedure
and a novel DNA extraction procedure was granted in November 1999 with 17 claims. The method of the invention involves providing
a first receptacle and a second receptacle. The first receptacle contains a sterile aqueous broth and the second receptacle contains
an aqueous broth including a carbon source. The method then includes placing into the first receptacle a first support surface
having a paraffin wax coating thereon and placing into the second receptacle a second support surface having a hydrophobic material
coating thereon. A body specimen, such as sputum, is then introduced into each of the first and second receptacles. The presence
of a nonparaffinophilic hydrophobic microorganism in the body specimen is determined by observing (i) a lack of microorganism growth
on the paraffin coated material of the first support surface and (ii) a presence of microorganism growth on the hydrophobic material
coating of the second support surface. The presence of the nonparaffinophilic hydrophobic microorganism can be further confirmed
by performing a DNA extraction. An associated DNA extraction procedure is also provided. This Patent expires on November 13, 2017.
U.S. Patent No. 5,935,806, Method and apparatus
for speciating and identifying MAI (Mycobacterium Avium Intracellulare) and testing the same for antibiotic sensitivity was granted
in August 1999 with 3 claims. The patent describes a method of speciating and identifying MAI in a specimen comprises placing a
paraffin coated slide in a receptacle containing a sterile aqueous solution inoculated with the specimen, analyzing the slide after
exposure to the specimen to determine the presence or absence of atypical Mycobacteria, and after the analysis step, if atypical
Mycobacteria are determined to be present, performing at least one speciation assay to ascertain if the atypical Mycobacteria are
MAI. A related apparatus is also disclosed for speciating and identifying MAI in a specimen comprising a paraffin-wax coated slide,
a tube having a sterile aqueous solution contained therein, the tube adapted to hold the slide, and at least one speciation assay
means for performing an assay to determine the presence or absence of MAI in the specimen after the specimen is introduced into
the tube holding the solution and the slide. An apparatus and method for determining the sensitivity of MAI to different antibiotics
and dosages thereof is also provided. This Patent expired on October 24, 2009 for failure to timely pay maintenance fees.
U.S. Patent No. 5,882,920, Apparatus for
determining the presence or absence of a paraffinophilic microorganism was granted in March 1999 with 4 claims. The patent describes
a method of determining the presence of a paraffinophilic microorganism in a specimen taken from a patient. The method includes
providing a receptacle containing an aqueous solution and adjusting the solution to mimic the in vivo clinical conditions of the
patient. The method then further includes inoculating the solution with the specimen and then placing in the receptacle a paraffin
coated slide to bait the paraffinophilic microorganism. The slide is then analyzed after exposure to the specimen to determine
the presence or absence of the paraffinophilic microorganism. An associated apparatus is also disclosed. This Patent expires on
November 9, 2015.
U.S. Patent No. 5,854,014, Apparatus for
testing paraffinophilic microorganisms for antimicrobial sensitivity was granted in December 1998 with 2 claims. The patent describes
an apparatus for determining the antimicrobial agent sensitivity of a paraffinophilic microorganism from a specimen obtained from
a patient. The apparatus includes a receptacle containing an aqueous solution, an amount of antimicrobial agent to be tested and
the specimen. The apparatus further consists of a paraffin coated slide placed into the receptacle. This Patent expired October
24, 2009 for failure to timely pay maintenance fees.
U.S. Patent No. 5,846,760, Method for determining
a presence or absence of a nonparaffinophilic hydrophobic microorganism in a body specimen and an associated kit was granted in
December 1998 with 15 claims. The method of the invention involves providing a first receptacle and a second receptacle. The first
receptacle contains a sterile aqueous broth and the second receptacle contains an aqueous broth including a carbon source. The
method then includes placing into the first receptacle a first support surface having a paraffin wax coating thereon and placing
into the second receptacle a second support surface having a hydrophobic material coating thereon. A body specimen, such as sputum,
is then introduced into each of the first and second receptacles. The presence of a nonparaffinophilic hydrophobic microorganism
in the body specimen is determined by observing (i) a lack of microorganism growth on the paraffin coated material of the first
support surface and (ii) a presence of microorganism growth on the hydrophobic material coating of the second support surface.
An associated kit is also disclosed. This Patent expires on November 13, 2017.
U.S. Patent No. 5,776,722, Method of testing
a body specimen taken from a patient for the presence or absence of a microorganism and a further associated method and associated
apparatus was granted in July 1998 with 40 claims. The patent describes a method of testing a body specimen taken from a patient
for the presence or absence of a microorganism. A transport/isolator assembly is provided which includes a receptacle and a baiting
assembly including a baiting section having disposed thereon a coating material. A baiting liquid and the body specimen are then
introduced into the receptacle. The method further comprises securing the baiting assembly to the receptacle so that at least a
portion of the coated section is introduced into the baiting liquid. The transport/isolator assembly containing the baiting liquid
and the body specimen are then transported to a laboratory for subsequent observation of the coated section for growth or lack
thereof of the microorganism. A further method of processing the body specimen and an associated isolator/transport assembly kit
as well as an associated isolator/transport assembly are also disclosed. This Patent expires on September 25, 2017.
U.S. Patent No. 5,569,592, Apparatus for
testing MAI (Mycobacterium Avium Intracellulare) for antimicrobial agent sensitivity was granted in October 1996 with 3 claims.
The patent describes an apparatus for determining the sensitivity of MAI to different antimicrobial agents and dosages thereof
is provided. The apparatus comprises a plurality of test tubes adapted to contain an amount of an antimicrobial agent to be tested
and MAI complex organisms to be assayed and a separate paraffin coated slide adapted for placement in each of the test tubes. The
growth of the MAI complex organisms on the slide can be used to determine the concentration of the antimicrobial agent necessary
to resist MAI complex organism growth on the slide. An associated method is also disclosed. This Patent expired on October 29,
2013.
U.S. Patent No. 5,472,877, Apparatus for
determining the presence or absence of MAI (Mycobacterium Avium Intracellulare) was granted in December 1995 with 6 claims. The
patent describes a method of speciating and identifying MAI in a specimen comprises placing a paraffin coated slide in a receptacle
containing a sterile aqueous solution inoculated with the specimen, analyzing the slide after exposure to the specimen to determine
the presence or absence of atypical Mycobacteria, and after the analysis step, if atypical Mycobacteria are determined to be present,
performing at least one speciation assay to ascertain if the atypical Mycobacteria are MAI. A related apparatus is also disclosed
for speciating and identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous solution
contained therein, the tube adapted to hold the slide, and at least one speciation assay means for performing an assay to determine
the presence or absence of MAI in the specimen after the specimen is introduced into the tube holding the solution and the slide.
An apparatus and method for determining the sensitivity of MAI to different antibiotics and dosages thereof is also provided. This
Patent expired on December 5, 2012.
U.S. Patent No. 5,316,918, Method and apparatus
for testing MAI (Mycobacterium Avium Intracellulare) for antimicrobial agent sensitivity was granted in May 1994 with 7 claims.
The patent describes an apparatus and method for determining the sensitivity of MAI to different antimicrobial agents and dosages
thereof is provided. The apparatus comprises a plurality of test tubes adapted to contain an amount of an antimicrobial agent to
be tested and MAI complex organisms to be assayed and a separate paraffin coated slide adapted for placement in each of the test
tubes. The growth of the MAI complex organisms on the slide can be used to determine the concentration of the antimicrobial agent
necessary to resist MAI complex organism growth on the slide. An associated method is also disclosed. This Patent expired on May
31, 2011.
U.S. Patent No. 5,153,119, Method for speciating
and identifying MAI (Mycobacterium Avium Intracellulare) was granted in October 1992 with 15 claims. The patent describes a method
of speciating and identifying MAI in a specimen comprises placing a paraffin coated slide in a receptacle containing a sterile
aqueous solution inoculated with the specimen, analyzing the slide after exposure to the specimen to determine the presence or
absence of atypical Mycobacteria, and after the analysis step, if atypical Mycobacteria are determined to be present, performing
at least one speciation assay to ascertain if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for speciating
and identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous solution contained therein,
the tube adapted to hold the slide, and at least one speciation assay means for performing an assay to determine the presence or
absence of MAI in the specimen after the specimen is introduced into the tube holding the solution and the slide. An apparatus
and method for determining the sensitivity of MAI to different antibiotics and dosages thereof is also provided. This Patent expired
on October 24, 2009.
Our business is dependent upon our ability
to protect our proprietary technologies and processes. Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to obtain and use proprietary information. We will rely on patent and trade secret law and nondisclosure and other
contractual arrangements to protect such proprietary information. We will file patent applications for our proprietary methods
and devices for patient treatments. Our efforts to protect our proprietary technologies and processes are subject to significant
risks, including that others may independently develop equivalent proprietary information and techniques, gain access to our proprietary
information, our proprietary information being improperly disclosed, or that we may ineffectively protect our rights to unpatented
trade secrets or other proprietary information.
Employees
We employ a total of 3 employees, consisting
of: (a) our Chief Executive Officer (b) Our Director of Marketing, and (c) our Interim President of ReceptoPharm. We utilize outside
consultants, legal and accounting personnel as necessary and as funding permits.
Report to Security Holders
We are subject to the informational requirements
of the Securities Exchange Act of 1934. Accordingly, we file annual, quarterly and other reports and information with the Securities
and Exchange Commission. You may read and obtain a copy of these reports in Washington, D.C. Our filings are also available to
the public from commercial document retrieval services and the Internet world wide website maintained by the Securities and Exchange
Commission at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the risks
described below regarding our operations, financial condition, financing, our common stock and other matters. If any of the following
or other material risks actually occur, our business, financial condition, or results or operations could be materially adversely
affected.
Our ability to continue as a going concern
is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
We incurred net losses of $4,342,964 and
$3,612,351 for the years ended December 31, 2013 and 2012. We anticipate that these losses will continue for the foreseeable future.
We have a significant working capital deficiency, and have not reached a profitable level of operations, which raises substantial
doubt about our ability to continue as a going concern. Our continued existence is dependent upon our achieving sufficient sales
levels of our Cobroxin
®
and Nyloxin
®
products and obtaining adequate financing. Unless we can begin
to generate material revenue, we may not be able to remain in business. We cannot assure you that we will raise enough money or
generate sufficient sales to meet our future working capital needs.
We have a limited revenue producing
history with significant losses and expect losses to continue for the foreseeable future.
We have yet to establish any history of
profitable operations. We have incurred annual losses of $4,342,964 and $3,612,351 during the fiscal years of operations ending
December 31, 2013 and 2012 respectively. As a result, at December 31, 2013 we had an accumulated deficit of $41,986,820. Our revenues
have been insufficient to sustain our operations and we expect our revenues will be insufficient to sustain our operations for
the foreseeable future. Our potential profitability will require the successful commercialization of our Cobroxin
®
and Nyloxin
®
products.
We will require additional financing
to sustain our operations and without it will be unable to continue operations.
At December 31, 2013 we had a working capital
deficit of $4,259,938. Our recurring losses from operations and working capital deficiency raise substantial doubt about our ability
to continue as a going concern. We have a negative cash flow from operations of approximately $0.6 million and $0.7 million for
the years ended December 31, 2013 and 2012, respectively. We have insufficient financial resources to fund our operations.
As of December 31, 2013 we owe $566,399
to our Chief Executive Officer from funds borrowed from him.
Our Chief Executive Officer may be unwilling
or unable to continue funding our operations.
Our Chief Executive Officer has historically
funded our operations by providing loans to us. As of December 31, 2013, we owe Mr. Deitsch $566,399. Mr. Deitsch may be unwilling
or unable to fund our operations in the future. If we have no other source of funding and we are unable to secure additional loans
from Mr. Deitsch, our operations will be negatively affected.
To date, none of our prescription drug
candidates have received FDA drug orphan status approval.
To date, none of our prescription drug
candidates have received FDA drug orphan status, which would otherwise place our drug candidates on a “fast track”
with the FDA application process. If none of our drug candidates can achieve that status, our operations and financial condition
will be negatively affected.
We have a history of failed distributors,
which has negatively affected our revenues and may continue to do so if we fail to locate a successful distributor.
Due to poor performance, we cancelled our
distribution agreement with our Cobroxin
®
distributor, XenaCare in April, 2011. We have signed an agreement with
Cobra Pharmaceuticals as our new distributor for Cobroxin
®
, but they have not yet ordered product or provided planned
sales. To date, we have only limited sales of Nyloxin
®
through outside distributors. Most of the current sales are
direct from the company or through the www.Nyloxin.com website. If we fail to improve our own marketing and distribution or fail
to find a competent outside distributor our operations and financial condition will be negatively affected
If we cannot sell a sufficient volume
of our products, we will be unable to continue in business.
To date, sales of Cobroxin
®
have been limited and inconsistent. Total sales of Cobroxin
®
have been $1,993,373 since the fourth quarter of 2009,
with no significant sales since the second quarter of 2010.
To date, sales of Nyloxin
®
have been limited and inconsistent. During 2011, we sold $66,568 of Nyloxin
®
. During 2012, we sold $199,231 of Nyloxin
®
.
During 2013, we sold $119,898 of Nyloxin
®
. If we cannot achieve sufficient sales levels of our Cobroxin
®
and Nyloxin
®
products or we are unable to secure financing our operations will be negatively affected.
We have a limited history of generating
revenues on which to evaluate our potential for future success and to determine if we will be able to execute our business plan;
accordingly, it is difficult to evaluate our future prospects and the risk of success or failure of our business.
Our total sales of Cobroxin
®
from
November 2009 until December 31, 2013 are $1,995,673. Our total sales of Nyloxin
®
from January 1, 2011 to December
31, 2013 are $385,697. You must consider our business and prospects in light of the risks and difficulties we will encounter as
an early-stage revenue producing company. These risks include:
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our ability to effectively and efficiently market and distribute our products;
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our ability to obtain market acceptance of our current products and future products that may be developed by us; and
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our ability to sell our products at competitive prices which exceed our per unit costs.
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We may be unable to address these risks
and difficulties, which could materially and adversely affect our revenue, operating results and our ability to continue to operate
our business.
Our growth strategy reflected in our
business plan may be unachievable or may not result in profitability.
We may be unable to implement our growth
strategy reflected in our business plan rapidly enough for us to achieve profitability. Our growth strategy is dependent on a number
of factors, including market acceptance of our Cobroxin
®
and Nyloxin
®
products and the acceptance
by the public of using these products as pain relievers. We cannot assure you that our products will be purchased in amounts sufficient
to attain profitability.
Among other things, our efforts to expand
our sales of Cobroxin
®
and Nyloxin
®
will be adversely affected if:
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we are unable to attract sufficient customers to the products we offer in light of the price and other terms required in order for us to attain the level of profitability that will enable us to continue to pursue our growth strategy;
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adequate penetration of new markets at reasonable cost becomes impossible limiting the future demand for our products below the level assumed by our business plan;
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we are unable to scale up manufacturing to meet product demand, which would negatively affect our revenues and brand name recognition;
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we are unable to meet regulatory requirements in the intellectual marketplace that would otherwise allow us for wider distribution; and
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we are unable to meet FDA regulatory requirements that would potentially expand our product base and potential revenues.
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If we cannot manage our growth effectively,
we may not become profitable.
Businesses, which grow rapidly often, have
difficulty managing their growth. If we grow rapidly, we will need to expand our management by recruiting and employing experienced
executives and key employees capable of providing the necessary support. We cannot assure you that our management will be able
to manage our growth effectively or successfully.
Among other things, implementation of our
growth strategy would be adversely affected if we were not able to attract sufficient customers to the products and services we
offer or plan to offer in light of the price and other terms required in order for us to attain the necessary profitability.
If we are unable to protect our proprietary
technology, our business could be harmed.
Our intellectual property, including patents,
is our key asset. We currently have 21 patents that we either own or have the rights to from third parties. 16 of these patents
have been approved and 5 are pending. Competitors may be able to design around our patents for our Cobroxin
®
and
Nyloxin
®
products and compete effectively with us. The cost to prosecute infringements of our intellectual property
or the cost to defend our products against patent infringement or other intellectual property litigation by others could be substantial.
We cannot assure you that:
|
·
|
pending and future patent applications will result in issued patents,
|
|
|
|
|
·
|
patents licensed by us will not be challenged by competitors,
|
|
|
|
|
·
|
our patents, licensed and other proprietary rights from third parties will not result in costly litigation;
|
|
|
|
|
·
|
pending and future patent applications will result in issued patents,
|
|
|
|
|
·
|
the patents or our other intellectual property will be found to be valid or sufficiently broad to protect these technologies or provide us with a competitive advantage,
|
|
|
|
|
·
|
if we are sued for patent infringement, whether we will have sufficient funds to defend our patents, and
|
|
|
|
|
·
|
we will be successful in defending against future patent infringement claims asserted against our products.
|
Should any risks pertaining to the foregoing
occur, our brand name reputation, results of operation and revenues will be negatively affected.
We are subject to substantial FDA regulations
pertaining to Cobroxin
®
and Nyloxin
®
, which may increase our costs or otherwise adversely
affect our operations.
Our Cobroxin
®
and Nyloxin
®
products are subject to FDA regulations, including manufacturing and labeling, approval of ingredients, advertising and other claims
made regarding Cobroxin
®
or Nyloxin
®
, and product ingredients disclosure. If we fail to comply with
current or future regulations, the FDA could force us to stop selling Cobroxin
®
or Nyloxin
®
or require
us to incur substantial costs from adopting measures to maintain FDA compliance.
The inability to provide scientific
proof for product claims may adversely affect our sales.
The marketing of Cobroxin
®
and Nyloxin
®
involves claims that they assist in reducing Stage 2 chronic pain, while Nyloxin
®
Extra
Strength and Nyloxin
®
Military Strength involves claims that they assist in reducing Stage 3 chronic pain. Under
FDA and Federal Trade Commission (“FTC”) rules, we are required to have adequate data to support any claims we make
concerning Cobroxin
®
, Nyloxin
®
and Nyloxin
®
Extra Strength. We have scientific data
for our Cobroxin
®
and Nyloxin
®
product claims; however, we cannot be certain that these scientific
data will be deemed acceptable to the FDA or FTC. If the FDA or FTC requests supporting information and we are unable to provide
support that it finds acceptable, the FDA or FTC could force us to stop making the claims in question or restrict us from selling
the products.
None of our ethical drug candidates
have received FDA approval.
Our non-homeopathic or ethical products
require a complex and costly FDA regulation process that takes several years for drug approval, if ever. None of the drug applications
we have submitted to the FDA have received FDA approval. If we do not receive FDA approval for our drug applications, our operations
and financial condition will be negatively affected.
If we are unable to secure sufficient
cobra venom from available suppliers, our operating results will be negatively affected.
We secure cobra venom on an as-needed basis
according to customer orders for Cobroxin
®
and Nyloxin
®
received by our distributor. If we do not
have an available supplier to fill customer orders, there will be distribution delays and/or our failure to fulfill purchase orders,
either of which will negatively affect our brand name reputation and operating results.
Our Cobroxin
®
and Nyloxin
®
products may be unable to compete against our competitors in the pain relief market.
The pain relief market is highly competitive.
We compete with companies that have already achieved product acceptance and brand recognition, including multi-billion dollar private
label manufacturers and more established pharmaceutical and health products companies, or low cost generic drug manufacturers.
Most such companies have far greater financial and technical resources and production and marketing capabilities than we do. Additionally,
if consumers prefer our competitors’ products, or if these products have better safety, efficacy, or pricing characteristics,
our results could be negatively impacted. If we fail to develop and actualize strategies to compete against our competitors we
may fail to compete effectively, which will negatively affect our operations and operating results.
If we incur costs resulting from product
liability claims, our operating results will be negatively affected.
If we become subject to product liability
claims for Cobroxin
®
and Nyloxin
®
that exceed our product liability policy limits, we may be subject
to substantial litigation costs or judgments against us, which will negatively impact upon our financial and operating results.
Loss of any of our key personnel could
have a material adverse effect on our operations and financial results.
We are dependent upon a limited number
of our employees: (a) our Chief Executive Officer who directs our operations; and (b) ReceptoPharm’s employees who conduct
our research and development activities. Our success depends on the continued services of our senior management and key research
and development employees as well as our ability to attract additional members to our management and research and development teams.
The unexpected loss of the services of any of our management or other key personnel could have a material adverse effect upon our
operations and financial results.
We may be unable to maintain and expand
our business if we are not able to retain, hire and integrate key management and operating personnel.
Our success depends in large part on the
continued services and efforts of key management personnel. Competition for such employees is intense and the process of locating
key personnel with the combination of skills and attributes required to execute our business strategies may be lengthy. The loss
of key personnel could have a material adverse impact on our ability to execute our business objectives. We do not have any key
man life insurance on the lives of any of our executive officers
.
Risks Related to Our Common Stock
Because the market for our common stock
is limited, persons who purchase our common stock may not be able to resell their shares at or above the purchase price paid by
them.
Our common stock trades on the OTCQB, which
is not a liquid market. There is currently only a limited public market for our common stock. We cannot assure you that an active
public market for our common stock will develop or be sustained in the future. If an active market for our common stock does not
develop or is not sustained, the price may decline.
Because we are subject to the “penny
stock” rules, brokers cannot generally solicit the purchase of our common stock, which adversely affects its liquidity and
market price.
The SEC has adopted regulations, which
generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject
to specific exemptions. The market price of our common stock on the OTCQB has been substantially less than $5.00 per share and
therefore we are currently considered a “penny stock” according to SEC rules. This designation requires any broker-dealer
selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser
and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers
to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.
Because the majority of our outstanding
shares are freely tradable, sales of these shares could cause the market price of our common stock to drop significantly, even
if our business is performing well.
As of December 31, 2013, we had 1,004,313,019
outstanding shares that were subject to the limitations of Rule 144 under the Securities Act of 1933. In general, Rule 144 provides
that any our non-affiliates, who have held restricted common stock for at least six-months, are entitled to sell their restricted
stock freely, provided that we stay current in our SEC filings. After one year, a non-affiliate may sell without any restrictions.
An affiliate may sell after one year with
the following restrictions: (i) we are current in ours filings, (ii) certain manner of sale provisions, (iii) filing of Form 144,
and (iv) volume limitations limiting the sale of shares within any three-month period to a number of shares that does not exceed
1% of the total number of outstanding shares. A person who has ceased to be an affiliate at least three months immediately preceding
the sale and who has owned such shares of common stock for at least one year is entitled to sell the shares under Rule 144 without
regard to any of the limitations described above.
An investment in our common stock may
be diluted in the future as a result of the issuance of additional securities or the exercise of options or warrants.
In order to raise additional capital to
fund our strategic plan, we may issue additional shares of common stock or securities convertible, exchangeable or exercisable
into common stock from time to time, which could result in substantial dilution to any person who purchases our common stock. Because
we have a negative net tangible book value, purchasers will suffer substantial dilution. We cannot assure you that we will be successful
in raising funds from the sale of common stock or other equity securities.
Since we intend to retain any earnings
for development of our business for the foreseeable future, you will likely not receive any dividends for the foreseeable future.
We have not and do not intend to pay any
dividends in the foreseeable future, as we intend to retain any earnings for development and expansion of our business operations.
As a result, you will not receive any dividends on your investment for an indefinite period of time.
Due to factors beyond our control, our
stock price may continue to be volatile.
The market price of our common stock has
been and is expected to be highly volatile. Any of the following factors could affect the market price of our common stock:
|
·
|
our failure to generate revenue,
|
|
·
|
our failure to achieve and maintain profitability,
|
|
·
|
short selling activities,
|
|
·
|
the sale of a large amount of common stock by our shareholders including those who invested prior to commencement of trading,
|
|
·
|
actual or anticipated variations in our quarterly results of operations,
|
|
·
|
announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments,
|
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·
|
the loss of major customers or product or component suppliers,
|
|
·
|
the loss of significant business relationships,
|
|
·
|
our failure to meet financial analysts’ performance expectations,
|
|
·
|
changes in earnings estimates and recommendations by financial analysts, or
|
|
·
|
changes in market valuations of similar companies.
|
In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation has often been instituted. A securities
class action suit against us could result in substantial costs and divert our management’s time and attention, which would
otherwise be used to benefit our business.
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
As of February 1, 2013, we leased approximately
2,000 square feet at 12502 West Atlantic Blvd, Coral Springs, Florida. Our offices are comprised of a reception area, conference
room, 3 offices, 2 restrooms and 2 cubicle workstations. Our offices are adequate for our needs. Our lease term is for a period
of 3 years. We currently pay monthly rent of approximately $3,800. We formerly leased approximately 3,235 square feet of office
space at 2776 University Drive, Coral Springs, Florida from February 1, 2010 through January 31, 2013.
Since May 13, 2004, ReceptoPharm has leased
their office space at 1537 NW 65
th
Avenue, Plantation, Florida for three consecutive two-year terms. ReceptoPharm's
5,500 square foot facilities include a reception area, conference room and five offices, a warehouse and a laboratory. On May 10,
2010 ReceptoPharm renewed the lease with Shelter Developers of America (“Shelter”) for the last two-year term beginning
on June 1, 2010 and ending May 31, 2012. On July 9, 2012 ReceptoPharm entered into a new lease agreement for a five year period
beginning on August 1, 2012. The lease calls for monthly payments for year 1 in the amount of $5,617, which includes base rent,
common area expenses, real estate taxes and insurance.
Item 3. Legal Proceedings
OTC: BB Delinquency Notification
On May 7, 2012, our securities were removed
from quotation on the OTC Bulletin Board (“OTCBB”) as a result of our failure to file our annual report, Form 10-K,
by the due date of May 17, 2012, which included the 30-day grace period allowed. We were also delinquent in the filing of our first
quarter 10-Q report for the three months ended March 31, 2012, which was due on May 22, 2012, including the 5-day extension. Pursuant
to National Association of Securities Dealers (“NASD”) Rule 6530, OTCBB issuers that are cited for filing delinquency
three times in a 24-month period and those removed for failure to file two times in a 24-month period will be ineligible for quotation
by an NASD member and shall not be eligible for quotation until the issuer has timely filed in a complete form all required annual
and quarterly reports due in a one-year period. As of December 5, 2012 we have been current in all of our filing requirements.
As such, we are now listed on the OTC Markets as an OTCQB company.
Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen,
Inc.
On August 18, 2006, ReceptoPharm was named
as a defendant in
Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.
, Index No.: 18247/06 (New York Supreme
Court, Queens County). The original proceeding claimed that ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to own, the sum of $118,928.15 plus interest and
counsel fees on a series promissory notes that were allegedly executed in 2001 and 2002. On August 23, 2007, the Queens County
New York Supreme Court issued a decision denying Plaintiffs motion for summary judgment in lieu of a complaint, concluding that
there were issues of fact concerning the enforceability of the promissory notes. On May 23, 2008, the Plaintiffs filed an amended
complaint in which they reasserted their original claims and asserted new claims seeking damages of no less than $768,506 on their
claims that in or about June 2004 ReceptoPharm breached its fiduciary duty to the Plaintiffs as shareholders of ReceptoPharm by
wrongfully canceling certain of their purported ReceptoPharm share certificates. In late 2010, Plaintiffs further amended their
complaint alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights by cancelling an additional 1,214,800
share certificates and failing to permit the Plaintiffs to exercise dissenting shareholder rights with respect to those share certificates.
The damages associated with the Plaintiff’s claims could rise as the result of increases in our share price as the Receptopharm
shares may be convertible into our common shares. The potential exposure may exceed $10,000,000 if the Plaintiffs are successful
with all of their claims.
ReceptoPharm believes the suit is without
merit and has filed an answer denying the material allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, breach of fiduciary duty, conversion and unjust enrichment
as a result of the promissory notes. Plaintiffs have moved for partial summary judgment on their claims regarding the additional
1,214,800 shares, but not on their claims regarding the alleged promissory notes or the 1,750,000 alleged shares. In August of
2011, the Plaintiff's motion was partially granted. In September 2012, ReceptoPharm's attorneys filed a Motion to be removed as
counsel. Their motion is currently being considered. ReceptoPharm is seeking new counsel to oppose the partial summary judgment.
We intend to vigorously contest this matter.
Liquid Packaging Resources, Inc. v. Nutra Pharma Corp. and
Erik "Rik" Deitsch
On April 21, 2011, Nutra Pharma Corp. and
its CEO, Erik Deitsch, were named as defendants in
Liquid Packaging Resources, Inc. v. Nutra Pharma Corp. and Erik "Rik"
Deitsch
, Superior Court of Fulton County, Georgia, Civil Action No. 2011-CV-199562. Liquid Packaging Resources, Inc. ("LPR")
claimed that Nutra Pharma Corp. and Mr. Deitsch, directly or through other companies, placed orders with LPR that required LPR
to purchase components from third parties. LPR sought reimbursement for those third party expenses in the amount of not less than
$359,826.85 plus interest. LPR also sought punitive damages in the amount of not less than $500,000 and attorney's fees.
The Company and Mr. Deitsch then removed
the action to the United States District Court, Northern District of Georgia, Civil Action No. 11-CV-01663-ODE. After removal,
LPR amended the Complaint to assert that Nutra Pharma Corp. and Mr. Deitsch were the alter egos of the alleged other companies
through whom the subject orders were placed and therefore should be considered one and the same. The Company and Mr. Deitsch moved
to dismiss the Complaint on several grounds including statute of frauds, failure to state a claim, and jurisdiction (only for Mr.
Deitsch). The Company and Mr. Deitsch believe the suit is without merit.
After June 30, 2011, at LPR's request,
the parties mediated the dispute before LPR responded to the Motion To Dismiss. At the mediation, the parties worked out an agreement
whereby we would purchase from LPR the components LPR purchased from third parties at an amount slightly less than the principal
amount of the suit and on terms acceptable to us. The agreed price was $350,000.00 payable over 7 months in equal $50,000.00 amounts.
This agreement was reached by us because it provided tangible value in exchange for the purchase price rather than incurring the
expense of litigation, which would likely be substantial and not recouped. While we had counterclaims we could assert, we believe
this was a practical resolution. The settlement allowed us to take possession of the components prior to full payment and, in exchange,
provided security to LPR in the form of our stock valued at $400,000 at the time of issuance. The stock can only be sold in event
of a default of the payment schedule. The litigation was dismissed in August of 2011. We made the August, September and November
payments (totaling $150,000) in a timely fashion. We were late for the payment due October 15, 2011 and requested an accommodation
from LPR, eventually paying an extra $5,000 towards that payment. At December 31, 2011, we had made total payments of $205,000
with an additional $150,000 owed. In order to allow us to skip the December payment, LPR agreed to another accommodation whereby
we would pay both the December and January payment with an additional $10,000 on or before January 16, 2012. We were unable to
make this payment and on January 26, 2012 signed an amended payment schedule adding an additional $15,000 for a total of $175,000
owed. Our CEO, Rik Deitsch, added additional collateral stock in a separate company that he held personally. $25,000 was paid in
January, with subsequent payments of $30,000 due monthly on the 15th of March through the 15th of July, 2012. We failed to make
the March payment and was subsequently called in default of the Agreement. Under the original agreement, if we are in default of
the agreement, LPR has the right to sell shares of our free trading stock held in escrow by their attorney and receive cash settlements
for a total amount of $450,000 representing the new total cash amount due to LPR by the Company.
On June 11, 2012, LPR sold their debt
to Southridge Partners, LLP in an agreement to be paid out over time. In August, 2013, LPR cancelled their agreement with Southridge
Partners, LLP. As of December 31, 2013 LPR continues to hold the collateral stock. We are currently negotiating a settlement
with LPR. Upon the settlement of the outstanding debt, LPR will return the collateral shares to the Company.
Involuntary Petition of Bankruptcy
On August 31, 2012, certain former ReceptoPharm
employees and a former ReceptoPharm consultant filed a Petition for Involuntary Bankruptcy against us in the United States Bankruptcy
Court, Southern District of Florida. The Petitioners originally claimed they were owed $990,927 from Nutra Pharma in the form
of accrued wages and promissory notes, but amended their claim to $816,662 in a subsequent filing. In response to the Petition,
we filed a motion to dismiss the action which, if successful, would avoid the case being converted into an actual bankruptcy action.
On September 30, 2013, the Company entered into a Settlement Agreement with the Petitioners, which is effective upon the court
dismissal of the action. In full and final satisfaction of all claims, the Company settled the Agreement with the Petitioners
for a total sum of $350,000. $35,000 has been paid and a second lump sum payment is due within 8 months from February 12,
2014, the date the court dismissed the action. The Parties executed mutual releases exclusive of releases under the Settlement
Agreement.
Laurence N. Raymond v. Receptopharm,
Inc. et al.
On December 30, 2011 Laurence N. Raymond
("Raymond") brought the case against Receptopharm, Inc. ("Receptopharm") and Nutra Pharma to recover approximately
$300,000 that was allegedly either loaned to Receptopharm or owing to Raymond pursuant to an oral employment agreement. Dr. Raymond
is one of the petitioning creditors that brought the above-described involuntary bankruptcy action. The settlement agreement reached
in that action fully resolves all claims between the parties and specifies that this action will be dismissed with prejudice.
Paul F. Reid v, Harold H. Rumph et al.
On December 28, 2011 Paul F. Reid ("Reid")
brought the case against Harold H. Rumph ("Rumph"), Receptopharm, and Nutra Pharma to recover approximately $330,000
that was allegedly either loaned to Receptopharm or owing to Reid pursuant to an oral employment agreement. Dr. Reid is one of
the petitioning creditors that brought the above-described involuntary bankruptcy action. The settlement agreement reached in that
action fully resolves all claims between the parties and specifies that this action will be dismissed with prejudice.
Item 4. Mine Safety Disclosures
None
PART II
Item 5. Market for Registrant’s Common Equity; Related
Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted on the over-the-counter
(“OTCQB”) under the trading symbol "NPHC". The following table sets forth the high and low bid prices for
each quarter within the last two fiscal years.
|
|
2012 Fiscal Year
|
|
|
|
High Bid
|
|
|
Low Bid
|
|
First Quarter
|
|
$
|
0.04
|
|
|
$
|
0.0121
|
|
Second Quarter
|
|
$
|
0.0185
|
|
|
$
|
0.009
|
|
Third Quarter
|
|
$
|
0.018
|
|
|
$
|
0.006
|
|
Fourth Quarter
|
|
$
|
0.041
|
|
|
$
|
0.0125
|
|
|
|
2013 Fiscal Year
|
|
|
|
High Bid
|
|
|
Low Bid
|
|
First Quarter
|
|
$
|
0.013
|
|
|
$
|
0.0065
|
|
Second Quarter
|
|
$
|
0.0091
|
|
|
$
|
0.0038
|
|
Third Quarter
|
|
$
|
0.0254
|
|
|
$
|
0.0038
|
|
Fourth Quarter
|
|
$
|
0.02
|
|
|
$
|
0.0071
|
|
The above quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent actual transactions.
Penny Stock Considerations
Our shares of common stock are "penny
stocks" as that term is generally defined in the Securities Exchange Act of 1934 as equity securities with a price of less
than $5.00. Our shares are subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage
in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer
selling a penny stock to anyone other than an established customer or "accredited investor" must make a special suitability
determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless
the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 individually or $300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations
the broker-dealer is required to:
|
·
|
Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
|
|
·
|
Disclose commission payable to the broker-dealer and its registered representatives and current bid and offer quotations for the securities;
|
|
·
|
Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks; and
|
|
·
|
Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account.
|
Because of these regulations, broker-dealers
may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of shareholders to
sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market.
These additional sales practice and disclosure requirements could impede the sale of our securities. In addition, the liquidity
for our securities may be adversely affected, with a corresponding decrease in the price of our securities. Our shares are subject
to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.
Holders
As of March 31, 2014, based upon records
obtained from our transfer agent, there were 262 holders of record of our common stock. Our transfer agent records does not account
for other holders of our common stock that are held in street name or by broker dealers as custodian for individual holders of
our stock. We have one class of common stock outstanding.
Dividends
We have not declared any cash dividends
on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain
any future earnings for use in our business. Any decisions as to future payment of dividends will depend on our earnings and financial
position and such other factors as our Board of Directors deems relevant. There are no restrictions contained in our bylaws or
otherwise pertaining to our issuing dividends.
Equity Compensation Plans
Securities authorized per issuance under Equity Compensation
Plans as of December 31, 2013 and 2012 are as follows:
Equity Compensation Plan Information
|
|
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
|
|
Plan category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by security holders
|
|
|
0
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
$
|
0.10
|
|
|
|
255,000
|
|
Total
|
|
|
0
|
|
|
$
|
0.10
|
|
|
|
255,000
|
|
The figures contained in the above chart
are composed of our 2003 and 2007 Employee /Consultant Stock Compensation Plans and two (2) option agreements we have with a corporate
entity and our former Chairman of the Board/Executive Chairman, as follows:
2003 Plan
On December 3, 2003, our Board of Directors
approved the Employee/Consultant Stock Compensation Plan (the "2003 Plan"). The purpose of the 2003 Plan is to further
our growth by allowing us to compensate employees and consultants who have provided bona fide services to us through the award
of our common stock. The maximum number of shares of common stock that may be issued under the 2003 Plan is 2,500,000. As of December
31, 2013 and 2012, we had issued a total of 2,495,000 shares under the 2003 Plan.
2007 Plan
On June 6, 2007, our Board of Directors
approved the 2007 Employee/Consultant Stock Compensation Plan (the "2007 Plan"). The purpose of the 2007 Plan is to further
our growth by allowing us to compensate employees and consultants who have provided bona fide services to us through the award
of our common stock. The maximum number of shares of common stock that may be issued under the 2007 Plan is 25,000,000. As of December
31, 2013 and 2012, we had issued a total of 24,750,000 shares under the 2007 Plan.
Our Board of Directors is responsible for
the administration of the 2003 and 2007 Plans and has full authority to grant awards under the Plans. Awards may take the form
of stock grants, options or warrants to purchase common stock. The Board of Directors has the authority to determine: (a) the employees
and consultants that will receive awards under the Plan, (b) the number of shares, options or warrants to be granted to each employee
or consultant, (c) the exercise price, term and vesting periods, if any, in connection with an option grant, and (d) the purchase
price and vesting period, if any, in connection with the granting of a warrant to purchase shares of our common stock.
Recent Sales of Unregistered Securities
With respect to the securities issuances
described below, no solicitations were made and no underwriting discounts were given or paid in connection with these transactions.
The Company believes that the issuance of these securities as described below were exempt from registration with the Securities
and Exchange Commission pursuant to Section 4(2) of the Securities Act of 1933.
Private Placements of Common Stock
In January 2014, the Company sold 12,000,000
shares of restricted common stock to an investor at a price per share of $0.005 and received proceeds of $60,000. The Company issued
12,000,000 warrants to purchase common stock at an exercise price of $0.03 per share. The warrants expire on December 31, 2015.
In December 2013, the Company sold 10,000,000
shares of restricted common stock to an investor at a price per share of $0.005 and received proceeds of $50,000. The Company issued
10,000,000 warrants to purchase common stock at an exercise price of $0.03 per share. The warrants expire on December 31, 2015.
In October and November of 2013, the Company
sold an aggregate of 11,000,000 shares of restricted common stock to five investors at a price per share range from $0.002 to $0.015
and received proceeds of $45,000. The Company issued a total of 1,000,000 warrants to purchase common stock at an exercise price
of $0.10 per share. The warrants expire on December 31, 2014.
In the third quarter of 2013, the Company
sold an aggregate of 21,000,000 shares of restricted common stock to two investors at a price per share range from $0.001 to $0.0042
and received proceeds of $45,000.
Shares Issued to Employees and Directors
On November 22, 2013, the Board of Directors approved a resolution
for the issuance of a total of 34,630,000 shares of the Company’s restricted common stock to directors and employees of the
Company. The issuance was valued at $484,820 ($0.014 per share), which was the fair value of the Company’s common stock on
the date of issuance.
On September 3, 2013, the Board of Directors approved a resolution
for the issuance of 1,000,000 shares of the Company’s restricted common stock to an employee of the Company. The issuance
was valued at $22,900 ($0.0229 per share), which was the fair value of the Company’s common stock on the date of issuance.
Common Stock Issued for Services
During November, 2013, the Company issued 1,000,000 shares of
the Company’s restricted common stock to a consultant for investor relation services for two months. The shares were valued
at $17,500 ($0.0175 per share), which was the fair value of the Company’s common stock on the date of issuance.
During October, 2013, the Company issued 15,000,000 shares of
the Company’s restricted common stock to a consultant for investor relation services for three months. The shares were valued
at $267,000 ($0.0178 per share), which was the fair value of the Company’s common stock on the date of issuance.
During September, 2013, the Company issued 1,500,000 shares
of the Company’s restricted common stock to a consultant for consulting services rendered. The shares were valued at $24,000
($0.016 per share), which was the fair value of the Company’s common stock on the date of issuance.
During September, 2013, the Company issued
a total of 1,500,000 shares of the Company’s restricted common stock to two consultants for consulting services rendered.
The shares were valued at $34,350 ($0.0229 per share), which was the fair value of the Company’s common stock on the date
of issuance.
During August, 2013, the Company issued a total of 6,000,000
shares of the Company’s restricted common stock to two consultants for investor relation services for six months. The shares
were valued at $103,800 ($0.0173 per share), which was the fair value of the Company’s common stock on the date of issuance.
During August, 2013, the Company issued 2,000,000 shares of
the Company’s restricted common stock to a consultant for investor relation services for one year. The shares were valued
at $24,000 ($0.012 per share), which was the fair value of the Company’s common stock on the date of issuance.
During August, 2013, the Company issued
2,000,000 shares of the Company’s restricted common stock to a consultant for consulting services for six months. The shares
were valued at $11,200 ($0.0056 per share), which was the fair value of the Company’s common stock on the date of issuance.
During July, 2013, the Company issued 2,000,000
shares of the Company’s restricted common stock to a consultant for consulting services for six months. The shares were valued
at $8,400 ($0.0042 per share), which was the fair value of the Company’s common stock on the date of issuance.
During July, 2013, the Company issued 100,000
shares of the Company’s restricted common stock to a consultant for consulting services rendered. The shares were valued
at $420 ($0.0042 per share), which was the fair value of the Company’s common stock on the date of issuance.
During July 2013, the Company signed an
agreement with a consultant for investor relation services for three months. A $30,000 convertible note convertible at $0.005 per
share was also issued (See Note 5). The Company also paid a total of $10,000 cash and issued a total of 15,000,000 shares of company’s
restricted common stocks. The shares were valued at $85,500 ($0.0057 per share), which was the fair value of the Company’s
common stock on the date of issuance.
During June, 2013, the Company issued 2,000,000 shares of the
Company’s restricted common stock to a consultant for investor relation services for six months. The shares were valued at
$8,400 ($0.0042 per share), which was the fair value of the Company’s common stock on the date of issuance.
During May, 2013, the Company issued 1,000,000 shares of the
Company’s restricted common stock to a consultant for investor relation services for six months. The shares were valued at
$5,300 ($0.0053 per share), which was the fair value of the Company’s common stock on the date of issuance.
During February, 2013, the Company issued
8,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for a year. The
shares were valued at $64,000 ($0.0080 per share), which was the fair value of the Company’s common stock on the date of
issuance.
During February 2013, the Company issued
1,500,000 shares of the Company’s restricted common stock to a consultant for investor relation services for two months.
The shares were valued at $10,500 ($0.0070 per share), which was the fair value of the Company’s common stock on the date
of issuance.
During February 2013, the Company issued
a total of 3,000,000 shares of the Company’s restricted common stock to three consultants for marketing services for six
months. The shares were valued at $27,000 ($0.009 per share), which was the fair value of the Company’s common stock on the
date of issuance.
During January, 2013, the Company issued
10,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for a year. The
shares were valued at $50,000 ($0.005 per share), which was the fair value of the Company’s common stock on the date of issuance.
Common Stock Issued for Debt Modification
On April 30, 2013, the Company amended
the maturity dates of two notes of $250,000 each (aggregating $500,000) from two non-related parties to November 3, 2013. The Company
issued a total of 4,000,000 restricted shares to the note holders in connection with the amendment at a fair value of $20,800.
On October 30, 2013 and January 23, 2014, the parties amended the note of $75,000 and $150,000 to further extend the maturity dates
to May 3, 2014 and August 3, 2014. The Company issued a total of 500,000 and 1,250,000 restricted shares to the note holders in
connection with the amendment at a fair value of $9,500 and $13,750, respectively (See Note 5).
On November 1, 2013, the Company amended the maturity dates
of notes $150,000 from a non-related party to August 3, 2014. The Company issued a total of 1,250,000 restricted shares to the
note holder per the amendment at a fair value of $13,750.
On January 17, 2014, the Company issued a total of 1,000,000
restricted shares to the Michael McDonald Trust due to the default on repayment of the promissory note of $75,000. The shares were
value at a fair value of $9,900.
Common Stock Issued with Promissory Note
In July 2013, in connection with the issuance
of this promissory note to Michael McDonald Trust in the amount of $75,000 which is due in six months from the funding of the note,
the Company issued 1,000,000 shares of the Company's common stocks with a fair value of $3,977.
Common Stock Held in Escrow
On July 27, 2011 the Company issued 5,714,286
shares of free trading common stock in certificate form which is held in escrow as security under an agreement reached with Liquid
Packaging Resources, Inc. (“LPR”) on August 2, 2011(See note 3 and 5).
Common Stock Issued for Settlement of Accounts Payable &
Debt
Following the agreements with Coventry
Enterprises, LLC (see Note 3) for $80,000, Coventry converted the note for a total of 15,119,481 shares of the company’s
restricted stock during the first quarter of 2013 satisfying the notes in full.
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $88,500, Coventry converted the note for a total of 31,416,845 shares of the company’s restricted stock
during the second quarter of 2013 satisfying the notes in full.
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $60,000, Coventry made the conversion for a total of 27,272,727 shares of the company’s restricted stock
during the second quarter of 2013 satisfying the notes in full.
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $20,000, Coventry made the conversion for a total of 8,810,572 shares of the company’s restricted stock
during September 2013 satisfying the notes in full.
During June and August, 2013, one of the convertible Notes holders
converted a total of 34,254,004 shares of the company’s restricted stock satisfying the notes in the amount of $125,000 with
a fair value of $317,391 on the date of conversion (See Note 5).
During August and September, 2013,
$150,000
of
the convertible notes were assigned to third parties in the form bearing interest of 8% annum at with a conversion price
for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common Stock for
the 3 trading days with the lowest volume weighted average prices during the 15 to 20 trading days immediately preceding the Conversion
Date. Immediately following the assignments, the conversions for a total of 64,052,862 shares of the company’s restricted
stock were made in satisfying the notes of $150,000 (See Note 5).
On September 16, 2013, one of the non-related
party promissory note holders accepted a total of 8,472,750 shares of the Company’s restricted common stock as a repayment
to discharge $25,000 of his outstanding loan and accrued interest of $11,120 with the Company (See note 5).
On November 25, 2013, one of the non-related
party promissory note holders accepted a total of 4,360,000 shares of the Company’s restricted common stock as a repayment
to discharge $25,000 of his outstanding loan and accrued interest of $11,956 with the Company (See note 5).
During September, 2013, Mr. Harold H. Rumph
(ReceptoPharm’s CEO) accepted 14,800,000 shares of the Company’s restricted common stock as a repayment to discharge
$37,000 of his accrued salary to the Company (See Note 3).
During June and September, 2013, Mr. Deitsch
(Our CEO) accepted a total of 50,000,000 shares of the Company’s restricted common stock as a repayment to discharge $162,500
of his outstanding loan to the Company (See note 4).
During August and September, 2013, the
Company issued 3,000,000 shares of the company’s restricted stock to settle the outstanding accounts payable in aggregate
of $38,528 with two vendors. The shares were valued at $0.018 per share (See Note 3).
During September, 2013, the Company issued
25,000,000 shares of the company’s restricted stock and 25,000,000 warrants to purchase stock at an exercise price of $0.030
to settle the outstanding accounts payable of $112,621. The shares were valued at $0.015 per share (See Note 3).
Following the agreements with Coventry Enterprises, LLC for
$70,000 in September 2013, Coventry converted the $60,000 of the note for a total of 15,584,415 shares of the company’s restricted
stock during on March 12, 2014. The remaining balance of the note is $10,000.
Following the agreements with Coventry Enterprises, LLC for
$100,000 in September 2013, Coventry converted the $90,000 of the note for a total of 23,376,623 shares of the company’s
restricted stock during on March 12, 2014. The remaining balance of the note is $10,000.
Item 6. Selected Financial Data
As a Smaller Reporting Company, we are not required to provide
information required by Item 6.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Critical Accounting Policies and Estimates
In preparing the consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America (U.S. GAAP), we have adopted various accounting policies.
Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements.
The preparation of the consolidated financial
statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Our estimates and assumptions, including those related to the ability to continue
as going concern, legal proceedings, the recoverability of inventory, long-lived assets, the fair value of stock-based compensation
and the fair value of warrant liabilities are updated as appropriate, which in most cases is at least quarterly. We base our estimates
on historical experience, or various assumptions that are believed to be reasonable under the circumstances and the results form
the basis for making judgments about the reported values of assets, liabilities, revenues and expenses. Actual results may materially
differ from these estimates.
Estimates are considered to be critical
if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at
the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material
changes in the estimates are reasonably likely to occur from period to period. Our critical accounting estimates include the following:
Revenue Recognition:
In general,
we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred,
the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Provision for sales returns
will be estimated based on the Company's historical return experience.
Accounts Receivable and Allowance for
Doubtful Accounts:
Our accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised
of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical
trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.
Inventory Obsolescence:
Inventories
are valued at the lower of average cost or market value. We periodically perform an evaluation of inventory for excess, impairments
and obsolete items. At December 31, 2013 our inventory consisted entirely of raw materials that are utilized in the manufacturing
of finished goods. These raw materials generally have expiration dates in excess of 10 years.
Long-Lived Assets:
The carrying
value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may suggest
impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows
attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment
based on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the
use and eventual disposal of the impaired assets.
Derivative Financial Instrument:
We
do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all
of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, we use the Black-Scholes option-pricing model to value the derivative
instruments at inception and subsequent valuation dates. For complex embedded derivatives, we use a Dilution-Adjusted Black-Scholes
method to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not
net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Share-Based Compensation:
We record
share-based compensation in accordance with FASB ASC 718, Stock Compensation. FASB ASC 718 requires that the cost resulting from
all share-based transactions are recorded in the financial statements over the respective service periods. It establishes fair
value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based
measurement in accounting for share-based payment transactions with employees. FASB ASC 718 also establishes fair value as the
measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment
transactions.
Accomplishments During 2013
On January 31, 2013 we relocated to our
new corporate headquarters in the Lakeside Professional Village in Coral Springs, Florida. Our offices are comprised of a reception
area, conference room, 3 offices, 2 restrooms, a break area and 2 cubicle workstations. These facilities are saving us more than
$70,000 in annual costs and are more than adequate for our purposes.
On March 28, 2013 we announced that we
had received notification that our patent for our pain drug and our trademarks for Nyloxin
®
had been published in
India's Official Journal. The patent, "Use of Cobratoxin as an Analgesic," was published in the Official Journal No.:
09/2013 of the Indian Patent Office (IPO) on March 1, 2013. The Trademarks for Nyloxin™ are registered in India under Class
5, which represents a Pharmaceutical or a dietetic substances adapted for medical use. This allows for patent and brand protection,
leading to eventual sales through Indian distributors.
In April 2013, we created a portal website
for Nyloxin
®
Distribution to a buyer's club, Freedom 10. The Freedom 10 group is able to buy our products at a discount
based on the volume of products sold.
On June 10, 2013, we announced a Licensing
Agreement for the marketing and distribution of our original product, Cobroxin
®
with Cobra Pharmaceuticals. The
terms of the licensing agreement state that Cobra Pharmaceuticals will be responsible for marketing, distribution, inventory control
and customer service of Cobroxin
®
. They will maintain exclusive rights in perpetuity provided that they maintain
minimum quarterly sales that increase over time.
On June 18, 2013, we announced that New
Vitality, a marketing and distribution company, had begun a test radio campaign to gauge the market acceptance of Nyloxin
®
.
The 60-second ads ran for several weeks on radio stations throughout the United States. As a result of positive testing, New Vitality
will be adding Nyloxin to their e-commerce website as they continue to advertize the product.
On June 24, 2013, we announced the launch
of our new homeopathic formula for the treatment of chronic pain in companion animals, Pet Pain-Away. Pet Pain-Away is a homeopathic,
non-narcotic, non-addictive, over-the-counter pain reliever, primarily aimed at treating moderate to severe chronic pain in companion
animals. It is specifically indicated to treat pain from hip dysplasia, arthritis pain, joint pain, and general chronic pain in
dogs, cats and horses.
On August 19, 2013, we provided an update
on our efforts to register Nyloxin
®
with US Governmental agencies. In December 2012, we had announced that we were
introducing a stronger version of Nyloxin
®
to be called Nyloxin
®
Military Strength. we are registering
the Nyloxin
®
Military Strength as well as Nyloxin
®
and Nyloxin
®
Extra Strength with
US government agencies that will allow for the eventual sales and distribution of these products into the active military, US military
base stores and foreign embassies.
On August 22, 2013, we announced that we
had begun the process of registering our homeopathic treatment for chronic pain, Nyloxin
®
, in the country of South
Africa. We stated a goal to begin marketing in South Africa by mid-2014.
On August 29, 2013, we announced that
New Vitality, a marketing and distribution company, had placed and received their first order of the Company's all-natural, non-addictive
pain reliever, Nyloxin
®
. The order was pursuant to New Vitality's successful test radio campaign to gauge the market
acceptance of the product.
On October 08, 2013, we provided updates
on the sales and marketing activities of TCN, a distributor of Nutra Pharma's over-the-counter (OTC) pain reliever, Nyloxin
®
.
We announced the launch of TCNs global marketing and distribution campaign for Nyloxin
®
. In September 2012, we
had announced the beginning of distribution efforts by the TCN group of direct distributors. Since that time, TCN has worked diligently
to introduce Nyloxin
®
to approximately 40,000 distributors in the United States and almost 400,000 distributors
globally. In August 2013, TCN re-launched their company as the "True Cash Network" and have subsequently expanded their
internet presence. They have been working to overhaul their product offerings and have allowed their distributors personal websites
under their
www.MyNyloxin.com
portal. Additionally, TCN has scheduled marketing efforts in the US that will include internet,
radio and television.
On Oct 30, 2013, we announced that we were
in the process of launching the newest addition to our line of homeopathic treatments for chronic pain,
Equine Nyloxin
®
,
a topical therapy for horses that is packaged as a two piece kit:
Nyloxin® Topical Gel
comprises Step 1 and a solution
of DMSO (dimethylsulfoxide) comprises Step 2.
On November 11, 2013, we announced that
New Vitality, a marketing and distribution company, had begun filming a commercial for Nyloxin
®
. Photos from the
shoot were published to Nutra Pharma's Facebook page. The 2-minute infomercial is expected to run sometime in early 2014.
On December 2, 2013, we announced that
MyNyloxin, a new Network Marketing company, will have the exclusive rights to market and distribute Nyloxin
®
in
the Network Marketing channel. We continue to market the products through our retail and Direct Response distributors.
On December 6, 2013, we announced the launch
of the MyNyloxin.com website. The website allows for product sales and information as well as allowing distributors to sign up
and view the Network Marketing opportunity.
On January 7, 2014, we announced the initial
shipment of products and payments of commissions to MyNyloxin Distributors. The Network Marketing opportunity is being aggressively
pursued and is expected to grow throughout 2014.
Results of Operations
Status of Operations
Due to our poor cash position, lack of
significant sales and inability to obtain financing, we have been unable to fully fund our operations since October 2011, including paying salaries for Nutra Pharma and ReceptoPharm employees. Paul Reid, PhD resigned as ReceptoPharm’s Chief
Executive Officer in November 2011. Since that time our Director, Harold Rumph, has filled the role in handling ReceptoPharm's
day-to-day operations, which presently are limited to accepting venom samples for validation, maintaining records for quality
control, quality assurance and administrative duties consisting of paying ReceptoPharms bills. As noted in previous filings, we
have been unable to proceed with ReceptoPharm’s studies since June, 2010; therefore, until we receive adequate financing
or increased sales revenue, we have placed our drug development activities on hold and will focus all of our efforts on promoting
our products that are already available in the marketplace.
We estimate that we will require approximately
$600,000 to fund our existing operations and the operations of our subsidiaries ReceptoPharm and Designer Diagnostics over the
next twelve months. These costs include: (i) compensation for three (3) full-time employees; (ii) compensation for various consultants
who we deem critical to our business; (iii) general office expenses including rent and utilities; (iv) product liability insurance;
and (v) outside legal and accounting services. These costs reflected in (i) – (v) do not include research and development
costs or other costs associated with clinical studies.
We began generating revenues from the
sale of Cobroxin
®
in the fourth quarter of 2009 and from the sale of Nyloxin
®
and Nyloxin
®
Extra Strength in January of 2011. Sales have been limited and inconsistent. Our ability to meet our future operating expenses
is highly dependent on the amount of such future revenues. Future revenues from the sale of Cobroxin
®
and Nyloxin
®
are insufficient to cover our operating expenses and we may need to raise additional equity capital, which could result
in substantial dilution to existing shareholders. There can be no assurance that we will be able to raise sufficient equity capital
to fund our working capital requirements on terms acceptable to us, or at all. We may also seek additional loans from our officers
and directors; however, there can be no assurance that we will be successful in securing such additional loans.
Comparison of Years Ended December 31,
2013 and 2012
Sales for the year ended December 31, 2013
were $122,198 compared to $203,290 for the comparable period in 2012. All of the sales in 2013 and 2012 were related to product
sales. The decrease in sales is primarily attributable to an overall decrease in sales of Nyloxin
®
.
Cost of sales for the year ended December
31, 2013 and 2012 was $41,165 and $147,647. Cost of sales includes the direct costs associated with manufacturing, shipping and
handling costs, and write offs of Venom during 2012. Our gross profit margin for the year ended December 31, 2013 was $81,033 or
66.3% compared to $55,643 or 27.4% for the year ended December 31, 2012. The increase in our profit margin is due primarily to
the write offs of venom of $117,800 at December 31, 2012.
Selling, general and administrative expenses
(“SG&A”) decreased $214,271 or 8.1% from $2,656,742 for the year ended December 31, 2012 to $2,442,471 for the
year ended December 31, 2013. Our SG&A expenses include office expenses such as rent and utilities, product liability insurance
and outside legal and accounting services, and also include stock based compensation, which decreased $407,482 or 22.6% from $1,799,461
for the year ended December 31, 2012 to $1,391,979 for the year ended December 31, 2013. The decrease of $407,482 in stock based
compensation was offset by overall increase of $193,211 in payroll, marketing and promotional expenses, consulting and legal fees.
Interest expense increased $3,904 or 2.5%,
from $153,472 for the year ended December 31, 2012 to $157,376 for the comparable 2013 period. This increase was due
to an overall increase in short term indebtedness for the year ended December 31, 2013 compared to the year ended December 31,
2012.
We carry certain of our debentures and
common stock warrants at fair value. For the year ended December 31, 2013 and 2012, the liability related to these hybrid instruments
fluctuated, resulting in a loss of $1,135,677 and $400,488, respectively.
Loss on settlement of debt and accounts
payable increased $231,181 or 50.6%, from $457,292 for the year ended December 31, 2012 to $688,473 for the comparable 2013 period. This
increase was due to an overall increase in settlement of debts and accounts payable through issuance of stocks for the year ended
December 31, 2013 compared the year ended December 31, 2012.
Our net loss increased by $730,613 or 20.2%,
from $3,612,351 for the year ended December 31, 2012 to $4,342,964 for the year ended December 31, 2013.
Liquidity and Capital Resources
During December 31, 2013 and 2012, respectively,
we have negative cash from operations of approximately $0.6 million and $0.7 million. Our lack of cash, significant losses and
working capital and stockholders’ deficits raise substantial doubt about our ability to continue as a going concern. For
the years ended December 31, 2013 and December 31, 2012, we have experienced significant losses totaling $4,342,964 and $3,612,351,
respectively and had an accumulated deficit of $41,986,820
for the period from our inception to
December 31, 2013. In addition, we had working capital and stockholders’ deficits at December 31, 2013 of $4,259,938 and
$4,219,449, respectively.
Our ability to continue as a going concern
is contingent upon our ability to secure additional financing, increase ownership equity and attain profitable operations. In addition,
our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered
in established markets and the competitive environment in which we operate.
As of December 31, 2013, we had $4,640
in cash and as of March 31, 2014, we had approximately $5,179 in cash and we owed approximately $558,740 in vendor payables. We
currently do not have sufficient cash to sustain our operations for the next 12 months and will require additional financing or
an increase in sales in order to execute our operating plan and continue as a going concern. Our plan is to continue to increase
sales of our products and attempt to secure adequate funding to bridge the commercialization of our Cobroxin
®
and
Nyloxin
®
products. We cannot predict whether additional financing will be in the form of equity, debt, or another
form and we may be unable to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the
event that these financing sources do not materialize, or that we are unsuccessful in increasing our revenues and profits, we
may be unable to implement our current plans for expansion, repay our obligations as they become due or continue as a going concern,
any of which circumstances would have a material adverse effect on our business prospects, financial condition and results of
operations.
Historically, we have relied upon loans from our Chief Executive
Officer Rik J Deitsch, to fund costs associated with our operations. These loans are unsecured, accrue interest at a rate of 4.0%
per annum and are due on demand. During the year ended December 31, 2013, we borrowed a total of $151,718 from Mr. Deitsch and
repaid a total of $216,100 to him including the $162,500 repayment through exchange of the 50 million shares of Company’s
stocks.
As of December 31, 2013, we raised $285,000 and $75,000 through
the issuance of convertible notes and promissory note, respectively. We also raised $140,000 through sales of common stocks.
Uncertainties and Trends
Our operations and possible revenues are
dependent now and in the future upon the following factors:
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Whether we successfully develop and commercialize products from our research and development activities.
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·
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If we fail to compete effectively in the intensely competitive biotechnology area, our operations and market position will be negatively impacted.
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If we fail to successfully execute our planned partnering and out-licensing of products or technologies, our future performance will be adversely affected.
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The recent economic downturn and related credit and financial market crisis may adversely affect our ability to obtain financing, conduct our operations and realize opportunities to successfully bring our technologies to market.
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Biotechnology industry related litigation is substantial and may continue to rise, leading to greater costs and unpredictable litigation.
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If we fail to comply with extensive legal/regulatory requirements affecting the healthcare industry, we will face increased costs, and possibly penalties and business losses.
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Off-Balance Sheet Arrangements
We have not entered into any transaction,
agreement or other contractual arrangement with an entity unconsolidated with us under whom we have:
|
·
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An obligation under a guarantee contract.
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·
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A retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets.
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Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument.
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Any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.
|
We do not have any off-balance sheet arrangements
or commitments that have a current or future effect on its financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources that is material, other than those which may be disclosed
in this Management’s Discussion and Analysis of Financial Condition and the audited Consolidated Financial Statements and
related notes.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk
Not applicable. We have no investments
in market risk sensitive instruments or in any other type securities.
Item 8. Financial Statements and Supplementary
Data
The information required by this item begins
on page F-1 and is attached hereto and incorporated herein by reference. The index to our annual financial statements as of and
for the years ended December 31, 2013 and 2012 can be found under Item 15.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Section 1.
Evaluation of Disclosure Controls and Procedures:
As of December 31, 2013, we carried out
an evaluation under the supervision and the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures as of December 31, 2013, as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934 (“Exchange Act”). Based on that evaluation, our management, including our Chief Executive Officer/Chief Financial
Officer, concluded that, because of the material weaknesses in internal control over financial reporting discussed in Management’s
Report on Internal Control Over Financial Reporting below, our disclosure controls and procedures were not effective, at a reasonable
assurance level, as of December 31, 2013. In light of this, we performed additional post-closing procedures and analyses in order
to prepare the Consolidated Financial Statements included in this report. As a result of these procedures, we believe our Consolidated
Financial Statements included in this report present fairly, in all material respects, our financial condition, results of operations
and cash flows for the periods presented. A control system cannot provide absolute assurance, however, that the objectives of the
controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of
fraud, if any, with the company have been detected.
Section 2.
Management’s Annual Report on Internal Control over Financial
Reporting
During its evaluation of the effectiveness
of internal control over financial reporting as of December 31, 2013, our management concluded that its material weaknesses in
its internal controls over financial reporting include matters pertaining to: (a) lack of
qualified accounting personnel; and (b) the need to enhance the supervision, monitoring and reviewing of financial statement
preparation processes due to lack of qualified accounting personnel.
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is the process
designed by and under the supervision of our Chief Executive Officer/Chief Financial Officer, or the persons performing similar
functions, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial
statements for external reporting in accordance with accounting principles generally accepted in the United States of America.
Management has evaluated the effectiveness of our internal control over financial reporting using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control over Financial Reporting - Guidance
for Smaller Public Companies. Under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer,
our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2013 and concluded
that it is ineffective because of the material weaknesses in our internal control over financial reporting described above.
Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control
over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under
the Exchange Act that occurred during the year ended December 31, 2013 that have materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
In conjunction with Item 9A above (Evaluation
of Internal Controls over Financial Reporting) and following our management’s assessment and conclusion that our internal
control over financial reporting as of December 31, 2013 is ineffective, because of the material weaknesses described above, we
are actively seeking a new Chief Financial Officer.
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization
Nutra
Pharma Corp. ("Nutra Pharma")
,
is a holding company that
owns intellectual property and operates in the biotechnology industry. Nutra Pharma incorporated under the laws of the state of
California on February 1, 2000, under the original name of Exotic-Bird.com.
Through its wholly-owned subsidiary, ReceptoPharm,
Inc. (“ReceptoPharm”), Nutra Pharma conducts drug discovery research and development activities. In October 2009, Nutra
Pharma launched its first consumer product called Cobroxin
®
, an over-the-counter pain reliever designed to treat
moderate to severe chronic pain. In May 2010, Nutra Pharma launched its second consumer product called Nyloxin
®
,
an over-the-counter pain reliever that is a stronger version of Cobroxin
®
and is designed to treat severe chronic
pain.
Basis of Presentation and Consolidation
The accompanying consolidated financial
statements include the results of Nutra Pharma and its wholly-owned subsidiaries Designer Diagnostics Inc. and ReceptoPharm (collectively
"the Company", “us”, “we” or “our”). We operate as one reportable segment. All intercompany
transactions and balances have been eliminated in consolidation.
Liquidity and Going Concern
Our Consolidated financial statements are
presented on a going concern basis, which contemplate the realization of assets and satisfaction of liabilities in the normal course
of business. We have experienced recurring, significant losses from operations, and have an accumulated deficit of $41,986,820
at December 31, 2013. In addition, we had respective working capital and stockholders’ deficits at December 31, 2013
of $4,259,938 and $4,219,449 respectively.
There is substantial doubt regarding our
ability to continue as a going concern which is contingent upon our ability to secure additional financing, increase ownership
equity and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of
the problems, expenses and complications frequently encountered in established markets and the competitive environment in which
we operate.
As of December 31, 2013, we do not have
sufficient cash to sustain our operations for the next year and will require additional financing in order to execute our operating
plan and continue as a going concern. Since our sales are not currently adequate to fund our operations, we continue to rely principally
on debt and equity funding; however proceeds from such funding have not been sufficient to execute our business plan. Our plan
is to attempt to secure adequate funding until sales of our pain products are adequate to fund our operations. We cannot predict
whether additional financing will be available, and/or whether any such funding will be in the form of equity, debt, or another
form. In the event that these financing sources do not materialize, or if we are unsuccessful in increasing our revenues and profits,
we will be unable to implement our current plans for expansion, repay our obligations as they become due and continue as a going
concern.
The accompanying Consolidated Financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Use of Estimates
The accompanying Consolidated Financial
statements are prepared in accordance with accounting principles generally accepted in the United States of America which require
management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expense. Significant estimates include our ability to continue as going concern, the recoverability of inventories and long-lived
assets, and the valuation of stock-based compensation and certain debt and warrant liabilities. Actual results could differ from
those estimates. Changes in facts and circumstances may result in revised estimates, which would be recorded in the period in which
they become known.
Revenue Recognition
In general, we record revenue when persuasive
evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectability is reasonably assured. Provision for sales returns is estimated based on our historical
return experience. Revenue is presented net of returns and allowances for returns.
Accounting for Shipping and Handling
Costs
The Company records shipping and handling
costs incurred in cost of sales.
Cash and Cash Equivalents
We consider all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for
Doubtful Accounts
The Company grants credit without collateral
to its customers based on the Company’s evaluation of a particular customer’s credit worthiness. In addition, allowances
for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of
the Company’s periodic credit evaluations of its customers’ financial condition. Accounts receivable are written off
after collection efforts have been deemed to be unsuccessful. Accounts written off as uncollectible are deducted from the allowance
for doubtful accounts, while subsequent recoveries are netted against the provision for doubtful accounts expense. The Company
generally does not charge interest on accounts receivable.
Accounts receivable are stated at estimated
net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible
accounts.
Inventories
Inventories, which are stated at the lower
of average cost or market, and consist mostly of raw venom that is utilized to make the API (active pharmaceutical ingredient).
The raw unprocessed venom has an indefinite life for use. The Company regularly reviews inventory quantities on hand. If necessary
it records a provision for excess and obsolete inventory based primarily on its estimates of component obsolescence, product demand
and production requirements. Write-downs are charged to cost of goods sold. We performed evaluations of our inventory during the
year ended December 31, 2013 and 2012 and recorded total allowances of $0 and $117,800, respectively.
Financial Instruments and Concentration
of Credit Risk
Our financial instruments include cash,
accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and derivative financial instruments. Other
than certain warrant and convertible instruments (derivative financial instruments) and liabilities to related parties (for which
it was impracticable to estimate fair value due to uncertainty as to when they will be satisfied and a lack of similar type transactions
in the marketplace), we believe the carrying values of our financial instruments approximate their fair values because they are
short term in nature or payable on demand. Our derivative financial instruments are carried at a measured fair value.
Balances in various cash accounts may at
times exceed federally insured limits. We have not experienced any losses in such accounts. We do not hold or issue financial instruments
for trading purposes. In addition, for the year ended December 31, 2013, there were two customers that accounted for 19.6% and
15.3% of the total revenues, respectively. For the year ended December 31, 2012, no customers accounted for more than 10% of the
Company’s total revenues. During 2013, the Company purchased 100% of its venom from one vendor.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of its financial instruments to determine
if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments
that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued
at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception
and subsequent valuation dates. For complex embedded derivatives, the Company uses a Dilution-Adjusted Black-Scholes method to
value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative
instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement
of the derivative instrument could be required within 12 months of the balance sheet date.
Property and Equipment and Long-Lived
Assets
Property and equipment is recorded at cost.
Expenditures for major improvements and additions are added to property and equipment, while replacements, maintenance and repairs
which do not extend the useful lives are expensed. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets of 3 – 7 years.
Property and equipment consists of the following
at December 31,
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
21,918
|
|
|
$
|
21,918
|
|
Furniture and fixtures
|
|
|
34,757
|
|
|
|
34,757
|
|
Lab equipment
|
|
|
42,129
|
|
|
|
42,129
|
|
Telephone equipment
|
|
|
12,421
|
|
|
|
12,421
|
|
Office equipment – other
|
|
|
2,629
|
|
|
|
2,629
|
|
Leasehold improvements
|
|
|
67,417
|
|
|
|
67,417
|
|
Total
|
|
|
181,271
|
|
|
|
181,271
|
|
Less: Accumulated depreciation and amortization
|
|
|
(156,737
|
)
|
|
|
(141,756
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
24,534
|
|
|
$
|
39,515
|
|
We review our long-lived assets for recoverability
if events or changes in circumstances indicate the assets may be impaired. At December 31, 2013, we believe the carrying values
of our long-lived assets are recoverable. Depreciation expense for the years ended December 31, 2013 and 2012 was $14,981 and $14,994,
respectively.
Advertising
All advertising costs are expensed as incurred.
Advertising costs were approximately $900 and $70,800 for the years ended December 31, 2013 and 2012, respectively.
Income Taxes
We compute income taxes in accordance with
Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 740,
Income
Taxes
(“ASC Topic 740”). Under ASC Topic 740, deferred taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. Also, the effect on deferred taxes of a change in tax rates is recognized
in income in the period that included the enactment date. Temporary differences between financial and tax reporting arise primarily
from the use of different methods to record bad debts and /or sales returns, and inventory reserves.
On an annual basis, we evaluate tax positions
that have been taken or are expected to be taken in our tax returns to determine if they are more than likely to be sustained if
the taxing authority examines the respective position. As of December 31, 2013 and 2012, we do not believe we have a need to record
any liabilities for uncertain tax positions or provisions for interest or penalties related to such positions.
Since inception, we have been subject to
tax by both federal and state taxing authorities. Until the respective statutes of limitations expire (which may be as much as
20 years while we have unused net operation losses), we are subject to income tax audits in the jurisdictions in which we operate.
Stock-Based Compensation
We account for stock-based compensation in
accordance with FASB ASC Topic 718,
Stock Compensation
(ASC Topic 718). ASC Topic 718, which requires that the cost resulting
from all share-based transactions be recorded in the financial statements over the respective service periods. It establishes fair
value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based
measurement in accounting for share-based payment transactions with employees. The statement also establishes fair value as the
measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment
transactions.
Net Loss Per Share
Net loss per share is calculated in accordance
with ASC Topic 260,
Earnings per Share
. Basic loss per share is calculated by dividing net loss by the weighted average
number of common shares outstanding for the period. Diluted loss per share is calculated by dividing net loss by the weighted average
number of common shares and dilutive common stock equivalents outstanding. During periods in which we incur losses, common stock
equivalents, if any, are not considered, as their effect would be anti-dilutive or have no effect on earnings per share. Any common
shares issued as of a result of the exercise of stock options and warrants would come from newly issued common shares from our
remaining authorized shares. As of December 31, 2013 and 2012, the following items were not included in dilutive loss as the effect
is anti-dilutive:
|
|
2013
|
|
|
2012
|
|
Options and warrants
|
|
|
154,916,667
|
|
|
|
57,256,667
|
|
Convertible notes payable
|
|
|
98,506,398
|
|
|
|
44,642,858
|
|
Total
|
|
|
253,423,065
|
|
|
|
101,899,525
|
|
Reclassifications
Certain amounts in the 2012 Consolidated
Financial statements have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
We have determined that all
recently issued but not yet effective accounting standards will not have a material impact on our Consolidated Financial
statements.
2. FAIR VALUE MEASUREMENTS
Certain assets and liabilities that are
measured at fair value on a recurring basis as of December 31, 2013 are measured in accordance with FASB ASC Topic 820-10-05,
Fair
Value Measurements
. FASB ASC Topic 820-10-05 defines fair value, establishes a framework for measuring fair value and expands
the disclosure requirements regarding fair value measurements for financial assets and liabilities as well as for non-financial
assets and liabilities that are recognized or disclosed at fair value on a recurring basis in the financial statements.
The statement requires fair value measurement
be classified and disclosed in one of the following three categories:
Level 1: Unadjusted quoted prices in active
markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that
are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or
liability; and
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market
activity).
The following table summarizes our financial
instruments measured at fair value as of December 31, 2013 and 2012:
|
|
Fair Value Measurements at December 31, 2013
|
|
Liabilities:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
323,172
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
323,172
|
|
Convertible notes at fair value
|
|
$
|
767,056
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
767,056
|
|
|
|
Fair Value Measurements at December 31, 2012
|
|
Liabilities:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
$
|
18,727
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
18,727
|
|
Convertible notes at fair value
|
|
$
|
588,091
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
588,091
|
|
The following table shows the changes in fair
value measurements using significant unobservable inputs (Level 3) during the years ended December 31, 2013 and 2012:
Description
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
18,727
|
|
|
$
|
28,833
|
|
Purchases, issuances, and settlements
|
|
|
243,147
|
|
|
|
-
|
|
Day one loss on value of hybrid instrument
|
|
|
729,093
|
|
|
|
-
|
|
Total gain included in earnings (1)
|
|
|
(667,795
|
)
|
|
|
(10,106
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
323,172
|
|
|
$
|
18,727
|
|
(1) The gain or loss related to the revaluation
of our warrant liability is included in “Change in fair value of derivatives” in the accompanying consolidated statement
of operations.
The Company values its warrants using a
Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 0.13% to 1.75% risk-free rate, (2) warrant life is the remaining
contractual life of the warrants, (3) expected volatility of 124% to 236% (4) zero expected dividends (5) exercise price set forth
in the agreements (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if
the instrument is converted (See note 5).
The following table summarizes the significant
terms of each of the debentures for which the entire hybrid instrument is recorded at fair value as of December 31, 2013 and 2012:
|
|
|
|
|
|
|
|
|
Conversion
Price -
Lower of Fixed Price
or Percentage of
VWAP for Look-back
Period
|
|
|
Debenture
Issuance
|
|
Face
|
|
|
|
|
Default
Interest
|
|
Anti-
Dilution
Adjusted
|
|
|
|
|
Look-back
|
Year
|
|
Amount
|
|
|
Interest Rate
|
|
Rate
|
|
Price
|
|
%
|
|
|
Period
|
2013
|
|
|
564,376
|
|
|
8%-20%
|
|
n/a
|
|
$0.0036-$0.0064
|
|
|
50%-85%
|
|
|
10 to 30 Days
|
2012
|
|
|
902,369
|
|
|
6%-12%
|
|
n/a
|
|
$0.0070-$0.0137
|
|
|
15%-70%
|
|
|
5 to 20 Days
|
The following table shows the changes in
fair value measurements using significant unobservable inputs (Level 3) during the years ended December 31, 2013 and 2012 for the
Convertible Notes:
|
|
Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Description
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
588,091
|
|
|
$
|
206,863
|
|
Purchases, issuances, and settlements
|
|
|
751,419
|
|
|
|
902,369
|
|
Day one loss on value of hybrid instrument
|
|
|
1,656,802
|
|
|
|
479,422
|
|
(Gain) loss from change in fair value
|
|
|
(582,423
|
)
|
|
|
309,680
|
|
Conversion to common stock
|
|
|
(1,646,832
|
)
|
|
|
(1,310,243
|
)
|
Ending balance
|
|
$
|
767,057
|
|
|
$
|
588,091
|
|
3. SETTLEMENT OF ACCOUNTS AND NOTE PAYABLE
At January 2, 2012, the Company owed Bank
of America approximately $80,000 representing the balance of a credit line originated on September 28, 2006. Bank of America assigned
and sold this debt to Great Plains Capital Corporation (“Great Plains”). On February 3, 2012, Great Plains assigned
the debt to Redwood Management, LLC (“Redwood”). At February 3, 2012, the Company owed Post Graduate Healthcare Education,
LLC (“Post Graduate”) $109,500 representing the balance of a total debt of $149,500. Post Graduate assigned the debt
to Redwood Management, LLC. The total amount of the Company’s debt assigned to Redwood was $188,608. Under a Securities Settlement
Agreement, the Company issued a Convertible Debenture to Redwood for $188,608 payable within six months with interest at 6% annum.
The full amount of principal and interest was due at maturity unless the Debenture was converted to shares of common stock in accordance
with the debenture agreement, whereby such debenture could be converted into shares of our common stock at a price equal to 75%
of the lowest closing price (determined on the then current trading market for our common stock) during the 15 trading days prior
to conversion. Following the agreement Redwood accepted 18,737,894 shares of our restricted stock as satisfaction for the note
and we recorded a loss of $42,958 on the settlement.
At March 22, 2012, the Company owed Alera
Technologies, Inc. (“Alera”) $65,040 representing the balance of a purchase order for the production of Nyloxin™
products. Alera assigned the rights to the debt to Coventry Enterprises, LLC (“Coventry”). The Company issued a Convertible
Redeemable Note in favor of Coventry in the amount of $65,040 bearing interest of 8% annum. Coventry was entitled to convert all
or any amount of the this note into shares of the Company's common stock (the "Common Stock") at a conversion price ("Conversion
Price") for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common
Stock for the 3 trading days with the lowest volume weighted average prices during the 20 trading days immediately preceding the
Conversion Date. The note was satisfied on April 5, 2012 in exchange for 8,672,090 shares of restricted Common Stock.
At December 20, 2012, the Company owed
Immunoclin, Ltd
. (“Immunoclin”) $80,389 representing the balance of invoices for clinical services. The Company
issued an $80,000 note payable at 8% to Immunoclin in exchange for the outstanding accounts payable. $20,000, $40,000 and $20,000
of the debt were assigned to Coventry Enterprises, LLC (“Coventry”) on December 20, 2012, January 7, 2013, and March
13, 2013, respectively. Coventry made the first conversion of 2,565,102 shares of Company’s common stock to satisfy the debt
of $20,000 on December 20, 2012. The Company issued two Convertible Redeemable Notes for the remaining amount of $40,000 and $20,000
on January 7, 2013, and March 13, 2013. Coventry made the conversion of a total of 15,119,481 shares of the company’s restricted
stock satisfying the remaining notes in full during the year ended December 31, 2013. The Company
elected to account for
these hybrid contracts under the guidance of FASB ASC Topic 815 Derivatives & Hedging. The fair value has been defined as the
common stock equivalent value, enhanced by the fair value of the default put plus the present value of the coupon. The Company
recorded a loss of $65,039 on the settlement and the change in fair value of derivatives in the amount of $4,885 during the year
ended December 31, 2013.
During August and September, 2013, the
Company issued 3,000,000 shares of the company’s restricted stock to settle the outstanding accounts payable in aggregate
of $38,528 with two vendors. The shares were valued at $0.018 per share. The Company recorded a total loss of $15,472 on the settlement
date (See Note 6).
During September, 2013, the Company issued
25,000,000 shares of the company’s restricted stock and 25,000,000 warrants to purchase stock at an exercise price of $0.030
to settle the outstanding accounts payable of $112,621 with one vendor. The shares were valued at $0.015 per share (See Note 6).
The Company classified embedded conversion features in the warrants as a derivative liability. The warrants were valued at their
fair value of $243,146 and $63,297, respectively using the Black-Scholes method at the commitment and re-measurement dates of September
16, 2013 and December 31, 2013, respectively. The Company recorded a loss of $505,525 on the settlement date (See Note 7).
During September, 2013, Mr. Harold H. Rumph
(ReceptoPharm’s CEO) accepted 14,800,000 shares of the Company’s restricted common stock as a repayment to discharge
$37,000 of his accrued salary to the Company (See Note 6).
4. DUE TO OFFICERS
At December 31, 2013 and December 31, 2012,
the balance due to officers consisted of the following:
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
|
|
|
|
|
|
|
An unsecured demand loan from our President and CEO, Rik Deitsch. The loan bears interest at 4%. The loan balance at December 31, 2013 and 2012, respectively, includes accrued interest payable of $349,466 and $324,853.
|
|
$
|
566,399
|
|
|
$
|
606,168
|
|
|
|
|
|
|
|
|
|
|
A loan from Paul Reid, the former President of ReceptoPharm bearing interest at a rate of 5% per annum, due on demand and secured by certain intellectual property of ReceptoPharm having a zero cost at December 31, 2013 and December 31, 2012. The accrued interest at December 31, 2013 and December 31, 2012 was $43,363 and $37,392, respectively.
|
|
|
123,189
|
|
|
|
117,218
|
|
|
|
|
|
|
|
|
|
|
Ending balances
|
|
$
|
689,588
|
|
|
$
|
723,386
|
|
During the year ended December 31, 2013,
we borrowed $151,718 and repaid $53,600 to Mr. Deitsch. In addition, Mr. Deitsch accepted a total of 50,000,000 shares of the Company’s
restricted common stock as a repayment to discharge $162,500 of his outstanding loan to the Company in year ended December 31,
2013(See note 6).
During June, 2013, 25,000,000 warrants
to purchase stock at an exercise price of $0.10 per share were issued to CEO, Mr. Deitsch in exchange of notes payable. The warrants
expire on December 31, 2014 (See note 7).
During the year ended December 31, 2012,
we borrowed $164,779 and repaid $324,478 to Mr. Deitsch. Included in this amount, Mr. Deitsch assigned $175,000 of the debt to
a third party on January 2, 2012 and accepted a total of 10,000,000 shares of the Company’s restricted common stock as a
repayment to discharge $100,000 of his outstanding loan the Company in December 2012(See note 6).
5. OTHER DEBT
Other debt (all short-term) consists of the
following at December 31, 2013 and 2012:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Note payable – Related Party (1)
|
|
$
|
180,000
|
|
|
$
|
190,000
|
|
Notes payable – Non Related Parties (2)
|
|
|
412,182
|
|
|
|
593,483
|
|
Convertible notes payable, at fair value (3)
|
|
|
767,056
|
|
|
|
588,091
|
|
|
|
|
|
|
|
|
|
|
Ending balances
|
|
$
|
1,359,238
|
|
|
$
|
1,371,574
|
|
|
(1)
|
During the third quarter of 2010 we borrowed $200,000 from one of our directors. We repaid $10,000
each (total $20,000) during the third quarter of 2012 and 2013. Under the terms of the loan agreement, this loan was expected to
be repaid in nine months to a year from the date of the loan along with interest calculated at 10% for the first month plus 12%
after 30 days from funding. We are in default regarding this loan. At December 31, 2013 and 2012, we owed this director accrued
interest of $121,137 and $86,387, respectively.
|
|
(2)
|
At December 31, 2013 and 2012, the balance of $412,182 and $593,483 , respectively, consisted of
the following loans:
|
|
·
|
In May 2011, the Company received a loan
for $25,000 from a non-related party. This loan was expected to be repaid no later than December 31, 2011, along with interest
calculated at 10% for the first month plus 12% after 30 days from funding. This loan is guaranteed by an officer of the Company.
On November 25, 2013, the non-related party accepted a total of 4,360,000 shares of the Company’s restricted common stock
as a repayment to discharge $25,000 of his outstanding loan and accrued interest of $11,956 (See note 6). The Company recorded
a loss of $28,444 on the settlement date.
|
|
·
|
In May 2011, the Company received another
loan for $25,000 from a non-related party. This loan was expected to be repaid no later than December 31, 2011, along with interest
calculated at 10% for the first month plus 12% after 30 days from funding. This loan is guaranteed by an officer of the Company.
On September 16, 2013, the non-related party accepted a total of 8,472,750 shares of the Company’s restricted common stock
as a repayment to discharge $25,000 of his outstanding loan and accrued interest of $11,120 (See note 6). The Company recorded
a loss of $90,971 on the settlement date.
|
|
·
|
In July 2013, the Company issued a promissory
note to the Michael McDonald Trust in the amount of $75,000 bearing interest at a rate of 2% per month.
The
note is due in six months from the execution and funding of the note. In connection with the issuance of this promissory note,
the Company issued 1,000,000 shares of the Company's common stocks (See note 6). The Company has recorded a debt discount
in the amount of $3,977 to reflect the value of the common stocks as a reduction to the carrying amount of the convertible debt
and a corresponding increase to common stocks and additional paid-in capital. The total discount of $3,977 was fully amortized
over the term of the debt during the year ended December 31, 2013. In the event of default, the Company would issue
an additional 1,000,000 share of the Company’s common stocks on the date that is fifteen days after the maturity date (See
Note 6). We are in default regarding this loan. The additional 1,000,000 shares were issued in January 2014 with a fair value at
$9,900 (See Note 10). At December 31, 2013, we owed Michael McDonald accrued interest of $9,000.
|
|
·
|
At December 31, 2012, the total amount
of the Company’s debt assigned to Southridge was $483,482. In connection with the debt sales to Southridge, the Company recorded
a loss on settlement of accounts payable for $63,490 in the statement of operations at December 31, 2012. During the first quarter
of 2013, the suit was voluntarily dismissed involving debt held by Southridge for $483,482. The debt has reverted back to the original
holders.
|
In
April, 2013, $88,500 of
the debt held by Michael McDonald Trust was assigned to Coventry Enterprises, LLC (“Coventry”)
in the form of a Convertible Redeemable Note bearing interest of 8% annum. Coventry was entitled to convert all or any amount of
the this note into shares of the Company's common stock (the "Common Stock") at a conversion price ("Conversion
Price") for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common
Stock for the 3 trading days with the lowest volume weighted average prices during the 15 trading days immediately preceding the
Conversion Date. Following the agreements with Coventry, Coventry made the conversions for a total of 31,416,845 shares of the
company’s restricted stock during the second quarter of 2013 satisfying the notes in full at the fair value of $186,646.
In June, 2013, $57,800 of the
debt was assigned to Coventry for a consideration of $60,000 from Baker Donelson Bearman Caldwell & Berkowitz, PC. in the form
of Convertible Redeemable Notes bearing interest of 8% annum. The Company recorded a loss of $2,200 on the settlement during the
year ended December 31, 2013. Coventry was entitled to convert all or any amount of the these notes into shares of the Company's
common stock (the "Common Stock") at a conversion price ("Conversion Price") for each share of Common Stock
equal to 55% of the average of the daily volume weighted average prices of the Common Stock for the 3 trading days with the lowest
volume weighted average prices during 20 trading days . Following the agreements, Coventry made the conversions for a total of
27,272,727 shares of the company’s restricted stock satisfying the notes in full at the fair value of $167,495.
As a result of the debt assignments
and conversions with Coventry, the remaining balance of the debt at December 31, 2013 is $337,182 which consisted of the following
loans:
|
i.
|
On August 2, 2011 under a settlement agreement with Liquid Packaging Resources, Inc. (“LPR”),
the Company agreed to pay LPR a total of $350,000 in monthly installments of $50,000 beginning August 15, 2011 and ending on February
15, 2012. This settlement amount was recorded as general and administrative expenses on the date of the settlement. We did not
make the December 2011 or January 2012 payments and on January 26, 2012, we signed the first amendment to the settlement agreement
where under we agreed to pay $175,000 which was the balance outstanding at December 31, 2011(this includes a $25,000 penalty for
non-payment).
|
The Company repaid $25,000 during
the three months ended March 31, 2012. The Company did not make all of the payments under such amendment and as a result pursuant
to the original settlement agreement, LPR had the right to sell 5,714,326 shares of the Company’s free trading stock held
in escrow by their attorney and receive cash settlements for a total amount of $450,000 (the initial $350,000 plus total default
penalties of $100,000). The $100,000 default was expensed during 2012. LPR sold the note to Southridge Partners, LLP (“Southridge”)
for consideration of $281,772 in October 2012. The debt has reverted back to the Company (See note 9).
|
ii.
|
As of December 31, 2013 and 2012, the Company owed
University Centre West Ltd
. approximately
$55,410, which was assigned and sold to Southridge and subsequently reverted back to the Company .
|
|
(3)
|
At December 31, 2013 and 2012, the balance of $767,056 and $588,091 consisted of the following
convertible loans:
|
|
·
|
In September and October 2011, the Company
borrowed $250,000 each (aggregating $500,000) from two non-related parties. The principal of these loans were to be repaid with
a balloon payment on or before October 1, 2012. On October 19, 2012 the parties amended the notes to extend the due date to May
1, 2013 and include a conversion feature that would allow the holders to convert some or all of their outstanding notes into restricted
Company stock at a 15% discount to the average closing market price of the Company's stock traded over the previous 10 days. Interest
on these loans is payable monthly beginning in November 2011 with interest calculated at 20% and 12%, each, respectively. At December
31, 2013 and 2012, the accrued interest payable was $6,664.
|
During year
ended December 31, 2013, one of the Note holders made conversions of a total of 34,254,004 shares of the company’s restricted
stock satisfying the notes in the amount of $125,000 with a fair value of $317,391 on the date of conversion. During August and
September, 2013,
$150,000 of
the debts were assigned to three non-related parties in the form
of a Convertible Redeemable Note bearing interest of 8% annum with a conversion price for each share of Common Stock equal to 55%
of the average of the daily volume weighted average prices of the Common Stock for the 3 trading days with the lowest volume weighted
average prices during the 15 to 20 trading days immediately preceding the Conversion Date. Following the assignments, the conversions
for a total of 64,052,862 shares of the company’s restricted stock were made in satisfying the notes of $150,000 at the fair
value of $475,519 (See note 6).
At December
31, 2013, the remaining balance of these two convertible notes payable of $75,000 and $150,000 were recorded at a fair value of
$90,260 and $189,781, respectively. At December 31, 2012, these two convertible note payable of $250,000 each were recorded at
fair value of $290,289 and $297,802, respectively.
On April 30, 2013, the parties
amended the notes to further extend the maturity date to November 3, 2013. The Company issued a total of 4,000,000 restricted shares
to the note holders in connection with the amendment at a fair value of $20,800. On October 30, 2013 and November 1, 2013, the
parties amended the note of $75,000 and $150,000 to further extend the maturity dates to May 3, 2014 and August 3, 2014, respectively.
The Company issued a total of 500,000 and 1,250,000 restricted shares to the note holders in connection with the amendment at a
fair value of $9,500 and $13,750 (See note 6), respectively.
|
·
|
On March 22, 2013, the Company issued
a Convertible Debenture in the amount of $20,000 to Coventry Enterprises, LLC (“Coventry”). The note carries interest
at 10% and is due on March 22, 2014, unless previously converted into shares of restricted common stock. Coventry has the right
to convert the note, until is no longer outstanding into shares of Common Stock at a price which is lesser of $.0075, or (ii) fifty-five
percent (55%) of the average of the three lowest VWAP prices of the Company’s Common Stock for the twenty trading days preceding
the conversion date. In connection with the issuance of this convertible note payable, the Company encountered a day-one derivative
loss of $24,931. Coventry made the conversions into a total of 8,810,572 shares of the company’s restricted stock satisfying
the notes in full with a fair value of $188,747on September 4, 2013(See note 7).
|
In connection with the issuances
of the Note, the Company also granted five-year warrants to purchase an aggregate of 2,600,000 shares of the Company’s common
stock at an exercise price of $0.01 per share. The Company classified embedded conversion features in these warrants as a derivative
liability. The warrants were valued at their fair value of $21,226 and $17,895, respectively using the Black-Scholes method at
the commitment and re-measurement dates of March 22, 2013 and December 31, 2013, respectively.
|
·
|
On July 10, 2013 and October 10, 2013,
the Company issued two Convertible Debentures in the amount of $30,000 each (total $60,000) to Christopher Castaldo in connection
with the agreements for investor relation services (See Note 6). The notes carry interest at 8% and are due on January 10, 2014
and April 10, 2014, respectively. The notes’ holder has the right to convert the notes into shares of Common Stock at a price
of $0.005.
|
In connection with the issuance
of this convertible notes payable, the Company encountered a day-one derivative loss of $83,157. At December 31, 2013, these convertible
notes payable, at fair value, was recorded at $90,684.
|
·
|
On September 3, 2013, the Company issued
a Convertible Debenture in the amount of $100,000 to Coventry Enterprises, LLC (“Coventry”). The note carries interest
at 10% and is due on September 3, 2014, unless previously converted into shares of restricted common stock. Coventry has the right
to convert the note, until is no longer outstanding into shares of Common Stock at a price lesser of $.018, or (ii) fifty-five
percent (55%) of the average of the three lowest VWAP prices of the Company’s Common Stock for the twenty trading days preceding
the conversion date.
|
In connection with the issuance
of this convertible note payable, the Company encountered a day-one derivative loss of $957,567. At December 31, 2013, this convertible
note payable, at fair value, was recorded at $185,971.
In connection with the issuances
of the Note, the Company also granted five-year warrants to purchase an aggregate of 20,000,000 shares of the Company’s common
stock at an exercise price of $0.025 per share. The Company classified embedded conversion features in these warrants as a derivative
liability. The warrants were valued at their fair value of $445,638 and $137,681, respectively using the Black-Scholes method at
the commitment and re-measurement dates of September 3, 2013 and December 31, 2013, respectively.
|
·
|
On September 12, 2013, the Company issued
a Convertible Debenture in the amount of $70,000 to Coventry Enterprises, LLC (“Coventry”). The note carries interest
at 10% and is due on September 12, 2014, unless previously converted into shares of restricted common stock. Coventry has the right
to convert the note, until is no longer outstanding into shares of Common Stock at a price lesser of $.02, or (ii) fifty-five percent
(55%) of the average of the three lowest VWAP prices of the Company’s Common Stock for the twenty trading days preceding
the conversion date.
|
In connection with the issuance
of this convertible note payable, the Company encountered a day-one derivative loss of $309,055. At December 31, 2013, this convertible
note payable, at fair value, was recorded at $130,303.
In connection with the issuances
of the Note, the Company also granted five-year warrants to purchase an aggregate of 15,000,000 shares of the Company’s common
stock at an exercise price of $0.025 per share. The Company classified embedded conversion features in these warrants as a derivative
liability. The warrants were valued at their fair value of $262,230 and $101,140, respectively using the Black-Scholes method at
the commitment and re-measurement dates of September 12, 2013 and December 31, 2013, respectively.
|
·
|
On October 7, 2013, the Company signed
a secured convertible Promissory Note in the amount of $35,000 in favor of Southridge Partners II, LLC. The note was due on demand
and carries interest at 10% annum. Southridge Partners II, LLC was entitled to convert the principal into shares of common stock
at the lesser of $0.015 or a 50% discount from the lowest closing bid price in the 30 trading days prior to the day that the conversion
is requested; and interest accrued was entitled to convert into shares of common stock at $0.001. In the evaluation of these financing
arrangements, the Company concluded that these conversion features did not meet the conditions set forth in current accounting
standards for equity classification. Since equity classification is not available for the conversion feature, it requires bifurcation
and liability classification, at fair value. The Company also concluded that the Default Put required bifurcation because, while
puts on debt instruments are generally considered clearly and closely related to the host, the Default Put is indexed to certain
events that are not associated with the convertible note payable.
|
In connection with the issuance
of this convertible note payable, the Company encountered a day-one derivative loss of $81,667. At December 31, 2013, this convertible
note payable, at fair value, was recorded at $80,057.
|
·
|
On October 27, 2011 the Company entered
into a convertible note payable with a corporation. The convertible note payable, with a face value of $53,000, bears interest
at 8.0% per annum and was due on July 31, 2012.
|
On December 5, 2011 the Company
entered into a convertible note payable with a corporation which had a face value of $37,500, a coupon rate of 8.0% per annum and
maturity date of September 5, 2012.
The convertible note payable
is convertible, at the holder’s option, into the Company’s common shares at a variable conversion price which is 58%
multiplied by the average of the lowest three (3) trading prices for the Common Stock during the ten (10) Trading Day period ending
one Trading Day prior to the date the Conversion Notice is sent by the Holder to the Borrower. The conversion feature is subject
to full-ratchet, anti-dilution protection if the Company sells shares or share-indexed financing instruments at less than the conversion
price. The holder has the option to redeem the convertible note payable for cash in the event of defaults or certain other contingent
events (the “Default Put”).
During October 2012, both of
these notes were acquired by a third party from Asher Enterprises for an aggregate amount of $100,000, and then converted into
20,000,000 restricted common shares (See note 6).
|
·
|
On February 3, 2012, the Company issued
a Convertible Debenture in the amount of $40,000 to Redwood Management, LLC. The note carries interest at 12% and is due on February
13, 2013, unless converted into shares of restricted common stock. Redwood Management, LLC has the right to convert the note, until
it is no longer outstanding, into shares of Common Stock at a price of Fifty Percent (50%) of the lowest closing price, determined
on the then current trading market for the Company’s common stock, during the 15 trading days prior to conversion (the “Set
Price”). On September 12, 2012, TCN International (TCN) completed the purchase and transfer of this note including penalties
and unpaid interest, for the sum of $52,500. Redwood Management, LLC has acknowledged the full payment of the Note, in favor of
Nutra Pharma Corporation and releases Nutra Pharma Corporation from all obligations under the Note. Upon the request of TCN, the
Board of Directors of the Company approved the conversion of these notes into Restricted Common Stock of the Company,providing
7,500,000 shares of Nutra Pharma common stock to relinquish the total debt of $52,500 (See note 6).
|
|
·
|
On March 16, 2012 the Company signed a
secured convertible Promissory Note in the amount of $75,000 in favor of Southridge Partners II, LLC. The note was due November
16, 2012 and carries interest at 8% annum. Southridge Partners II, LLC was entitled after nine months to convert all or a portion
of the principal and interest accrued into shares of common stock at a conversion price of each share equal to the Market Price
multiplied times 70%. (the “conversion price”). The Market Price is equal to the average of the two lowest bids closing
prices for the five trading days ending before the conversion date. In the evaluation of these financing arrangements, the Company
concluded that these conversion features did not meet the conditions set forth in current accounting standards for equity classification.
Since equity classification is not available for the conversion feature, it requires bifurcation and liability classification,
at fair value. The Company also concluded that the Default Put required bifurcation because, while puts on debt instruments are
generally considered clearly and closely related to the host, the Default Put is indexed to certain events that are not associated
with the convertible note payable. On October 26, 2012, Southridge converted the note into 5,919,495 shares of the Company's restricted
common stock (See note 6).
|
In the evaluation of these financing
arrangements, the Company concluded that these conversion features did not meet the conditions set forth in current accounting
standards for equity classification. Since equity classification is not available for the conversion feature, it requires bifurcation
and liability classification, at fair value. The Company also concluded that the Default Put required bifurcation because, while
puts on debt instruments are generally considered clearly and closely related to the host, the Default Put is indexed to certain
events that are not associated with the convertible note payable.
The Company
elected to
account for these hybrid contracts under the guidance of ASC 815-15-25-4. The fair value has been defined as the common stock equivalent
value, enhanced by the fair value of the default put plus the present value of the coupon.
The holder of this convertible
note has substantial rights and protections regarding dilution if certain events, including a default were to occur. There are
a number of events that could trigger a default, including but not limited to failure to pay principal or interest, failure to
issue shares under the conversion feature, breach of covenants, breach of representations and warranties, appointment of a receiver
or trustee, judgments, bankruptcy, delisting of common stock, failure to comply with the exchange act, liquidation, cessation of
operations, failure to maintain assets, material financial statement restatement, reverse split of borrowers stock, etc. In the
event of these events the lender may be entitled to receive significant amounts of additional stock above the amounts for conversion.
Furthermore, there are additional
events that could cause the lender to be due additional shares of common stock above and beyond the shares due from a conversion.
Some of these events include, but are not limited to a merger or consolidation of the Company, dividend distribution or spin off,
dilutive issuances of the Company’s stock, etc. If the lender receives additional shares of the Company’s commons stock
due to any of the foregoing events or for other reasons, then this may have an extremely dilutive effect on the shareholders of
the Company. Such dilution would likely result in a significant drop in the per share price of the Company’s common stock.
The potential dilutive nature of this note presents a very high degree of risk to the Company and its shareholders
6. STOCKHOLDERS' DEFICIT
Private Placements of Common Stock
In 2013, the Company sold 10,000,000 shares
of restricted common stock to an investor at a price per share of $0.005 and received proceeds of $50,000. The Company issued 10,000,000
warrants to purchase common stock at an exercise price of $0.03 per share. The warrants expire on December 31, 2015.
In 2013, the Company sold an aggregate
of 11,000,000 shares of restricted common stock to five investors at a price per share range from $0.002 to $0.015 and received
proceeds of $45,000. The Company issued a total of 1,000,000 warrants to purchase common stock at an exercise price of $0.10 per
share. The warrants expire on December 31, 2014.
In 2013, the Company sold an aggregate
of 21,000,000 shares of restricted common stock to two investors at a price per share range from $0.001 to $0.0042 and received
proceeds of $45,000.
In 2012, the Company sold an aggregate
of 17,650,000 shares of restricted common stock to investors at a price of $0.01 per share and received $176,500. The Company issued
a total of 17,650,000 warrants to purchase common stock at an exercise price of $0.10 per share. The warrants expire on December
31, 2014.
In 2012, the Company sold an aggregate
of 27,000,000 shares of restricted common stock to one investor at a price of $0.01 per share and received $270,000. The Company
issued a total of 27,000,000 warrants to purchase common stock at an exercise pric
e of $0.10 per share in October 2012.
The warrants expire on December 31, 2014.
Shares Issued to Employees and Directors
On November 22, 2013, the Board of Directors
approved a resolution for the issuance of a total of 34,630,000 shares of the Company’s restricted common stock to directors
and employees of the Company. The issuance was valued at $484,820 ($0.014 per share), which was the fair value of the Company’s
common stock on the date of issuance.
On September 3, 2013, the Board of Directors
approved a resolution for the issuance of 1,000,000 shares of the Company’s restricted common stock to an employee of the
Company. The issuance was valued at $22,900 ($0.0229 per share), which was the fair value of the Company’s common stock on
the date of issuance.
During October and December 2012, the Board
of Directors approved resolutions for the issuance of a total of 26,875,000 shares of the Company’s restricted common stock
to the Directors and Employees of the Company. The shares were valued at $569,400 ($0.022 and $0.014 per share), which was the
fair value of the Company’s common stock on the date of issuance.
On February 3, 2012 the Board of Directors
approved a resolution for the issuance of a total of 15,720,000 shares of the Company’s restricted common stock to the Directors
and Employees of the Company. The issuance was valued at $259,380 ($0.0165 per share), which was the fair value of the Company’s
common stock on the date of issuance.
Common Stock Issued for Services
During November, 2013, the Company issued
1,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for two months.
The shares were valued at $0.0175 per share. The Company recorded an equity compensation charge of $17,500 during the year ended
December 31, 2013.
During October, 2013, the Company issued
15,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for three months.
The shares were valued at $0.0178 per share. The Company recorded an equity compensation charge of $267,000 during the year ended
December 31, 2013.
During September, 2013, the Company issued
1,500,000 shares of the Company’s restricted common stock to a consultant for consulting services rendered. The shares were
valued at $0.016 per share. The Company recorded an equity compensation charge of $24,000 during the year ended December 31, 2013.
During September, 2013, the Company issued
a total of 1,500,000 shares of the Company’s restricted common stock to two consultants for consulting services rendered.
The shares were valued at $0.0229 per share. The Company recorded an equity compensation charge of $34,350 during the year ended
December 31, 2013.
During August, 2013, the Company issued
a total of 6,000,000 shares of the Company’s restricted common stock to two consultants for investor relation services for
six months. The shares were valued at $0.0173 per share. The Company recorded an equity compensation charge of $70,902 during the
four months ended December 31, 2013. The remaining unrecognized compensation cost of $32,898 related to non-vested equity-based
compensation to be recognized by the Company over the remaining vesting period of two months.
During August, 2013, the Company issued
2,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for one year. The
shares were valued at $0.012 per share. The Company recorded an equity compensation charge of $8,351 during the four months ended
December 31, 2013. The remaining unrecognized compensation cost of $15,649 related to non-vested equity-based compensation to be
recognized by the Company over the remaining vesting period of eight months.
During August, 2013, the Company issued
2,000,000 shares of the Company’s restricted common stock to a consultant for consulting services for six months. The shares
were valued at $0.0056 per share. The Company recorded an equity compensation charge of $8,446 during the four and one half months
ended December 31, 2013. The remaining unrecognized compensation cost of $2,754 related to non-vested equity-based compensation
to be recognized by the Company over the remaining vesting period of one and half months.
During July, 2013, the Company issued 2,000,000
shares of the Company’s restricted common stock to a consultant for consulting services for six months. The shares were valued
at $0.0042 per share. The Company recorded an equity compensation charge of $8,400 during the year ended December 31, 2013.
During July, 2013, the Company issued 100,000
shares of the Company’s restricted common stock to a consultant for consulting services rendered. The shares were valued
at $0.0042 per share. The Company recorded an equity compensation charge of $420 during the year ended December 31, 2013
During July 2013, the Company signed an
agreement with a consultant for investor relation services for three months. A $30,000 convertible note convertible at $0.005 per
share was also issued (See Note 5). The Company also paid a total of $10,000 cash and issued a total of 15,000,000 shares of company’s
restricted common stocks. The shares were valued at $0.0057 per share. The Company recorded an equity compensation charge of $85,500
during the year ended December 31, 2013.
During June, 2013, the Company issued 2,000,000
shares of the Company’s restricted common stock to a consultant for investor relation services for six months. The shares
were valued at $0.0042 per share. The Company recorded an equity compensation charge of $8,400 during the year ended December 31,
2013.
During May, 2013, the Company issued 1,000,000
shares of the Company’s restricted common stock to a consultant for investor relation services for six months. The shares
were valued at $0.0053 per share. The Company recorded an equity compensation charge of $5,300 in May 2013.
During February, 2013, the Company issued
8,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for a year. The
shares were valued at $0.008 per share. The Company recorded an equity compensation charge of $61,019 during the year ended December
31, 2013. The remaining unrecognized compensation cost of $2,981 related to non-vested equity-based compensation to be recognized
by the Company over the remaining vesting period of one half month.
During February 2013, the Company issued
1,500,000 shares of the Company’s restricted common stock to a consultant for investor relation services for two months.
The shares were valued at $0.007 per share. The Company recorded an equity compensation charge of $10,500 during the year ended
December 31, 2013.
During February 2013, the Company issued
a total of 3,000,000 shares of the Company’s restricted common stock to three consultants for marketing services for six
months. The shares were valued at $0.009 per share. The Company recorded an equity compensation charge of $27,000 during the year
ended December 31, 2013.
During January, 2013, the Company issued
10,000,000 shares of the Company’s restricted common stock to a consultant for investor relation services for a year. The
shares were valued at $0.005 per share. The Company recorded an equity compensation charge of $50,000 during the year ended December
31, 2013.
On December 14, 2012 the Company issued
a total of 1,000,000 shares of the Company’s restricted common stock to Roetzell & Andress for legal services for a one
year term. The shares were valued at $0.014 per share. The Company recorded a prepaid equity compensation charge of $14,000 during
the year ended December 31, 2012, and recognized an equity compensation charge of $14,000 during the year ended December 31, 2013.
During October, 2012 the Company issued
a total of 15,100,000 shares of the Company’s restricted common stock to five consultants for marketing services for six
months terms. The shares were valued at $0.0125 per share. The Company recorded an equity compensation charge of $108,534 and $80,216
during the year ended December 31, 2013 and year ended December 31, 2012.
During December, 2012 the Company issued
500,000 shares of the Company’s restricted common stock to a consultant for real estate consulting services for a six months
term. The shares were valued at $0.0125 per share. The Company recorded an equity compensation charge of $1,042 during the year
ended December 31, 2012. The remaining unrecognized compensation cost of $5,208 was recognized during the year ended December 31,
2013.
During August, 2012 the Company issued
3,000,000 shares of the Company’s restricted common stock to JPU Ventures, Inc. under agreement dated August 13, 2012. The
agreement was for investor relations services for a nine months term. The shares were valued at $0.0125 per share. The Company
recorded an equity compensation charge of $21,875 during the year ended December 31, 2012. The remaining unrecognized compensation
cost of $15,625 was recognized by the Company during the year ended December 31, 2013.
On October 1, 2012, the Company issued
5,500,000 shares of the Company’s restricted common stock under the amended agreement with Mark Bergman, a consultant. The
contract is for six months term. The shares were valued at $0.0125 per share. The Company recorded an equity compensation charge
of $28,646 and $40,104 for the agreement during the year ended December 31, 2013 and the year ended December 31, 2012.
During October, 2012, the Company entered
into an agreement for investor relations services with a Consultant. The contract was for a six months term and calls for the issuance
of 1,000,000 shares of restricted common stock. The share was valued at $0.0125 per share. The Company recorded an equity compensation
charge of $8,697 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $3,533 was recognized
by the Company during the year ended December 31, 2013.
On February 22, 2012 the Company engaged
Capital Path Securities, LLC (“CPS”) as its exclusive advisor on a proposed placement by way of an equity line of approximately
$10,000,000 of the Company’s equity or equity linked securities. All upfront fees have been waived by CPS. The Company will
pay CPS a cash placement fee equal to 5% of all principal amounts invested from the source originated by CPS. In addition, 10,000,000
restricted shares were issued on October 26, 2012, and valued at $0.0125 per share. The Company recorded an equity compensation
charge of $151,375 during the year ended December 31, 2012. The remaining unrecognized compensation cost of $21,625 and 125,000
non-vested shares was recognized by the Company during the year ended December 31, 2013.
Common Stock Issued for Debt Modification
On April 30, 2013, the Company amended
the maturity dates of two notes of $250,000 each (aggregating $500,000) from two non-related parties to November 3, 2013. The Company
issued a total of 4,000,000 restricted shares to the note holders in connection with the amendment at a fair value of $20,800.
On October 30, 2013 and November 1, 2013,
the parties amended the note of $75,000 and $150,000 to further extend the maturity dates to May 3, 2014 and August 3, 2014. The
Company issued a total of 500,000 and 1,250,000 restricted shares to the note holders in connection with the amendment at a fair
value of $9,500 and $13,750, respectively (See Note 5).
On October 19, 2012 the Company amended
the notes $250,000 each (aggregating $500,000) from two non-related parties originated in September and October 2011to include
a conversion feature that would allow the holders to convert some or all of their outstanding notes into restricted Company stock
at a 15% discount to the average closing market price of the Company's stock traded over the previous 5 days. The Company issued
a total of 4,000,000 restricted shares to the note holders per the amendment. The shares were valued at $0.025 per share. (See
note 5).
Common Stock Issued with Promissory
Note
In July 2013, in connection with the issuance
of this promissory note to Michael McDonald Trust in the amount of $75,000 which is due in six months from the funding of the note,
the Company issued 1,000,000 shares of the Company's common stocks. The Company has recorded a debt discount in the amount
of $3,977 to reflect the value of the common stocks as a reduction to the carrying amount of the convertible debt and a corresponding
increase to common stocks and additional paid-in capital. The total discount of $3,977 was amortized over the term of the
debt. Amortization for the year ended December 31, 2013 was $3,977 (See Note 5).
Common Stock Held in Escrow
On July 27, 2011 the Company issued 5,714,286
shares of free trading common stock in certificate form which is held in escrow as security under an agreement reached with Liquid
Packaging Resources, Inc. (“LPR”) on August 2, 2011(See note 3 and 5).
Common Stock Issued for Settlement of Accounts
Payable & Debt
Following the agreements with Coventry
Enterprises, LLC (see Note 3) for $80,000, Coventry made the following conversions for a total of 15,119,481 shares of the company’s
restricted stock during the first quarter of 2013 satisfying the notes in full and recorded
a loss of $65,039 (See note 3):
Date
|
|
Number of shares
converted
|
|
|
Fair Value
of Debt
Converted
|
|
January 21, 2013
|
|
|
4,032,258
|
|
|
$
|
37,619
|
|
February 11, 2013
|
|
|
5,405,405
|
|
|
$
|
42,510
|
|
March 20, 2013
|
|
|
5,681,818
|
|
|
$
|
40,414
|
|
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $88,500, Coventry made the following conversions for a total of 31,416,845 shares of the company’s restricted
stock during the second quarter of 2013 satisfying the notes in full:
Date
|
|
Number of shares converted
|
|
|
Fair Value
of Debt
Converted
|
|
4/17/2013
|
|
|
7,133,333
|
|
|
$
|
49,586
|
|
5/16/2013
|
|
|
11,101,694
|
|
|
$
|
64,930
|
|
6/12/2013
|
|
|
13,181,818
|
|
|
$
|
70,130
|
|
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $60,000, Coventry made the conversion for a total of 27,272,727 shares of the company’s restricted stock
during the second quarter of 2013 satisfying the notes in full with a fair value of $167,495. The
Company recorded a loss of $2,200 (See note 5).
Following the agreement with Coventry Enterprises,
LLC (see Note 5) for $20,000, Coventry made the conversion for a total of 8,810,572 shares of the company’s restricted stock
during September 2013 satisfying the notes in full with a fair value of $188,747.
During June and August, 2013, one of the
convertible Notes holders made the following conversions of a total of 34,254,004 shares of the company’s restricted stock
satisfying the notes in the amount of $125,000 with a fair value of $317,391 on the date of conversion (See Note 5).
Date
|
|
Number of shares converted
|
|
|
Fair Value
of Debt
Converted
|
|
6/25/2013
|
|
|
22,058,882
|
|
|
$
|
188,352
|
|
8/30/2013
|
|
|
12,195,122
|
|
|
$
|
129,039
|
|
During August and September, 2013,
$150,000
of
the convertible notes were assigned to third parties in the form bearing interest of 8% annum at with a conversion price
for each share of Common Stock equal to 55% of the average of the daily volume weighted average prices of the Common Stock for
the 3 trading days with the lowest volume weighted average prices during the 15 to 20 trading days immediately preceding the Conversion
Date. Immediately following the assignments, the conversions for a total of 64,052,862 shares of the company’s restricted
stock were made as followings in satisfying the notes of $150,000 at the fair value of $475,519(See Note 5).
Date
|
|
Number of shares converted
|
|
|
Fair Value
of Debt
Converted
|
|
8/28/2013
|
|
|
22,026,431
|
|
|
$
|
167,493
|
|
9/3/2013
|
|
|
20,000,000
|
|
|
$
|
163,909
|
|
9/4/2013
|
|
|
22,026,431
|
|
|
$
|
144,117
|
|
On September 16, 2013, one of the non-related
party promissory note holders accepted a total of 8,472,750 shares of the Company’s restricted common stock as a repayment
to discharge $25,000 of his outstanding loan and accrued interest of $11,120 with the Company (See note 5). The Company recorded
a loss of $90,971 on the settlement date.
On November 25, 2013, one of the non-related
party promissory note holders accepted a total of 4,360,000 shares of the Company’s restricted common stock as a repayment
to discharge $25,000 of his outstanding loan and accrued interest of $11,956 with the Company (See note 5). The Company recorded
a loss of $28,444 on the settlement date.
During September, 2013, Mr. Harold H. Rumph
(ReceptoPharm’s CEO) accepted 14,800,000 shares of the Company’s restricted common stock as a repayment to discharge
$37,000 of his accrued salary to the Company(See Note 3).
During June and September, 2013, Mr. Deitsch
(Our CEO) accepted a total of 50,000,000 shares of the Company’s restricted common stock as a repayment to discharge $162,500
of his outstanding loan to the Company (See note 4).
During August and September, 2013, the
Company issued 3,000,000 shares of the company’s restricted stock to settle the outstanding accounts payable in aggregate
of $38,528 with two vendors. The shares were valued at $0.018 per share. The Company recorded
a loss of $15,472 (See Note 3).
During September, 2013, the Company issued
25,000,000 shares of the company’s restricted stock and 25,000,000 warrants to purchase stock at an exercise price of $0.030
to settle the outstanding accounts payable of $112,621. The shares were valued at $0.015 per share. The
Company recorded a loss of $505,525 (See Note 3).
During December 2012, the Board of Directors
approved resolutions for the issuance of a total of 10,000,000 shares of the Company’s restricted common stock to Mr. Deitsch
to discharge $100,000 of his outstanding loan the Company (See note 4). The shares were valued at the note payable amount due to
the fact that it was a related party transaction. 10,000,000 warrants to purchase stock at an exercise price of $0.10 per share
were also issued to Mr. Dietsch. The warrants expire on December 31, 2014.
Following the agreements with Coventry
Enterprises, LLC (see Note 3), the conversions for 8,672,090 and 2,564,102 shares of the Company’s restricted common stocks
were issued for settlement of accounts payable and a convertible note payable on March 29, 2012 and December 20, 2012, respectively.
The shares were valued at $168,889 and $33,720, respectively, which was the fair value of convertible debts on the date of conversion.
Following the agreement with Southridge
(see Note 5), the conversion for a total of 6,416,733 shares of the Company’s restricted common stock satisfying the note
in full was made in October 2012. The shares were valued at $157,179, which was the fair value of convertible debts on the date
of conversion.
Following the agreement with Asher Enterprises,
LLC (see Note 5), the conversion for a total of 20,000,000 shares of the Company’s restricted common stock satisfying the
note in full was made in October 2012. The shares were valued at $356,779, which was the fair value of convertible debts on the
date of conversion.
Following the agreement with Redwood and
TCN (see Note 5), the conversion for a total of 7,500,000 shares of the Company’s restricted common stock satisfying the
note in full was made in October 2012. The shares were valued at $273,144, which was the fair value of convertible debts on the
date of conversion.
Following the agreement with Redwood (see
Note 3), conversions were made for a total of 18,737,894 shares of the Company’s restricted stock, satisfying the note in
full. The shares were valued at a total amount of $320,531, which was the fair value of convertible debts on the date of conversion.
7. STOCK OPTIONS AND WARRANTS
Common Stock Warrants
From time to time, we issue warrants to
purchase our common stock. These warrants have been issued for cash in conjunction with the private placement of shares of our
common stock.
During December 2013, the Company issued
a total of 10,000,000 warrants to purchase common stock at an exercise price of $0.03 per share in connection with the private
placement offerings. The warrants expire on December 31, 2015 (See note 6).
During October and November 2013, the Company
issued a total of 1,000,000 warrants to purchase common stock at an exercise price of $0.10 per share in connection with the private
placement offerings. The warrants expire on December 31, 2014 (See note 6).
On September 16, 2013, the Company issued
25,000,000 warrants to purchase stock at an exercise price of $0.030 in connection with settlement of an outstanding account payable.
The warrants expire on December 31, 2014 (See Note 3 and Note 6).
On
September 3, 2013 and September 12, 2013, the Company issued 20,000,000 and 15,000,000 warrants, respectively, to purchase common
stock at an exercise price of $0.025 per share in connection with issuances of convertible notes payable to Coventry. The warrants
expire on September 3, 2018 and September, 12, 2018, respectively (See note 5).
During
March, 2013, the Company issued a total of 2,600,000 warrants to purchase common stock at an exercise price of $0.01 per share
in connection with issuance of a convertible note payable to Coventry. The warrants expire on March 22, 2018 (See note 5).
During June, 2013, 25,000,000 warrants
to purchase stock at an exercise price of $0.10 per share were issued to CEO, Mr. Deitsch in exchange of notes payable. The warrants
expire on December 31, 2014 (See note 4).
A summary of warrants outstanding in conjunction
with private placements of common stock were as follows during the year ended December 31, 2013 and 2012:
|
|
Number of shares
|
|
|
Weighted average exercise price
|
|
Balance December 31, 2011
|
|
|
47,921,667
|
|
|
$
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Issued
|
|
|
54,650,000
|
|
|
$
|
0.10
|
|
Forfeited/Expired
|
|
|
(45,315,000
|
)
|
|
|
-
|
|
Balance December 31, 2012
|
|
|
57,256,667
|
|
|
$
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Issued
|
|
|
98,600,000
|
|
|
$
|
0.01
– 0.10
|
|
Forfeited
|
|
|
(940,000
|
)
|
|
|
-
|
|
Balance December 31, 2013
|
|
|
154,916,667
|
|
|
$
|
0.082
|
|
The following table summarizes information
about fixed-price warrants outstanding as of December 31, 2013 and 2012
:
|
|
Exercise Price
|
|
|
Number
Outstanding
|
|
|
Weighted
Average
Contractual
Life
|
|
|
Weighted
Average
Exercise Price
|
|
2013
|
|
$
|
0.01-0.10
|
|
|
|
154,916,667
|
|
|
|
1.97 years
|
|
|
$
|
0.082
|
|
2012
|
|
$
|
0.10-0.15
|
|
|
|
57,256,667
|
|
|
|
2.04 years
|
|
|
$
|
0.10
|
|
As of December 31, 2013, the aggregate
intrinsic value of all stock options and warrants outstanding and expected to vest was $0. The intrinsic value of each option share
is the difference between the fair value of our common stock and the exercise price of such option share to the extent it is “in-the-money”.
Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised
their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic
value calculation is based on the $0.0075, closing stock price of our common stock on December 31, 2013.There were no in-the-money
warrants at December 31, 2013.
8. INCOME TAXES
The Company’s tax expense differs
from the “expected” tax expense for the years ended December 31, 2013 and 2012, (computed by applying the Federal Corporate
tax rate of 34% to loss before taxes and 8.84% for California State Corporate Taxes, the blended rate used was 39.83%), are approximately
as follows:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Computed "expected" tax expense (benefit) - Federal
|
|
$
|
(1,346,076
|
)
|
|
$
|
(1,115,374
|
)
|
Computed "expected" tax expense (benefit) - State
|
|
|
(322,564
|
)
|
|
|
(318,119
|
)
|
Stock-based compensation
|
|
|
558,448
|
|
|
|
674,914
|
|
Change in fair value of derivatives
|
|
|
452,390
|
|
|
|
159,500
|
|
Change in valuation allowance
|
|
|
657,802
|
|
|
|
599,079
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current portion of net deferred income tax assets:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
242,000
|
|
|
$
|
242,000
|
|
Reserve for inventory obsolescence
|
|
|
313,925
|
|
|
|
313,925
|
|
Accrued salary
|
|
|
101,877
|
|
|
|
43,154
|
|
Subtotal
|
|
|
657,802
|
|
|
|
599,079
|
|
Valuation allowance
|
|
|
(657,802
|
)
|
|
|
(599,079
|
)
|
Current net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non- current portion of net deferred income tax asset
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
6,232,881
|
|
|
$
|
5,575,079
|
|
Valuation allowance
|
|
|
(6,232,881
|
)
|
|
|
(5,575,079
|
)
|
Non-current net deferred income tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due to the uncertainty of the utilization
and recoverability of the loss carry-forwards and other deferred tax assets, we have provided a valuation allowance to fully reserve
such assets.
As of December 31, 2013, the Company has
net operating loss carryforwards of approximately $15,580,000 available to offset future taxable income in various years through
December 31, 2033. The significant difference between such net operating loss carryforwards and our accumulated deficit
of approximately $41,987,000 results primarily from stock based compensation which is considered to be a permanent difference.
The valuation allowances increased by approximately
$658,000 and $599,000 for the years ended December 31, 2013 and 2012, respectively. The Company’s 2011 to 2013 tax returns
are subject to examination by Internal Revenue Services and State Taxing Agency’s.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
In February 2010, Nutra Pharma entered
into an operating lease for the use of office space. The lease expired in January 2013 and required monthly payments of approximately
$9,000. In February 2013, Nutra Pharma entered into a new operating lease for monthly payments of approximately $3,500 for three
years. ReceptoPharm leases a lab and renewed its operating lease agreement for five years in July of 2012. The lease requires monthly
payments of approximately $5,000 beginning August 1, 2012.
Future minimum payments under these lease
agreements, including the extension period, are approximately as follows:
Years ended
December 31,
|
|
Amounts
|
|
2014
|
|
$
|
116,345
|
|
2015
|
|
|
120,218
|
|
2016
|
|
|
79,892
|
|
2017
|
|
|
45,249
|
|
Total
|
|
$
|
361,704
|
|
Rent expense in 2013 and 2012 approximated
$114,889 and $183,000, respectively.
Litigation
Patricia Meding, et. al. v. ReceptoPharm,
Inc. f/k/a Receptogen, Inc.
On August 18, 2006, ReceptoPharm was named
as a defendant in Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06 (New York Supreme
Court, Queens County). The original proceeding claimed that ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to own, the sum of $118,928.15 plus interest and
counsel fees on a series promissory notes that were allegedly executed in 2001 and 2002. On August 23, 2007, the Queens County
New York Supreme Court issued a decision denying Plaintiffs motion for summary judgment in lieu of a complaint, concluding that
there were issues of fact concerning the enforceability of the promissory notes. On May 23, 2008, the Plaintiffs filed an amended
complaint in which they reasserted their original claims and asserted new claims seeking damages of no less than $768,506 on their
claims that in or about June 2004 ReceptoPharm breached its fiduciary duty to the Plaintiffs as shareholders of ReceptoPharm by
wrongfully canceling certain of their purported ReceptoPharm share certificates. In late 2010, Plaintiffs further amended their
complaint alleging that ReceptoPharm violated Plaintiffs contractual and statutory rights by cancelling an additional 1,214,800
share certificates and failing to permit the Plaintiffs to exercise dissenting shareholder rights with respect to those share certificates.
The damages associated with the Plaintiff’s claims could rise as the result of increases in our share price as the Receptopharm
shares may be convertible into our common shares. The potential exposure may exceed $10,000,000 if the Plaintiffs are successful
with all of their claims.
ReceptoPharm believes the suit is without
merit and has filed an answer denying the material allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, breach of fiduciary duty, conversion and unjust enrichment
as a result of the promissory notes. Plaintiffs have moved for partial summary judgment on their claims regarding the additional
1,214,800 shares, but not on their claims regarding the alleged promissory notes or the 1,750,000 alleged shares. In August of
2011, the Plaintiff's motion was partially granted. In September 2012, ReceptoPharm's attorneys filed a Motion to be removed as
counsel. Their motion was denied on April 26, 2013 due to the current Involuntary Bankruptcy action filed against Nutra Pharma.
The court has issued a stay in the proceedings pending the outcome of the Bankruptcy action. ReceptoPharm is seeking new counsel
to oppose the partial summary judgment. We intend to vigorously contest this matter.
Liquid Packaging Resources, Inc. v.
Nutra Pharma Corp. and Erik "Rik" Deitsch
On April 21, 2011, Nutra Pharma Corp. and
its CEO, Erik Deitsch, were named as defendants in
Liquid Packaging Resources, Inc. v. Nutra Pharma Corp. and Erik "Rik"
Deitsch
, Superior Court of Fulton County, Georgia, Civil Action No. 2011-CV-199562. Liquid Packaging Resources, Inc. ("LPR")
claimed that Nutra Pharma Corp. and Mr. Deitsch, directly or through other companies, placed orders with LPR that required LPR
to purchase components from third parties. LPR sought reimbursement for those third party expenses in the amount of not less than
$359,826.85 plus interest. LPR also sought punitive damages in the amount of not less than $500,000 and attorney's fees.
Mr. Deitsch and Nutra Pharma Corp. then
removed the action to the United States District Court, Northern District of Georgia, Civil Action No. 11-CV-01663-ODE. After removal,
LPR amended the Complaint to assert that Nutra Pharma Corp. and Mr. Deitsch were the alter egos of the alleged other companies
through whom the subject orders were placed and therefore should be considered one and the same. Mr. Deitsch and Nutra Pharma Corp.
moved to dismiss the Complaint on several grounds including statute of frauds, failure to state a claim, and jurisdiction (only
for Mr. Deitsch). Mr. Deitsch and Nutra Pharma Corp. believe the suit is without merit.
After June 30, 2011, at LPR's request,
the parties mediated the dispute before LPR responded to the Motion To Dismiss. At the mediation, the parties worked out an agreement
whereby Nutra Pharma Corp. would purchase from LPR the components LPR purchased from third parties at an amount slightly less than
the principal amount of the suit and on terms acceptable to us. The agreed price was $350,000.00 payable over 7 months in equal
$50,000.00 amounts. This agreement was reached by us because it provided tangible value in exchange for the purchase price rather
than incurring the expense of litigation, which would likely be substantial and not recouped. While Nutra Pharma Corp. had counterclaims
we could assert, we believe this was a practical resolution. The settlement allowed us to take possession of the components prior
to full payment and, in exchange, provided security to LPR in the form of our stock valued at $400,000 at the time of issuance.
The stock can only be sold in event of a default of the payment schedule. The litigation was dismissed in August of 2011. We made
the August, September and November payments (totaling $150,000) in a timely fashion. We were late for the payment due October 15,
2011 and requested an accommodation from LPR, eventually paying an extra $5,000 towards that payment. At December 31, 2011, Nutra
Pharma Corp. had made total payments of $205,000 with an additional $150,000 owed. In order to allow us to skip the December payment,
LPR agreed to another accommodation whereby we would pay both the December and January payment with an additional $10,000 on or
before January 16, 2012. We were unable to make this payment and on January 26, 2012 signed an amended payment schedule adding
an additional $15,000 for a total of $175,000 owed. Our CEO, Rik Deitsch, added additional collateral stock in a separate company
that he held personally. $25,000 was paid in January, with subsequent payments of $30,000 due monthly on the 15th of March through
the 15th of July, 2012. We failed to make the March payment and was subsequently called in default of the Agreement. Under the
original agreement, if we are in default of the agreement, LPR has the right to sell shares of our free trading stock held in escrow
by their attorney and receive cash settlements for a total amount of $450,000 representing the new total cash amount due to LPR
by the Company.
On June 11, 2012, LPR sold their debt to
Southridge Partners, LLP in an agreement to be paid out over time. In August, 2013, LPR cancelled their agreement with Southridge
Partners, LLP. As of December 31, 2013 LPR continues to hold the collateral stock. We are currently negotiating a settlement
with LPR. Upon the settlement of the outstanding debt, LPR will return the collateral shares to the Company.
Involuntary Petition of Bankruptcy
On
August 31, 2012, certain former ReceptoPharm employees and a former ReceptoPharm consultant filed a Petition for Involuntary Bankruptcy
against us in the United States Bankruptcy Court, Southern District of Florida. The Petitioners originally claimed they were owed
$990,927 from Nutra Pharma in the form of accrued wages and promissory notes, but amended their claim to $816,662 in a subsequent
filing. In response to the Petition, we filed a motion to dismiss the action which, if successful, would avoid the case being
converted into an actual bankruptcy action. On September 30, 2013, the Company entered into a Settlement Agreement with the Petitioners,
which is effective upon the court dismissal of the action. In full and final satisfaction of all claims, the Company settled
the Agreement with the Petitioners for a total sum of $350,000. $35,000 has been paid and a second lump sum payment is due
within 8 months from the date the court dismissed the action (See Note 10).
Laurence N. Raymond v. Receptopharm,
Inc. et al.
On December 30, 2011 Laurence N. Raymond
("Raymond") brought the case against Receptopharm, Inc. ("Receptopharm") and Nutra Pharma to recover approximately
$300,000 that was allegedly either loaned to Receptopharm or owing to Raymond pursuant to an oral employment agreement. Dr. Raymond
is one of the petitioning creditors that brought the above-described involuntary bankruptcy action. The settlement agreement reached
in that action fully resolves all claims between the parties and specifies that this action will be dismissed immediately
upon the full settlement payments, pursuant to a confidential settlement agreement.
Paul F. Reid
v, Harold H. Rumph et al.
On December 28, 2011 Paul F. Reid ("Reid")
brought the case against Harold H. Rumph ("Rumph"), Receptopharm, and Nutra Pharma to recover approximately $330,000
that was allegedly either loaned to Receptopharm or owing to Reid pursuant to an oral employment agreement. Dr. Reid is one of
the petitioning creditors that brought the above-described involuntary bankruptcy action. The settlement agreement reached in that
action fully resolves all claims between the parties and specifies that this action will
be dismissed immediately upon the full settlement payments, pursuant to a confidential settlement agreement.
10. SUBSEQUENT EVENTS
Private Placements of Common Stock
In January 2014, the Company sold 12,000,000
shares of restricted common stock to an investor at a price per share of $0.005 and received proceeds of $60,000. The Company issued
12,000,000 warrants to purchase common stock at an exercise price of $0.03 per share. The warrants expire on December 31, 2015.
Common Stock Issued for Debt Modification
and Default
On January 17, 2014, the Company issued
a total of 1,000,000 restricted shares to the Michael McDonald Trust due to the default on repayment of the promissory note of
$75,000. The shares were valued at a fair value of $9,900.
Common Stock Issued for Debt Conversions
Following the agreements with Coventry
Enterprises, LLC for $70,000 in September 2013, Coventry converted the $60,000 of the note for a total of 15,584,415 shares of
the company’s restricted stock during on March 12, 2014. The remaining balance of the note is $10,000.
Following the agreements with Coventry
Enterprises, LLC for $100,000 in September 2013, Coventry converted the $90,000 of the note for a total of 23,376,623 shares of
the company’s restricted stock during on March 12, 2014. The remaining balance of the note is $10,000.
Officer
Loans
During
January through March 2014, the Company received additional advances from our President and CEO, Rik Deitsch, in the amount of
$16,008 and repaid Mr. Deitsch $14,600. These funds are unsecured, bearing interest at 4% and due on demand.
Involuntary
Petition of Bankruptcy
On
September 30, 2013, the Company entered into a Settlement Agreement with the Petitioners, which is effective upon the court dismissal
of the action. In full and final satisfaction of all claims, the Company settled the Agreement with the Petitioners for a
total sum of $350,000. $35,000 has been paid and a second lump sum payment is due within 8 months from February 12, 2014,
the date the court dismissed the action. The Parties executed mutual releases exclusive of releases under the Settlement Agreement
(See Note 9).