UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10Q

 

(Mark One)

 

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2019

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _________ to ________

 

Commission file numbers 000–32141

 

NUTRA PHARMA CORP.

(Name of registrant as specified in its charter)

 

California   91–2021600
(State or Other Jurisdiction of Organization)   (IRS Employer Identification Number)

 

1537 NW 65th Avenue

Plantation, FL

  33313
(Address of principal executive offices)   (Zip Code)

 

(954) 509–0911

(Registrant's telephone number, including area code)

 

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.   Yes ¨Noþ 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨ No þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, a smaller reporting company, or an emerging growth company.

 

Large accelerated filer ¨ Accelerated filer ¨
Nonaccelerated filer ¨ Smaller reporting company þ
  Emerging Growth Company ¨

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act). Yes ¨ No þ

 

As of May 7, 2021, there were 7,214,349,714 shares of common stock and 3,000,000 shares of Series A preferred stock issued and outstanding.

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION 4
   
Item 1. Financial Statements 4
   
Condensed Consolidated Balance Sheets as of June 30, 2019 (Unaudited) and December 31, 2018 5
   
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019
and 2018 (Unaudited)
6
   
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited) 7
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019
and 2018 (Unaudited)
7
   
Notes to Condensed Consolidated Financial Statements (Unaudited) 8
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 39
   
Item 4. Controls and Procedures 39
   
PART II. OTHER INFORMATION 40
   
Item 1. Legal Proceedings 40
   
Item 1A. Risk Factors  
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 41
   
Item 3. Defaults Upon Senior Securities 43
   
Item 4. Mine Safety Disclosure 43
   
Item 5. Other Information 43
   
Item 6. Exhibits 43

 

 

 

 

 

 

 

 

NUTRA PHARMA CORP.

 

Nutra Pharma Corp. is referred to hereinafter as “we”, “us” or “our”

 

Forward Looking Statements

 

This Quarterly Report on Form 10–Q for the period ending June 30, 2019, contains forward–looking statements that involve risks and uncertainties, 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.” We are subject to risks detailed in Item 1(a). All statements other than statements of historical fact are statements that could be deemed forward–looking statements, including: (a) any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; and (b) any statements of the plans, strategies and objectives of management for future operations; and (c) 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. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NUTRA PHARMA CORP.

Condensed Consolidated Balance Sheets

 

    June 30,
2019
  December 31,
2018
    (Unaudited)    
ASSETS        
Current assets:        
Cash $ 113,713 $ -
Accounts receivable   28,134   17,065
Inventory   36,528   35,302
Prepaid expenses and other current assets   44,348   63,000
Total current assets   222,723   115,367
         
Property and equipment, net   8,290   10,500
Operating lease right-of-use assets   251,887   -
Security deposit   15,550   15,550
Total assets $ 498,450 $ 141,417
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
Current liabilities:        
Accounts payable $ 553,277 $ 475,409
Accrued expenses   887,948   831,849
Accrued payroll due to officers   1,153,893   1,050,993
Accrued interest to related parties   150,372   141,808
Due to officer   161,418   186,497
Derivative warrant liability   1,934   1,468
Other debt, net of discount, current portion   4,867,086   3,338,576
Operating lease obligations, current portion   68,806   -
Total current liabilities   7,844,734   6,026,600
Promissory note, less current portion   4,616   51,410
Convertible note, less current portion   119,879   -
Operating lease obligations, less current portion   181,379   -
Total liabilities   8,150,608   6,078,010
         
Commitments and Contingencies        
         
Stockholders' deficit:        
         
Preferred stock, $0.001 par value, 20,000,000 shares authorized: 3,000,000 Series A Preferred shares issued and outstanding at June 30, 2019 and December 31, 2018   3,000   3,000
Common stock, $0.001 par value, 8,000,000,000 shares authorized: 5,038,246,111 and 4,046,746,110 shares issued and outstanding at June 30, 2019 and December 31, 2018   5,038,246   4,046,746
Additional paid-in capital   50,648,088   51,286,503
Accumulated deficit   (63,341,492)   (61,272,842)
Total stockholders' deficit   (7,652,158)   (5,936,593)
Total liabilities and stockholders' deficit $ 498,450 $ 141,417

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

4 

 

 

 

 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Operations

(Unaudited)

 

    For the Three Months
Ended June 30,
  For the Six Months
Ended June 30,
    2019   2018   2019   2018
        (Restated)       (Restated)
Net sales $ 10,215 $ 29,381 $ 51,537 $ 60,357
Cost of sales   (3,774)   (16,570)   (19,399)   (20,929)
Gross profit   6,441   12,811   32,138   39,428
                 
Operating expenses:                
Selling, general and administrative - including stock based compensation of $26,500 and $10,000 for the three months ended June 30, 2019 and 2018, and $56,500 and $10,000 for the six months ended June 30, 2019 and 2018, respectively   334,287   348,660   608,922   712,733
Total operating expenses   334,287   348,660   608,922   712,733
Loss from operations   (327,846)   (335,849)   (576,784)   (673,305)
                 
Other income (expenses)                
Interest expense   (59,832)   (161,312)   (134,977)   (432,872)
Interest expense to related parties   (4,368)   (3,882)   (8,564)   (7,611)
Change in fair value of convertible notes and derivatives   (1,275,111)   (849,376)   (1,404,528)   (1,982,864)
Gain (Loss) on settlement of debt and accounts payable, net   (1,050)   19,677   56,203   768,323
Total Other income (expenses)   (1,340,361)   (994,893)   (1,491,866)   (1,655,024)
Loss before income taxes   (1,668,207)   (1,330,742)   (2,068,650)   (2,328,329)
Provision for income taxes   -   -   -    
Net loss $ (1,668,207) $ (1,330,742) $ (2,068,650) $ (2,328,329)
                 
Net loss per share - basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
                 
Weighted average number of shares outstanding during the year - basic and diluted   4,612,987,869   2,723,756,675   4,336,212,961   2,458,305,604

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

5 

 

 

 

 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders' Deficit

For the three months ended June 30, 2019 and 2018

(Unaudited)

 

            Additional       Total
    Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders'
    Shares   Amount   Shares   Amount   Capital   Deficit   Deficit
Balance -March 31, 2019   3,000,000 $ 3,000   4,127,746,110 $ 4,127,746 $ 51,246,050 $ (61,673,285) $ (6,296,489)
                             
Issuance of common stock in exchange for services to consultants           135,000,000   135,000   (105,000)       30,000
Common stock issued for debt modification and penalty           3,500,000   3,500   (2,450)       1,050
Common stock issued for conversion of debt           750,000,000   750,000   (475,000)       275,000
Common stock issued with Debt--Debt discount           22,000,001   22,000   (15,512)       6,488
Net loss                       (1,668,207)   (1,668,207)
Balance -June 30, 2019   3,000,000 $ 3,000   5,038,246,111 $ 5,038,246 $ 50,648,088 $ (63,341,492) $ (7,652,158)
                             

 

 

            Additional       Total
    Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders'
    Shares   Amount   Shares   Amount   Capital   Deficit   Deficit
Balance -March 31, 2018   3,000,000 $ 3,000   2,332,105,170 $ 2,332,105 $ 50,887,528 $ (58,385,734) $ (5,163,101)
                             
Issuance of common stock in exchange for services to consultants           100,000,000   100,000   20,000       120,000
Common stock issued for debt modification and penalty           1,000,000   1,000   700       1,700
Common stock issued for conversion of debt           802,946,997   802,947   350,681       1,153,628
Common stock issued with Debt--Debt discount           5,000,000   5,000   3,678       8,678
Beneficial conversion features                   105,000       105,000
Net loss                       (1,330,742)   (1,330,742)
Balance -June 30, 2018 (Restated)   3,000,000 $ 3,000   3,241,052,167 $ 3,241,052 $ 51,367,587 $ (59,716,476) $ (5,104,837)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

6 

 

 

 

 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders' Deficit

For the six months ended June 30, 2019 and 2018

(Unaudited)

 

            Additional       Total
    Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders'
    Shares   Amount   Shares   Amount   Capital   Deficit   Deficit
Balance -December 31, 2018   3,000,000 $ 3,000   4,046,746,110 $ 4,046,746 $ 51,286,503 $ (61,272,842) $ (5,936,593)
                             
Issuance of common stock in exchange for services to consultants           135,000,000   135,000   (105,000)       30,000
Common stock issued for debt modification and penalty           3,500,000   3,500   (2,450)       1,050
Common stock issued for conversion of debt           750,000,000   750,000   (475,000)       275,000
Common stock issued with Debt--Debt discount           22,000,001   22,000   (15,512)       6,488
Common stock issued for settlement of debt           81,000,000   81,000   (48,600)       32,400
Warrants issued with Debt--Debt discount                   8,147       8,147
Net loss                       (2,068,650)   (2,068,650)
Balance -June 30, 2019   3,000,000 $ 3,000   5,038,246,111 $ 5,038,246 $ 50,648,088 $ (63,341,492) $ (7,652,158)

 

 

            Additional       Total
    Preferred Stock   Common Stock   Paid-in   Accumulated   Stockholders'
    Shares   Amount   Shares   Amount   Capital   Deficit   Deficit
Balance -December 31, 2017   3,000,000 $ 3,000   2,032,233,701 $ 2,032,234 $ 49,942,719 $ (57,388,147) $ (5,410,194)
                             
Issuance of common stock in exchange for services to consultants           100,000,000   100,000   20,000       120,000
Common stock issued for debt modification and penalty           71,621,469   71,621   28,949       100,570
Common stock issued for conversion of debt           1,027,946,997   1,027,947   1,130,691       2,158,638
Common stock issued with Debt--Debt discount           9,250,000   9,250   9,315       18,565
Beneficial conversion features                   235,913       235,913
Net loss                       (2,328,329)   (2,328,329)
Balance -June 30, 2018 (Restated)   3,000,000 $ 3,000   3,241,052,167 $ 3,241,052 $ 51,367,587 $ (59,716,476) $ (5,104,837)

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

7 

 

 

 

 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    For the Six Months
Ended June 30,
    2019   2018
        (Restated)
Cash flows from operating activities:        
  Net loss $ (2,068,650) $ (2,328,329)
Adjustments to reconcile net loss to net cash used in operating activities:        
Bad debt expense   31,789   -
Accrued interest expense for amount due to officer   3,536   -
Gain on settlement of debt and accounts payable   (56,203)   (768,323)
Depreciation   2,210   3,753
Stock-based compensation   56,500   10,000
Stock-based loan modification cost   -   126,700
Change in fair value of convertible notes and derivatives   1,404,528   1,982,864
Amortization of loan discount   62,078   207,837
Amortization of operating lease right-of-use assets   29,288   -
Changes in operating assets and liabilities:        
Increase in accounts receivables   (13,858)   (1,137)
Increase in inventory   (1,226)   (39,282)
Increase in prepaid expenses and other current assets   (7,848)   (44,257)
Increase in accounts payable   77,868   113,083
Increase in accrued expenses   115,811   58,610
Increase in accrued payroll due to officers   102,900   -
Decrease in deferred revenue   -   (22,490)
Increase in accrued interest to related parties   8,564   -
Decrease in operating lease obligations   (30,990)   -
Net cash used in operating activities   (283,703)   (700,971)
         
Cash flows from financing activities:        
Loans from officer   4,100   105,100
Repayment of officers loans   (61,715)   (106,150)
Proceeds from notes payable-related party   -   -
Repayments of notes payable-related party   -   -
Proceeds from convertible notes, net of debt discount and
loan issuance cost $5,000 and $14,650, respectively
  484,879   729,000
Repayment of convertible notes   (10,000)   -
Repayments of other notes payable   (19,848)   (4,000)
Net cash provided by financing activities   397,416   723,950
         
Net increase in cash   113,713   22,979
         
Cash - beginning of period   -   -
         
Cash - end of period $ 113,713 $ 22,979
         
Supplemental Cash Flow Information:        
Cash paid for interest $ - $ 5,425
Cash paid for income taxes $ - $ -
Non cash Financing and Investing:        
Note and stock issued in settlement of notes and accounts payable $ 32,400 $ -
Shares issued to satisfy debt $ 275,000 $ 5,242,524
Discounts on notes payable $ 14,635 $ 18,565
Debt discount for beneficial conversion features $ - $ 235,913
Right-of-use asset due to adoption of ASC 842 $ 281,175 $ -
Operating lease liabilities due to adoption of ASC 842 $ 281,175 $ -

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

8 

 

 

 

 

 

NUTRA PHARMA CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2019

 

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 was 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. In December 2014, we launched Pet Pain-Away, an over-the-counter pain reliever designed to treat pain in cats and dogs.

 

Basis of Presentation and Consolidation

 

The Unaudited Condensed Consolidated Financial Statements and notes are presented in accordance with the rules and regulations of the Securities and Exchange Commission and do not contain certain information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature. Interim results are not necessarily indicative of results for a full year. Therefore, the interim Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in the Company’s Annual Report on Form 10-K.

 

The accompanying Unaudited Condensed 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.

 

Reclassification of Prior Year Presentation

 

Reclassification occurred to certain prior year amounts in order to conform to the current year classifications. The reclassifications have no effect on the reported net loss.

 

Restatement of Prior Period Presentation

 

Certain prior period amounts have been restated. Restatements have been made for the three and six months ended June 30, 2018 to correct the change in the fair value of convertible notes and to record a gain on settlement of debt and accounts payable. As a result of these changes, the following occurred:

 

1. Net loss for the three months ended June 30, 2018 decreased by $19,143 ($0.00 per share) (see table below).
2. Net loss for the six months ended June 30, 2018 decreased by $3,110,017 ($0.00 per share) (see table below).
3. At June 30, 2018, there was no change to total stockholders' deficit but additional paid-in capital and accumulated deficit decreased by $3,110,017.
4. Certain amounts in cash flows from operating activities were updated for the six months ended June 30, 2018, but there was no change to the total net cash used in operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

 

    For the Three Months
Ended June 30, 2018
    Amounts
Restated
  Amounts
Previously
Reported
  Adjustments Decrease in Net Loss
Change in fair value of convertible notes and derivatives $ (849,376) $ (868,519) $ 19,143
Net effect of restatement on net loss         $ 19,143

 

9 

 

 

 

 

 

    For the Six Months
Ended June 30, 2018
    Amounts
Restated
  Amounts
Previously
Reported
  Adjustments Decrease in Net Loss
Change in fair value of convertible notes and derivatives $ (1,982,864) $ (4,344,235) $ 2,361,371
Gain on settlement of debt and accounts payable   768,323   19,677   748,646
Net effect of restatement on net loss         $ 3,110,017

 

Liquidity and Going Concern

 

Our Unaudited Condensed 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 $63,341,492 at June 30, 2019. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $7,622,011 and a stockholders’ deficit of $7,652,158 at June 30, 2019.

 

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.

 

We do not have sufficient cash to sustain our operations for a period of twelve months from the issuance date of this report 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 Unaudited Condensed 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.

 

Impact of COVID-19 on our Operations 

 

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Beginning in June 2020, the Company experienced a delay in retail rollout as a downstream implication of the slowing economy. We also closed our Coral Springs office in effort to save money. During May 2020, we received approval from SBA to fund our request for a PPP loan for $64,895 (See Note 12). During April and June 2020, we obtained a loan in the amount of $154,900 from the SBA under its Economic Injury Disaster Loan assistance program. We intended to use the proceeds primarily for working capital purpose (See Note 12).

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the development of widespread testing or a vaccine.

 

Use of Estimates

 

The accompanying Unaudited Condensed 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, the recoverability of amounts due from officer, the valuation of stock-based compensation and certain debt and warrant liabilities, recognition of loss contingencies and deferred tax valuation allowances. 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.

 

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Revenue from Contracts with Customers

 

On January 1, 2018, we adopted Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606") using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The cumulative impact of adopting ASC Topic 606 resulted in no changes to retained earnings at January 1, 2018. The impact to revenue for the three and six months ended June 30, 2018 was an increase of $1,280 and $2,780, respectively, as a result of applying ASC Topic 606 to certain revenues generated through online distributors which are now presented gross as we have control over providing the products related to such revenues. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has evaluated the impact of ASC Topic 606 and determined that there is no change to the Company's accounting policies, except for the recording of certain product sales to a distributor, in which a portion of the cash proceeds received is remitted back to the distributor. Under ASC Topic 606, the Company determined that these sales should be recorded on a gross basis.

 

Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled upon delivery of products. We record revenues net of promotions and discounts. For certain product sales to a distributor, we record revenue including a portion of the cash proceeds that is remitted back to the distributor.

 

Accounting for Shipping and Handling Costs

 

We account for shipping and handling as fulfillment activities and record shipping and handling costs incurred within revenue.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

We grant credit without collateral to our customers based on our evaluation of a particular customer’s credit worthiness. Accounts receivable are due 30 days after the issuance of the invoice. In addition, allowances for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of periodic credit evaluations of our 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. We generally do not charge interest on accounts receivable. We use third party payment processors and are required to maintain reserve balances, which are included in accounts receivables.

 

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. Management believes that the receivables are fully collectable. Therefore, no allowance for doubtful account is deemed to be required at June 30, 2019 and December 31, 2018.

 

Inventories

 

Inventories, which are stated at the lower of average cost or net realizable value, consist of packaging materials, finished products, and 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 net realizable value adjustment for excess and obsolete inventory based primarily on its estimates of product demand and production requirements. Write-downs are charged to cost of goods sold. We performed an evaluation of our inventory and related accounts at June 30, 2019 and December 31, 2018, and increased the reserve on supplier advances for future venom purchases included in the prepaid expenses and other current assets by $0 and $47,757, respectively. At June 30, 2019 and December 31, 2018, the total valuation allowance for prepaid venom is $200,911.

 

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.

 

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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 three months ended June 30, 2019, there was one customer that accounted for 27% of the total revenues. For the three months ended June 30, 2018, there was one customer that accounted for 45% of the total revenues. For the six months ended June 30, 2019, there were two customers that accounted for 25% and 49% of the total revenues, respectively. For the six months ended June 30, 2018, there was one customer that accounted for 22% of the total revenues. As of June 30, 2019 and December 31, 2018, 100% and 84% of the accounts receivable balance are reserves due from two payment processors.

 

Operating Lease Right-of-Use Asset and Liability

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases” (Topic 842), as amended (“ASC Topic 842”). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months and classify as either operating or finance leases. We adopted this standard effective January 1, 2019 using the modified retrospective approach for all leases entered into before the effective date. Adoption of the ASC Topic 842 had a significant effect on our balance sheet resulting in increased non-current assets and increased current and non-current liabilities. There was no impact to retained earnings upon adoption of the new standard. We did not have any finance leases (formerly referred to as capital leases prior to the adoption of ASC Topic 842), therefore there was no change in accounting treatment required. For comparability purposes, the Company will continue to comply with the previous disclosure requirements in accordance with the existing lease guidance and prior periods are not restated.

 

The Company elected the package of practical expedients as permitted under the transition guidance, which allowed us: (1) to carry forward the historical lease classification; (2) not to reassess whether expired or existing contracts are or contain leases; and, (3) not to reassess the treatment of initial direct costs for existing leases.

 

In accordance with ASC Topic 842, at the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease including whether the contract involves the use of a distinct identified asset, whether we obtain the right to substantially all the economic benefit from the use of the asset, and whether we have the right to direct the use of the asset. Leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less under practical expedient in paragraph ASC 842-20-25-2.

 

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within our operating leases are generally not determinable and, therefore, the Company uses the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of the Company’s incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate for each lease using our estimated borrowing rate.

 

For periods prior to the adoption of ASC Topic 842, the Company recorded rent expense based on the term of the related lease. The expense recognition for operating leases under ASC Topic 842 is substantially consistent with prior guidance. As a result, there are no significant differences in our results of operations presented.

 

The impact of the adoption of ASC 842 on the balance sheet was:

 

    As reported
December 31,
2018
  Adoption of ASC 842 – increase (decrease)   Balance January 1,
2019
Operating lease right-of-assets $ - $ 281,175 $ 281,175
Total assets $ 141,417 $ 281,175 $ 422,592
Operating lease liabilities, current portion $ - $ 64,573 $ 64,573
Operating lease liabilities, net of current portion $ - $ 216,602 $ 216,602
Total liabilities $ 6,078,010 $ 281,175 $ 6,359,185
Total liabilities and stockholders’ equity $ 141,417 $ 281,175 $ 422,592

 

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Derivative Financial Instruments

 

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. 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.

 

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

 

Convertible Debt

 

For convertible debt that does not contain an embedded derivative that requires bifurcation, the conversion feature is evaluated to determine if the rate of conversion is below market value and should be categorized as a beneficial conversion feature ("BCF"). A BCF related to debt is recorded by the Company as a debt discount and with the offset recorded to equity. The related convertible debt is recorded net of the discount for the BCF. The discount is amortized as additional interest expense over the term of the debt with the resulting debt discount being accreted over the term of the note.

 

The Fair Value Measurement Option

 

We have elected the fair value measurement option for convertible debt with embedded derivatives that require bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC Topic 815, Derivatives and Hedging. The Company reports interest expense, including accrued interest, related to this convertible debt under the fair value option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated statement of operations.

 

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.

 

Income Taxes

 

The Company recorded no income tax expense for the six months ended June 30, 2019 and 2018 because the estimated annual effective tax rate was zero. As of June 30, 2019, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be realized.

 

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.

 

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Net Loss Per Share

 

Net loss per share is calculated in accordance with FASB 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 June 30, 2019 and 2018, the following items were not included in dilutive loss as the effect is anti-dilutive:

 

    June 30, 2019   June 30, 2018
Options and warrants   118,500,000   13,475,000
Convertible notes payable   7,050,986,979   1,625,457,403
Total   7,169,486,979   1,638,932,403

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). ASU No 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and is effective for the Company as of January 1, 2019. The Company noted that all share based payments were settled as of the date of the adoption, so there was no impact on the Company's financial statements.

 

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

2.     FAIR VALUE MEASUREMENTS

 

Certain assets and liabilities that are measured at fair value on a recurring basis at June 30, 2019 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 at June 30, 2019 and December 31, 2018:

 

    Fair Value Measurements at June 30, 2019
Liabilities:   Total   Level 1   Level 2   Level 3
Warrant liability $ 1,934 $ - $ - $ 1,934
Convertible notes at fair value $ 2,821,182 $ - $ - $ 2,821,182

 

    Fair Value Measurements at December 31, 2018
Liabilities:   Total   Level 1   Level 2   Level 3
Warrant liability $ 1,468 $ - $ - $ 1,468
Convertible notes at fair value $ 1,156,341 $ - $ - $ 1,156,341

 

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The following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3) during the six months ended June 30, 2019 and the year ended December 31, 2018:

 

Description   June 30,
2019
  December 31,
2018
Beginning balance $ 1,468 $ 5,903
Total (gain) loss included in earnings (1)   466   (4,435)
Ending balance $ 1,934 $ 1,468

 

(1)   The gain related to the revaluation of our warrant liability is included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations. We valued our warrants using a Dilution-Adjusted Black-Scholes Model. Assumptions used include (1) 1.75% to 2.81% risk-free rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility of 256%-305% (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.

 

The following table summarizes assumptions and the significant terms of the convertible notes for which the entire hybrid instrument is recorded at fair value at June 30, 2019 and December 31, 2018:

 

          Conversion Price - Lower of Fixed
Price or Percentage of VWAP
for Look-back Period
Debenture Face
Amount
Interest
Rate
Default
Interest
Rate
Discount
Rate
Anti-Dilution
Adjusted
Price
% of stock price for look-back period Look-back
Period
June 30, 2019 $1,066,479 8%-20% 18%-24% 23.95-27.95 $0.00015-$0.05 50%-60% 3 to 25 Days
December 31, 2018 $1,566,433 8%-12% 18%-20% 25.95-27.95 $0.0002-$0.20 40%-60% 3 to 25 Days

 

Using the stated assumptions summarized in table above, we calculated the inception date and reporting period fair values of each note issued. The following table shows the changes in fair value measurements for the convertible notes at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2019 and the year ended December 31, 2018:

 

Description   June 30, 2019   December 31, 2018
Beginning balance $ 1,156,341 $ 1,925,959
Purchases and issuances   535,779   472,029
Day one loss on value of hybrid instrument (1)   671,476   2,021,041
Loss from change in fair value (1)   732,586   130,344
Gain on settlement   -   (958,581)
Conversion to common stock   (275,000)   (2,434,451)
Ending balance $ 2,821,182 $ 1,156,341

 

(1)   The losses related to the valuation of the convertible notes are included in “Change in fair value of convertible notes and derivatives” in the accompanying consolidated statement of operations.

 

3.     INVENTORIES

 

Inventories are valued at the lower of cost or net realizable value on an average cost basis. At June 30, 2019 and December 31, 2018, inventories were as follows:

    June 30,
2019
 

December 31,

2018

Raw Materials $ 34,433 $ 33,431
Finished Goods   2,095   1,871
Total Inventories $ 36,528 $ 35,302

 

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4.     PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following at June 30, 2019 and December 31, 2018:

 

    June 30,
2019
  December 31, 2018
Computer equipment $ 25,120 $ 25,120
Furniture and fixtures   34,757   34,757
Lab equipment   53,711   53,711
Telephone equipment   12,421   12,421
Office equipment – other   16,856   16,856
Leasehold improvements   73,168   73,168
Total   216,033   216,033
Less: Accumulated depreciation   (207,743)   (205,533)
Property and equipment, net $ 8,290 $ 10,500

 

We review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At June 30, 2019, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the six-months ended June 30, 2019 and 2018 was $2,210 and $3,753, respectively, and $1,105 and $1,825 for the three-months ended June 30, 2019 and 2018, respectively.

 

5.     DUE TO/FROM OFFICER

 

At June 30, 2019, the balance due to our President and CEO, Rik Deitsch, is $161,418, which is an unsecured demand loan that bears interest at 4%. During the six months ended June 30, 2019, we repaid $61,715 to and collected $4,100 from Mr. Deitsch and the Companies owned by him. Additionally, accrued interest on the demand loan was $3,536 and is included in the due to officer account.

 

At December 31, 2018, the balance due to our President and CEO, Rik Deitsch, is $186,497, which is an unsecured demand loan that bears interest at 4%. . During the six months ended June 30, 2018, we repaid $106,150 to and collected $105,100 from Mr. Deitsch and the Companies owned by him. Additionally, accrued interest on the demand loan was $7,674 and is included in the due to officer account. The Company has fully reserved receivables from companies owned by the Company's CEO. The reserve was $534,470 and $505,470 as of June 30, 2019 and December 31, 2018.

 

6.     DEBTS

 

Debts consist of the following at June 30, 2019 and December 31, 2018:

 

   

June 30,

2019

   

December 31,

2018

Note payable– Related Party (Net of discount of $1,200 and $2,400,
respectively) (1)
$ 13,200   $ 12,000
Notes payable – Unrelated third parties (Net of discount of $1,000
and $17,870, respectively) (2)
  1,387,877     1,469,690
Convertible notes payable – Unrelated third parties (Net of discount of
$6,710 and $29,371, respectively) (3)
  814,016     751,955
Convertible notes payable, at fair value (Net of discount of $44,694 and $0, respectively)  (4)   2,776,488     1,156,341
Ending balances   4,991,581     3,389,986
Less: Long-term portion-Notes payable-Unrelated third parties $ (4,616)   $ (51,410)
Less: Long-term portion-Convertible Notes payable-Unrelated third parties   (119,879)     -
Current portion $ 4,867,086   $ 3,338,576

 

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(1) During 2010 we borrowed $200,000 from one of our directors. 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. The loan is under personal guarantee by Mr. Deitsch. We repaid principal balance in full as of December 31, 2016. At June 30, 2019 and December 31, 2018, we owed this director accrued interest of $150,372 and $141,808. The interest expense for the six-months ended June 30, 2019 and 2018 was $8,564 and $7,611, respectively, and $4,368 and $3,882 for the three-months ended June 30, 2019 and 2018, respectively. 

 

In December 2017, we issued a promissory note to a related party in the amount of $12,000 with original issuance discount of $2,000. The note was amended in December 2018 with original issuance discount of $2,400 and was due in twelve months from the execution and funding of the note. At June 30, 2019 and December 31, 2018, the principal balance of the loan is $13,200 and $12,000, net of debt discount of $1,200 and $2,400, respectively. The Note was settled in June 2020.

 

(2) At June 30, 2019 and December 31, 2018, the balance of $1,387,877 and $1,469,690 net of discount of $1,000 and $17,870, respectively, consisted of the following loans:

 

· In August 2016, we issued two Promissory Notes for a total of $200,000 ($100,000 each) to a company owned by a former director of the Company. The notes carry interest at 12% annually and were due on the date that was six-months from the execution and funding of the note. Upon default in February 2017, the Notes became convertible at $0.008 per share. During March 2017, we repaid principal balance of $6,365. During April 2017, the Notes with accrued interest were restated. The restated principal balance of $201,818 bears interest at 12% annually and was due October 12, 2017. During June 2017, we repaid principal balance of $8,844. The loan was reclassified to notes payable – unrelated third parties after the director resigned in March 2018. At June 30, 2019 and December 31, 2018, we owed principal balance of $169,634 and $192,974, and accrued interest of $45,456 and $40,033, respectively. The principal balance of $101,818 and accrued interest of $21,023 were settled on February 15, 2019 for $104,000 with scheduled payments through May 1, 2020. We recorded a gain on settlement of debt in other income for $18,841. The Company repaid $4,500 during the six months ended June 30, 2019. At June 30, 2019, the balance owed is $99,500 including the accrued interest of $21,023. The remaining principal balance of $91,156 and accrued interest of $24,433 is being disputed in court and negotiation for settlement (See Note 11).

 

· On August 2, 2011 under a settlement agreement with Liquid Packaging Resources, Inc. (“LPR”), we 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 we agreed to pay $175,000, which was the balance outstanding at December 31, 2011(this includes a $25,000 penalty for non-payment). We repaid $25,000 during the three months ended March 31, 2012. We 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 142,858 shares (5,714,326 shares pre reverse stock split) of our 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 penalty was expensed during 2012. LPR sold the note to Southridge Partners, LLP (“Southridge”) for consideration of $281,772 in June 2012. In August 2013 the debt of $281,772 reverted back to LPR.

 

· At December 31, 2012, we owed University Centre West Ltd. approximately $55,410 for rent, which was assigned and sold to Southridge is currently outstanding and carries no interest.

 

· In April 2016, we issued a promissory note to an unrelated third party in the amount of $10,000 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30, 2019 and December 31, 2018, the accrued interest is $3,242 and $2,739.

 

· In May 2016, the Company issued a promissory note to an unrelated third party in the amount of $75,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. During April 2017, we accepted the offer of a settlement to issue 5,000,000 common shares as a repayment of $25,000. The note is in default and in negotiation of settlement. At June 30, 2019 and December 31, 2018, the outstanding principal balance is $50,000 and accrued interest is $43,834 and $37,801.

 

· In June 2016, the Company issued a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. The note is in default and negotiation of settlement. At June 30, 2019 and December 31, 2018, the outstanding principal balance is $50,000 and accrued interest is $37,033 and $31,000.

 

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· In August 2016, we issued a promissory note to an unrelated third party in the amount of $150,000 bearing monthly interest at a rate of 2.5%. The note was due in six months from the execution and funding of the note. During April 2017, the note with accrued interest were restated. The restated principal balance of $180,250 bears monthly interest at a rate of 2.5% and was due October 20, 2017. During January 2018, the note with accrued interest were restated. The restated principal balance of $220,506 bears monthly interest at a rate of 2.5% and was due July 12, 2018. In connection with this restated note, we issued 2,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $2,765 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. Amortization for the debt discount for the year ended December 31, 2018 was $2,765. During July 2018, we issued 5,000,000 restricted shares due to the default on repayment of the promissory note of $220,506 restated in January 2018.The shares were valued at fair value of $5,500. During December 2018, the note with accrued interest were restated. The restated principal balance of $282,983 bears monthly interest at a rate of 2.0% and was due June 17, 2019. The note is in default and negotiation of settlement. In connection with this restated note, we issued 10,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $3,945 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. Amortization for the debt discount for the six months ended June 30, 2019 and 2018 was $3,616 and $2,765, respectively. The debt discount at June 30, 2019 and December 31, 2018 was $0 and $3,616. At June 30, 2019 and December 31, 2018, the principal balance is $282,983, and the accrued interest is $36,977 and $2,830, respectively.

 

· On September 26, 2016, we issued a promissory note to an unrelated third party in the amount of $75,000 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. In January 2019, the principal balance of $60,000 and accrued interest of $15,900 was restated in the form of a Convertible Note (See Note 6(4)). The remaining note of $15,000 was assigned to an unrelated third party and is in negotiation of settlement. At June 30, 2019 and December 31, 2018, the principal balance is $15,000 and $75,000, and the accrued interest is $1,371 and $17,271, respectively.

 

· In October 2016, we issued a promissory note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2%. The note was due in six months from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2019 and December 31, 2018, the accrued interest is $33,333 and $27,300.

 

· In June 2017, we issued a promissory note to an unrelated third party in the amount of $12,500 bearing interest at 10% annually. The note was due in one year from the execution and funding of the note. The note is in default and in negotiation of settlement. At June 30, 2019 and December 31, 2018, the accrued interest is $2,573 and $1,944.

 

· During July 2017, we received a loan for a total of $200,000 from an unrelated third party. The loan was repaid through scheduled payments through August 2017 along with interest on average 15% annum. We have recorded loan costs in the amount of $5,500 for the loan origination fees paid at inception date. The debt discount was fully amortized as of June 30, 2019. At December 31, 2017, the principal balance of the loan was $191,329 and in negotiation of settlement. During June 2018, the loan was settled for $170,402 with scheduled repayments of approximately $7,000 per month through July 2020. We recorded a gain on settlement of debt in other income for $20,927 in June 2018. The Company repaid $34,976 during 2018 and $13,848 during the six months ended June 30, 2019. At June 30, 2019 and December 31, 2018, the principal balance is $121,578 and $135,426.

 

· In July 2017, we issued a promissory note to an unrelated third party in the amount of $50,000 with original issue discount of $10,000. The note was due in six months from the execution and funding of the note. The original issuance discount was fully amortized as of December 31, 2018. The note is in default and in negotiation of settlement. At June 30, 2019 and December 31, 2018, the principal balance of the note is $50,000.

 

· In September 2017, we issued a promissory note to an unrelated third party in the amount of $36,000 with original issue discount of $6,000. During September 2018 and 2019, the Note was amended with original issuance discount of $6,000 each due in September 2019 and 2020, respectively. The Note was further restated in September 2020. The restated principal balance was $33,000 with the original issuance discount of $3,000 and is due March 2021. The original issue discount is amortized over the term of the loan. Amortization for the debt discount for the six months ended June 30, 2019 and 2018 was $5,000 and $1,500, respectively. The debt discount at June 30, 2019 and December 31, 2018 is $2,500 and $6,000. Repayments of $1,500 and $7,000 have been made during 2017 and 2018, respectively. During the six months ended June 30, 2019, repayment of $1,500 has been made. The Note is under personal guarantee by Mr. Deitsch. At June 30, 2019 and December 31, 2018, the principal balance of the note is $31,000 and $27,500, net of debt discount of $1,000 and $6,000, respectively. The note is in default and in negotiation of settlement.

 

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· In October 2017, we issued a promissory note to an unrelated third party in the amount of $50,000 with original issuance discount of $10,000. The note was due in six months from the execution and funding of the note. In connection with the issuance of this promissory note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $3,200 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. At December 31, 2017, the principal balance of the note is $60,000. Debt discount and original issuance discount were fully amortized as of December 31, 2018. During April 2018, we issued a total of 1,000,000 restricted shares to a Note holder due to the default on repayment. The shares were valued at fair value of $1,700. During April 2018, the Note was restated in the amount of $60,000 including the original issuance discount of $10,000 due October 2018. In connection with this restated note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $8,678 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital.  The debt discount and original issuance discount have been fully amortized as of December 31, 2018. During November 2018, the Note was restated in the amount of $60,000 including the original issuance discount of $10,000 due May 2019. In connection with this restated note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $2,381 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. Pursuant to the restatement of the Note, the Company agreed that the original issuance discount of $10,000 from the April 2018 Note would be paid to the lender upon execution of restated Note in November 2018. The settlement agreement executed in December 2018 provides that 10,000,000 shares are issued due to the late payment. The shares were valued at $3,000. During July 2019, payment of original issuance discount of $10,000 was made. The restated Note in November 2018 and prior notes are all under personal guarantee by Mr. Deitsch. Amortization of debt discount and original issuance discount for the six months ended June 30, 2019 was $1,587 and $6,667. Amortization for the debt discount and original issuance discount was $3,616 and $4,617, respectively for the six months ended June 30, 2018. As of June 30, 2019 and December 31, 2018, the amount due is $70,000 and $61,746, net of discount of $0 and $8,254. During January and July 2020, this Note and the Note of $76,076 amended in August 2018(See Note 6(3)) were combined and restated and was due January 2021. The Note is in negotiation of restatement.

 

· In November 2017, we issued a promissory note to an unrelated third party in the amount of $120,000 with original issuance discount of $20,000. The note was due in six months from the execution and funding of the note. In connection with the issuance of this promissory note, we issued 10,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $5,600 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. The debt discounts were fully amortized as of December 31, 2018. The loan is in default and in negotiation of settlement. 1,500,000 shares of common stocks were issued due to the default of repayments with a fair value of $2,250 in 2018. During March 2020, $50,000 of the Note of $120,000 with original issuance discount of 20,000 originated in November 2017 was settled for 125,000,000 shares. An additional 36,000,000 shares were issued to satisfy the default provision of the original note and 10,000,000 shares were issued along with the restatement. The total fair value of issued stock was $119,700. The remaining balance of $70,000 was restated with additional issuance discount of $14,000. The $84,000 due in September 2020 is in default and negotiation of further settlement. At June 30, 2019 and December 31, 2018, the principal balance of the loan is $120,000.

 

· In November 2017, we issued a promissory note to an unrelated third party in the amount of $18,000 with original issuance discount of $3,000. The note was due in six months from the execution and funding of the note. In connection with the issuance of this promissory note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $2,900 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. The debt discounts were fully amortized as of December 31, 2018. The note is in default and in negotiation of settlement. 7,000,000 shares of common stock were issued due to the default of repayments with a fair value of $5,600 during 2018. At June 30, 2019 and December 31, 2018, the principal balance of the note is $18,000 and the accrued interest is $2,000 and $0, respectively.

 

(3) At June 30, 2019 and December 31, 2018, the balance of $814,016 and $751,955 net of discount of $6,710 and $29,371, respectively, consisted of the following convertible loans:

 

· On March 19, 2014, we issued two Convertible Debentures in the amount of up to $500,000 each (total $1,000,000) to two non-related parties. The first tranche of $15,000 each (total $30,000) of the funds was received during the first quarter of 2014. The notes carry interest at 8% and were due on March 19, 2018. The note holders have the right to convert the notes into shares of Common Stock at a price of $0.20. During 2018, repayment of $3,000 was made. At December 31, 2018, the principal balance of the note is $27,000 and the accrued interest is $11,412. The two outstanding Notes were settled in connection with issuance of the convertible note in the amount of up to $1,000,000 in February 2019 (See Note 6(4)), as a result, we recorded a gain on settlement of debt in other income for $38,412.

 

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· During July 2016, we issued a convertible note to an unrelated third party in the amount of $50,000 bearing monthly interest at a rate of 2.0% and convertible at $0.05 per share. During January 2017, the Note was restated with principal amount of $56,567 bearing monthly interest rate of 2.5%. The New Note of $56,567 was due on July 26, 2017 and convertible at $0.05 per share. During February 2018, the Notes with accrued interest of $65,600 was restated. The restated principal balance of $65,600 bears monthly interest at a rate of 2.5% and was due August 14, 2018. In connection with this restated note, we issued 1,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $4,035 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. The debt discount was fully amortized as of December 31, 2018. During August 2018, the Notes with accrued interest of $10,476 were restated. The restated principal balance of $76,076 bears monthly interest at a rate of 2.5% and is due February 2019. In connection with this restated note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $3,800 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital. Amortization of debt discount of $2,850 has been recorded as of December 31, 2018. The remaining debt discount of $950 was fully amortized during the three months ended March 31, 2019. The note is under personal guarantee by Mr. Deitsch. At June 30, 2019 and December 31, 2018, the convertible note payable was recorded at $76,076 and $75,126, net of discount of $0 and $950, respectively. The accrued interest as of June 30, 2019 and December 31, 2018 is $12,150 and $8,177. During January and July 2020, this Note and the Note of $60,000 amended in November 2018(See Note 6(2)) were combined and restated and was due January 2021. The Note is in negotiation of restatement.

 

· In October 2017, we issued a promissory note to an unrelated third party in the amount of $60,000 with original issuance discount of $10,000. The note was due in six months from the execution and funding of the note. In connection with the issuance of this promissory note, we issued 5,000,000 shares of our restricted common stock. We recorded a debt discount in the amount of $3,300 to reflect the value of the common stock as a reduction to the carrying amount of the debt and a corresponding increase to common stock and additional paid-in capital.  The debt discounts were fully amortized as of June 30, 2019. The loan is in default and in negotiation of settlement. 1,000,000 shares of common stock were issued due to the default of repayments with a fair value of $1,500 during 2018. At June 30, 2019 and December 31, 2018, the principal balance of the note is $60,000.

 

· During January through December 2018, we issued convertible notes payable to the 20 unrelated third parties for a total of $618,250 with original issue discount of $62,950. The notes are due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price ranging from $0.0003 to $0.001 per share. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a beneficial conversion feature in the amount of $249,113. In addition, upon the issuance of convertible notes, the Company issued 10,250,000 shares of common stock. The Company has recorded a debt discount in the amount of $6,542 to reflect the value of the common stock as a reduction to the carrying amount of the convertible debt and a corresponding increase to common stock and additional paid-in capital. The total discount of $255,655 and original issuance discount of $62,950 was amortized over the term of the debt.  These Notes are in default and in negotiation of settlement.

 

During the first quarter of 2019, we issued convertible notes payable of $70,000 with original issuance discount of $5,000. The notes were due in six months from the execution and funding of each note. The notes are convertible into shares of Company’s common stock at a conversion price of $0.0005 per share. In addition, upon the issuance of convertible notes, the Company granted the total of 110,000,000 warrants at an exercise price of $0.001 per share. The warrants were valued at $8,147 using the Black-Scholes method and recorded as a debt discount that was amortized over the life of the notes. The Notes were further restated in December 2019, and August and October 2020. They are in default and in negotiation of settlement. During the second quarter of 2019, we restated two convertible notes payable with additional original issue discount of $6,400 and issued 6,000,001 shares of common stock with a fair value of $1,800 (See Note 7). The two restated notes were due in August 2019 and are in default. The total discount of $8,200 was amortized over the term of the notes.  

Repayment of $10,000 was made in May 2019.

 

Amortization for the six months ended June 30, 2019 and 2018 was $43,058 and $144,062. At June 30, 2019 and December 31, 2018, the principal balance of the notes, net of discount of $6,710 and $28,421 is $677,940 and $589,829.

 

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(4) At June 30, 2019 and December 31, 2018, the balance of $2,821,182 and $1,156,341, respectively, consisted of the following convertible loans:

 

· During December 2016, we issued a Convertible Debenture to an unrelated third party in the amount of $110,000. The note carries interest at 12% and matured on September 8, 2017. Unless previously converted into shares of restricted common stock, the Note holder has the right to convert the note into shares of Common Stock at a sixty percent (60%) of the lowest trading prices of our restricted common stock for the twenty-five trading days preceding the conversion date. During June and July 2017, the Note holder made conversions of a total of 179,800,000 shares of stock satisfying the principal balance of $63,001 and accrued interest for a fair value of $298,575. At December 31, 2017, the convertible note payable, at fair value, was recorded at $147,314. During February 2018, the remaining balance of $46,999 with accrued interest of $2,820 was assigned and sold to an unrelated third party in the form of a Convertible Redeemable Note. As part of the debt sale, the Company entered into a settlement agreement with the original noteholder for a settlement of a default penalty of the original debt. During February and July, 2018, we issued a total of 105,157,409 shares of our restricted common stock to the original Note holder with a fair value of $147,220. At December 31, 2018, the Company owed additional shares to the original noteholder and recorded an accrual of $32,400 to account for the cost of the shares, and the shares were issued in January 2019 (See Notes 7).

 

The new note of $49,819 carries interest at 8% and was due on February 13, 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Noteholder has the right to convert the note into shares of our restricted common stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five prior trading days including the conversion date. During September 2018, the Noteholder made a conversions of 52,244,433 shares of our restricted common stock with a fair value of $37,011 in satisfaction of principal balance of $15,000 and accrued interest in full. At June 30, 2019 and December 31, 2018, the convertible note payable with principal balance of $34,819, at fair value, was recorded at $90,965 and $62,508.

 

· During February 2018, we issued a convertible denture in the amount of $200,000 to an unrelated third party. The note carries interest at 8% and was due in February 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $1,646,242. At June 30, 2019 and December 31, 2018, the convertible note payable with principal balance of $200,000, at fair value, was recorded at $520,037 and $358,665. The note carries additional $200,000 “Back-end Note” ($100,000 each) with the same terms as the original note.

 

· During April 2018, $65,000 of one of the $100,000 Back-end Note was funded. The note carries interest at 8% and is due in February 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $110,700. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $169,012 and $115,165.

 

· During March 2018, we issued a convertible denture in the amount of $60,000 to an unrelated third party. The note carries interest at 8% and was due in March 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $48,418. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $153,556 and $107,329. The note carries an additional “Back-end Note” with the same terms as the original note that enables the lender to lend to us another $60,000.

 

· During June 2018, the $60,000 Back-end Note was funded. The note carries interest at 8% and is due in March 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $68,067. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $153,556 and $105,334.

 

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· During May 2018, we issued a convertible denture in the amount of $60,000 to an unrelated third party. The note carries interest at 8% and was due in May 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $59,257. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $148,033 and $106,681.

 

· During August 2018, we issued a convertible denture in the amount of $31,500 to an unrelated third party. The note carries interest at 8% and was due in August 2019. We have accrued interest at default interest rate of 24% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at sixty percent of the lowest trading price of our restricted common stock for the twenty-five trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $23,794. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $75,133 and $55,409.

 

All of the above convertible notes with principal balance of a total of $511,319 were settled in October 2020 (See Note 12).

 

· During May 2017, we issued a Convertible Debenture in the amount of $64,000 to an unrelated third party. The note carries interest at 8% and was due on May 4, 2018. We have accrued interest at default interest rate of 20% after the note’s maturity date. The Note holder has the right to convert the note into shares of Common Stock at a sixty percent (60%) of the lowest trading price of our restricted common stock for the twenty trading days preceding the conversion date. During November 2017, the Note holder made a conversion of our restricted common stocks satisfying the principal balance of $856 and penalty of $6,400 for a fair value of $21,399. At December 31, 2017, the convertible note payable, at fair value, was recorded at $185,765. During February 2018, the remaining balance of $63,144 with accrued interest and penalty of $12,442 was assigned and sold to three unrelated third parties. During June 2018, a Note holder made a conversion of 50,670,000 shares of our restricted common stock with a fair value of $70,938 in satisfaction of the balance of $34,060 plus accrued interest of $8,607. At June 30, 2019 and December 31, 2018, the remaining principal of $29,381, at fair value, was recorded at $90,948 and $63,315.

 

· On March 28, 2016, we signed an expansion agreement with Brewer and Associates Consulting, LLC (“B+A”) to the original consulting agreement dated on October 15, 2015 for consulting services for twelve months for a monthly fee of $7,000. To relieve our cash obligation of $36,000 per original agreement, we issued three convertible notes for a total of $120,000 which includes the fees due under the original agreement and the new monthly fees due under the expansion agreement. The $40,000 and $60,000 of the Notes were paid in full as of December 31, 2016 and December 31, 2017, respectively. The remaining balance of $20,000 Notes is in default and negotiation of settlement. We have accrued interest at default interest rate of 20% after the note’s maturity date. The conversion price is equal to 55% of the average of the three lowest volume weighted average prices for the three consecutive trading days immediately prior to but not including the conversion date. At June 30, 2019 and December 31, 2018, the convertible notes payable with principal balance of $20,000, at fair value, were recorded at $75,219 and $47,481, respectively.
· During July 2018, we issued a convertible denture in the amount of $50,000 to an unrelated third party. The note carries interest at 8% and is due in July 2019. The Note holder has the right to convert the note into shares of Common Stock at fifty five percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $46,734. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $130,626 and $96,157.

 

· During August 2018, we issued a convertible denture in the amount of $20,000 to an unrelated third party. The note carries interest at 8% and is due in August 2019. The Note holder has the right to convert the note into shares of Common Stock at fifty five percent of the average three lowest trading price of our restricted common stock for the fifteen trading days including the date of receipt of conversion notice. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $17,829. At June 30, 2019 and December 31, 2018, the convertible note payable, at fair value, was recorded at $52,019 and $38,297.

 

·         During January 2019, the principal balance of $60,000 from a promissory note of $75,000 originated in September 2016 (See Note 6(2)) and accrued interest of $15,900 was restated in the form of a Convertible Note. The new note of $75,900 was due in one year from the restatement of the note. The Noteholder has the right to convert the note into shares of Common Stock at 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $75,900. At June 30, 2019, the convertible note payable, at fair value, was recorded at $202,400.

 

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·         During February 2019, we issued a convertible promissory note to an unrelated third party in the amount up to $1,000,000 paid upon tranches. The note is due two years from the execution and funding of the note per tranche. The Noteholder has the right to convert the note into shares of Common Stock at a conversion price of the lower of $0.0005 or 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. The first two tranches of the Note in the amount of $219,879 has been funded as of June 30, 2019. In connection with issuance of the convertible note, the Noteholder agreed to eliminate two outstanding Notes of $27,000 and the accrued interest of $11,412 that were held by the Noteholder’s defunct entities. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $335,576. During May and June 2019, the Note holder made conversions of a total of 750,000,000 shares of stock satisfying the principal balance of $100,000 for a fair value of $275,000 (See Note 7). At June 30, 2019, the convertible note payable with principal balance of $119,879, at fair value, was recorded at $319,678.

 

·         During June 2019, we issued a convertible promissory note to an unrelated third party for $240,000 with original issuance discount of $40,000. The note was due one year from the execution and funding of the notes. In connection with the issuance of this note, we issued 16,000,000 shares of our restricted common stock. The common stock was valued at $4,688 and recorded as a debt discount that was amortized over the life of the note (See Note 7). The Noteholder has the right to convert the note into shares of Common Stock at a conversion price of the lower of $0.0005 or 50% discount to the average trading price of the three lowest closing stock prices for the twenty days prior to the notice of conversion. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $240,000. At June 30, 2019, the convertible note payable, at fair value, was recorded at $640,000. The Note is in default and negotiation of settlement

 

7.     STOCKHOLDERS' DEFICIT

 

Common Stock Issued for Accrued Expense

 

During January 2019, in connection with the settlement of a default penalty of debt of $110,000 originated in December 2016, we issued a total of 81,000,000 shares of our restricted common stock with a fair value of $32,400 to the Note holder (See Note 6). We had an accrual of $32,400 to account for the cost of the shares at December 31, 2018.

 

Common Stock Issued for Services

 

During June 2018, the Company signed an agreement with a consultant for investor relation services for twelve months. In connection with the agreement, 100,000,000 shares of the Company’s restricted common stocks were issued. The shares were valued at $0.0012 per share. The Company recorded an equity compensation charge of $20,000 and $50,000 during the three and six months ended June 30, 2019. The Company recorded an equity compensation charge of $10,000 during the three and six months ended June 30, 2018.

 

During April 2019, we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 120,000,000 shares of our restricted common stock were issued. The shares were valued at $24,000.

 

During June 2019, we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 15,000,000 shares of our restricted common stock were issued. The shares were valued at $6,000.

 

The Company recorded an equity compensation charge of $6,500 during the three and six months ended June 30, 2019. The remaining unrecognized compensation cost of $23,500 will be recognized by the Company over the remaining service period.

 

Common Stock Issued with Indebtedness

 

In May 2019, in connection with amendment of two convertible notes payable, we issued a total of 6,000,001 shares of our common stock with a fair value of $1,800 (See Note 6).

 

In June 2019, in connection with issuance of a convertible notes payable, we issued a total of 16,000,000 shares of our common stock with a fair value of $4,688 (See Note 6).

 

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Common Stock Issued for Conversion of Debt

 

During May and June 2019, the Note holder made conversions of a total of 750,000,000 shares of stock for a fair value of $275,000 satisfying the principal balance of $100,000 of a $219,879 Note originated in February 2019 (See Note 6).

 

Date Number of Fair Value of
shares converted Debt Converted
5/6/2019 250,000,000 $75,000
5/31/2019 250,000,000 $100,000
6/6/2019 250,000,000 $100,000

 

Common Stock Issued for Debt Modification

 

During May and June 2019, we issued a total of 3,500,000 restricted shares to three Note holders due to the default on repayment of the convertible notes. The shares were valued at fair value of $1,050.

 

8.     STOCK WARRANTS

 

Common Stock Warrants

 

During March, 2013, the Company issued a total of 65,000 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 expired on March 22, 2018.

 

On September 3, 2013 and September 12, 2013, the Company issued 500,000 and 375,000 warrants, respectively, to purchase common stock at an exercise price of $0.025 and $0.01 per share in connection with issuances of convertible notes payable to Coventry. The warrants expired on September 3, 2018 and September, 12, 2018, respectively.

 

On March 31, 2017, in connection with the issuance of an $80,000 Note, we granted three-year warrants to purchase an aggregate of 6,000,000 shares of our common stock at an exercise price of $0.005 per share. The warrants were valued at their fair value of $1,203 and $977 using the Black-Scholes method on June 30, 2019 and December 31, 2018. The warrants expire on March 30, 2020.

 

On March 3, 2016, in connection with the issuance of a convertible note, we granted five-year warrants to purchase an aggregate of 2,500,000 shares of our common stock at an exercise price of $0.03 per share. The warrants were valued at their fair value of $731 and $491 using the Black-Scholes method at June 30, 2019 and December 31, 2018. The warrants expire on March 3, 2021.

 

On April 4, 2016, in connection with the issuance of convertible notes, we granted three-year warrants to purchase an aggregate of 4,000,000 shares of our common stock at an exercise price of $0.05 per share. The warrants were valued at their fair value of $0 using the Black-Scholes method at June 30, 2019 and December 31, 2018. The warrants expired on April 4, 2019.

 

During April, 2014, the Company issued a total of 100,000 warrants to purchase common stock at an exercise price of $0.025 per share in connection with issuance of a convertible note payable to Coventry. The warrants were valued at their fair value of $0 using the Black-Scholes method at June 30, 2019 and December 31, 2018. The warrants expired on April 9, 2019.

 

During February 2019, the Company granted the total of 110,000,000 warrants to purchase common stock at an exercise price of $0.001 per share in connection with issuance of three convertible notes. The warrants were valued at $8,147 using the Black-Scholes method and recorded as a debt discount that was amortized over the life of the notes. The warrants expire in August 2019.

 

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A summary of warrants outstanding in conjunction with private placements of common stock were as follows during the six months ended June 30, 2019 and the year ended December 31, 2018:

 

   

Number

Of shares

  Weighted average
exercise price
Balance December 31, 2017   13,540,000 $ 0.023
Exercised   -   -
Issued   -   -
Forfeited   (940,000)   0.015
Balance December 31, 2018   12,600,000 $ 0.026
Exercised   -   -
Issued   110,000,000   0.001
Forfeited   (4,100,000)   0.021
Balance June 30, 2019   118,500,000 $ 0.01

 

The following table summarizes information about fixed-price warrants outstanding as of June 30, 2019 and December 31, 2018:

 

    Exercise Price  

Weighted

Average

Number

Outstanding

  Weighted Average
Contractual Life
  Weighted Average Exercise Price
June 30, 2019 $ 0.001-0.03   86,233,702   0.55 years $ 0.01
December 31, 2018 $ 0.005-0.05   12,600,000   1.11 years $ 0.026

 

At June 30, 2019, the aggregate intrinsic value of all warrants outstanding and expected to vest was $0. The intrinsic value of warrant share is the difference between the fair value of our restricted common stock and the exercise price of such warrant 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 warrants had they exercised their warrants 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 $0.0004, closing stock price of our restricted common stock on June 28, 2019. There were no in-the-money warrants at June 30, 2019.

 

9.     ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

    June 30,
2019
  December 31, 2018
Accrued consulting fees $ 192,050 $ 161,550
Accrued settlement expenses   315,000   347,400
Accrued payroll taxes   144,093   120,182
Accrued interest   217,972   180,509
Accrue others   18,833   22,208
Total $ 887,948 $ 831,849

 

10.     PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

    June 30,
2019
  December 31,
2018
Supplier advances for future purchases $ 221,759 $ 200,911
Reserve for supplier advances   (200,911)   (200,911)
Net supplier advances   20,848   -
Prepaid professional fees   -   13,000
Deferred stock compensation   23,500   50,000
Total $ 44,348 $ 63,000

 

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We performed an evaluation of our inventory and related accounts at June 30, 2019 and December 31, 2018, and increased the reserve on supplier advances for future venom purchases by $0 and $47,757, respectively. At June 30, 2019 and December 31, 2018, the total valuation allowance for prepaid venom is $200,911.

 

11.     COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

In February 2016, we entered into our current three-year operating lease for monthly payments of approximately $3,200 which expired in February 2019. The lease is currently month-to-month, thus classified as short-term and not reported on the balance sheet under ASC 842.

 

ReceptoPharm leases a lab and renewed its operating lease agreement for five years beginning August 1, 2017 for monthly payments of approximately $6,900 with a 5% increase each year.

 

    June 30,
2019
Lease cost    
Operating lease cost $ 29,288
Short-term lease cost   33,776
Total lease cost $ 63,064
     
Balance sheet information    
Operating ROU Assets $ 251,887
     
Operating lease obligations, current portion   68,806
Operating lease obligations, non-current portion   181,379
   Total operating lease obligations $ 250,185
     
Weighted average remaining lease term (in years) – operating leases   3.17
Weighted average discount rate-operating leases   8%
     
Supplemental cash flow information related to leases were as follows, for the six months ended June 30, 2019:    
     
Cash paid for amounts included in the measurement of operating lease liabilities $ 46,211

 

Future minimum payments under these lease agreements are as follows:

 

June 30,   Total
2020 $ 86,345
2021   89,651
2022   93,122
2023   15,567
Total future lease payments $ 284,685
Less imputed interest   34,500
Total $ 250,185

 

Consulting Agreements

 

During July 2015, we signed an agreement with a company to provide for consulting services for five years. In connection with the agreement, 500,000 shares of our restricted common stock and a one year 8% note of $50,000 were granted. The shares were valued at $0.18 per share. As the services provided were in dispute, the shares and note payable have not been issued as of June 30, 2019. We have accrued the $142,500 in accrued expense as of June 30, 2019 and December 31, 2018.

 

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During October 2015, the Company signed an agreement with a consultant for consulting services for a year. In connection with the agreement, 2,500,000 shares of the Company’s restricted common stock were granted and the Company was to make monthly cash payments of $3,000. As of December 31, 2016, the Company recorded an equity compensation charge of $31,750, however, only 1,000,000 of the shares have been issued. As of June 30, 2019 and December 31, 2018, $19,150 has been recorded in accrued expense to account for the 1,500,000 shares of common stock that have not been issued.

 

Litigation

 

Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.

 

On June 1, 2015, ReceptoPharm entered into a settlement agreement with Patricia Meding, a former officer and shareholder of ReceptoPharm.  The settlement relates to a lawsuit filed by Ms. Meding against ReceptoPharm (Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06, New York Supreme Court, Queens County) in which she claimed to own certain shares of ReceptoPharm stock and claimed to be owed amounts on a series of promissory notes allegedly executed in 2001 and 2002.

 

The settlement agreement executed on June 1, 2015 provides that ReceptoPharm will pay Ms. Meding a total of $360,000 over 35 months. The first payment of $20,000 was made on July 1, 2015. A second payment of $20,000 was made on August 17, 2015 with 32 subsequent monthly $10,000 payments due on the 15th of every month thereafter. To date, ReceptoPharm has made all monthly payments due under the agreement.  In the event of default on any of the payments due under the settlement agreement, the settlement amount would increase by an additional $200,000.  As of December 31, 2018, all payments were made and the settlement is concluded. We have recorded $200,000 in gain on settlement of debt on the consolidated statements of operations upon payments in full in April 2018.

 

Paul Reid et al. v. Nutra Pharma Corp. et al.

 

On August 26, 2016, certain of former ReceptoPharm employees and a former ReceptoPharm consultant filed a lawsuit in the 17th Judicial Circuit in and for Broward County, Florida (Case No. CACE16–015834) against Nutra Pharma and Receptopharm to recover $315,000 allegedly owing to them under a settlement agreement reached in an involuntary bankruptcy action that was brought by the same individuals in 2012 and for payment of unpaid wages/breach of written debt confirms.  

 

Nutra Pharma and Receptopharm believe that the lawsuit is without merit, especially in light of gross misconduct by these former employees that was discovered after execution of the aforementioned settlement agreement. On October 9, 2020, the Court entered an Order denying the plaintiffs’ motion for summary judgment with respect to Count I of the Complaint (for alleged breach of the aforementioned settlement agreement), and the parties continue to engage in discovery regarding their respective claims and defenses. The case is currently set for trial during the period from May 10, 2021 to May 28, 2021, but it is unclear at this time with the ongoing COVID-19 pandemic (and the resultant cessation of jury trials in Broward County) whether the trial will proceed at that time.

 

Get Credit Healthy, Inc. v. Nutra Pharma Corp. and Rik Deitsch, Case No. CACE 18-017055

 

On August 1, 2018, Get Credit Healthy, Inc. filed a lawsuit against the Company and Rik Deitsch (collectively the “Defendants”) in the 17th Judicial Circuit Court in and for Broward County, Florida (Case No. CACE 18-017055) to recover $100,000 allegedly owed under an amended promissory note dated April 12, 2017. Counsel for Get Credit Healthy, Inc. requested an early mediation conference in an attempt to resolve our dispute. We agreed to this request, and mediation took place on February 15, 2019.  At December 31, 2018, we owed principal balance of $101,818 and accrued interest of $21,023. At mediation, Get Credit Healthy, Inc. claimed that the individual that breached the binding memorandum of understanding with the Company was never an owner of Get Credit Healthy, Inc., but rather, a close friend that encouraged Get Credit Healthy, Inc. to make the subject loan to the Company ultimately, the parties were able to reach a Confidential Settlement Agreement to resolve the dispute, and an Agreed Order was entered dismissing the lawsuit. The lawsuit was settled on February 15, 2019 for $104,000 with scheduled payments. The repayments were made in full as of November 2020 (See Note 6).

 

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CSA 8411, LLC v. Nutra Pharma Corp., Case No. CACE 18-023150

 

On October 12, 2018, CSA 8411, LLC filed a lawsuit against the Company in the 17th Judicial Circuit Court in and for Broward County, Florida (Case No. CACE 18-023150) to recover $100,000 allegedly owed under an amended promissory note dated April 12, 2017. On November 1, 2018, the Company filed its Answer and Affirmative Defenses to the Complaint. The Company believes that this lawsuit is without merit. Moreover, the Company believes that it has a number of valid defenses to this claim. Among other things, the owner of CSA 8411, LLC violated the terms of a Binding Memorandum of Understanding by failing to invest in the Company and fraudulently inducing the Company to enter into the subject amended promissory note (contrary to the Get Credit Healthy lawsuit discussed above, we are certain that this individual is the majority owner of CSA 8411, LLC).  Opposing counsel reached out to schedule mediation, and mediation was set for June 21, 2019 in Plantation, FL however the mediation was unsuccessful.  At June 30, 2019, we owed principal balance of $91,156 and accrued interest of $24,433 (See Note 6) if the defenses and our new claims are deemed to be of no merit.

 

The Company also filed affirmative claims against the Plaintiff, its owner Dan Oran and several relate entities. The case has not been set for trial as of this date.

 

Securities and Exchange Commission v. Nutra Pharma Corporation, Erik Deitsch, and Sean Peter McManus

 

On September 28, 2018, the United States Securities and Exchange Commission (the “SEC”) filed a lawsuit in the United States District Court for the Eastern District of New York (Case No. 2:18-cv-05459) against the Company, Mr. Deitsch, and Mr. McManus. The lawsuit alleges that, from July 2013 through June 2018, the Company and the other defendants’ defrauded investors by making materially false and misleading statements about the Company and violated anti-fraud and other securities laws.

 

The violations alleged against the Company by the SEC include: (a) raising over $920,000 in at least two private placement offerings for which the Company failed to file required registration statements with the SEC; (b) issuing a series of materially false or misleading press releases; (c) making false statements in at least one Form 10-Q; and (d) failing to make required public filings with the SEC to disclose the Company’s issuance of millions of shares of stock. The lawsuit makes additional allegations against Mr. McManus and Mr. Deitsch, including that Mr. McManus acted as a broker without SEC registration and defrauded at least one investor by making false statements about the Company, that Mr. Deitsch engaged in manipulative trades of the Company’s stock by offering to pay more for shares he was purchasing than the amount the seller was willing to take, and that Mr. Deitsch failed to make required public filings with the SEC. The lawsuit seeks both injunctive and monetary relief.

 

On May 29, 2019 (following each of the defendants filing motions to dismiss), the SEC filed a First Amended Complaint which generally alleged the same conduct as its original Complaint, but accounted for certain guidance provided by the United States Supreme Court in a case that had been recently decided. Each of the defendants then moved to dismiss the SEC’s First Amended Complaint. On March 31, 2020, the Court entered an Order granting in part and denying in part the various motions to dismiss. Following that Order, the SEC filed a Second Amended Complaint (the operative pleading) and the defendants have filed their answers which generally deny liability. At this time, discovery is closed and the SEC has indicated an intent to file a summary judgment motion regarding certain non-fraud claims asserted in its Second Amended Complaint. The defendants have opposed the SEC’s request to file such motion(s). The Court conducted a hearing on February 23, 2021 and set an initial briefing schedule for the SEC’s Motion for Partial Summary Judgment wherein the Plaintiffs’ Motion for Partial Summary Judgment was due on April 5, 2021, the Defendants’ Consolidated (i.e., collectively, Nutra Pharma Corporation, Erik “Rik” Deitsch, and Sean McManus) Response Brief to the SEC’s Motion is due May 3, 2021, and the Plaintiffs’ Reply Brief is due on May 19, 2021.  On March 23, 2021, the Plaintiff filed a Motion for Extension of Time to file the Motion for Partial Summary Judgment. On March 24, 2021, the Court entered an order granting the Motion for Extension of Time and modified the briefing schedule as follows: Plaintiffs’ Motion is due on or before April 9, 2021, the Defendants’ Response is due on or before May 7, 2021, and the Plaintiffs’ Reply is due on or before May 21, 2021. The Company disputes the allegations in this lawsuit and continues to vigorously defend against the SEC’s claims. Mr. Deitsch and Mr. McManus have similarly defended the lawsuit since its filing and each contest liability. The Company does not believe that it engaged in any fraudulent activity or made any material misrepresentations concerning the Company and/or its products.

 

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12.     SUBSEQUENT EVENTS

 

Convertible Notes Payable

 

The convertible promissory notes to unrelated third parties for a total of $55,000 with original issuance discount of $5,000 issued in February 2019 were due in August 2019. During December 2019, $22,000 of the Note was amended to extend the maturity date to June 2020. During August 2020, $38,500 of the Notes was amended with additional original issuance discount of $7,550 due February 2021. During October 2020, $16,500 of the Notes was amended with additional original issuance discount of $1,650 due April 2021.The Noteholders have the right to convert the note into shares of Common Stock at a conversion price of $0.0005. In connection with the issuance of amended convertible notes, the Company granted the following warrants at an exercise price of $0.001 per share. The warrants were valued using the Black-Scholes method and recorded as a debt discount that was amortized over the life of the notes. No warrants have been exercised.

 

Month of Issuance Number of Fair Value of Month of Expiration
Warrants Warrants
December, 2019 44,000,000 7,370 August, 2020
August, 2020 92,100,000 22,879 August, 2021
October, 2020 39,930,000 9,497 October, 2022

 

During January 2020 through February 2020, the Note holder received a total of 500,000,000 shares of our restricted common stock in satisfaction the $175,000 of the Note originated in February 2019 with a fair value of $425,000. . During February through March 2021, the Note holder received a total of 205,080,000 shares of our restricted common stock in satisfaction the $102,540 of the Note with a fair value of $2,100,612. The remaining balance of $19,373 is due September 2022.

 

Date Number of Fair Value of
shares converted Debt Converted
1/21/2020 250,000,000 150,000
2/18/2020 250,000,000 275,000
2/25/2021 137,700,000 1,500,930
3/3/2021 67,380,000 599,682

 

During November 2019, we issued a convertible promissory note to an unrelated third party for $137,500 with original issuance discount of $12,500. The note was due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price of $0.000275. The Note is in default and negotiation of settlement.

 

During December 2019, we issued a convertible promissory note to an unrelated third party for $22,000 with original issuance discount of $2,000. The note was due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0002. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a beneficial conversion feature (BCF) in the amount of $20,000. The BCF was recorded as a debt discount that was amortized over the life of the notes. The Note is in default and negotiation of settlement.

 

During January and March 2020, we issued convertible promissory notes to an unrelated third party for a total of $68,750 with original issuance discount of $6,250. The Noteholder has the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0005. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $5,500. The BCF was recorded as a debt discount that was amortized over the life of the notes. The Notes were due in January and March 2021. The Notes are in default and negotiation of settlement.

 

During February and March 2020, we issued convertible promissory notes to an unrelated third party for a total of $22,000 with original issuance discount of $2,000. The notes were due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0003. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $20,000. The BCF was recorded as a debt discount that was amortized over the life of the notes. The Notes are in default and negotiation of settlement.

 

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During March 2020, we issued a convertible promissory note to an unrelated third party for $5,500 with original issuance discount of $500. The note was due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0002. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $5,000. The BCF was recorded as a debt discount that was amortized over the life of the notes. The Note is in default and negotiation of settlement.

 

During March 2020, we issued a convertible promissory note to an unrelated third party for $5,500 with original issuance discount of $500. The note was due six months from the execution and funding of the notes. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0005. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $3,300. The BCF was recorded as a debt discount that was amortized over the life of the notes. The Note is in default and negotiation of settlement.

 

During August 2020, we issued a convertible promissory note to an unrelated third party for a $22,000 with original issuance discount of $2,000. The Noteholder has the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0005. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $13,200. The BCF was recorded as a debt discount that was amortized over the life of the notes. The note is due August 2021.

 

During July 2020, we issued a convertible promissory note to an unrelated third party for $20,900 with original issuance discount of $1,900. The Noteholder has the right to convert the note into shares of Common Stock at a fixed conversion price of $0.00052. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $15,273. The BCF was recorded as a debt discount that was amortized over the life of the notes. The note was due January 2021. The Note is in default and negotiation of settlement.

 

During August 2020, we issued convertible promissory notes to an unrelated third party for $5,500 with original issuance discount of $500. The Noteholder has the right to convert the note into shares of Common Stock at a fixed conversion price of $0.0005. The difference between the conversion price and the fair value of the Company’s common stock on the date of issuance of the convertible notes resulted in a BCF in the amount of $1,100. The BCF was recorded as a debt discount that was amortized over the life of the notes. The note was due February 2021. The Note is in default and negotiation of settlement.

 

During November 2020, the Note holder assigned $20,000 of the $75,900 convertible note restated in January 2019 to a third party. The third party subsequently received a total of 100,000,000 shares of our restricted common stock in satisfaction the $20,000 of the Note with a fair value of $120,000. At December 31, 2020, the balance of $55,900 remains outstanding. The note was due January 2021. The Note is in default and negotiation of settlement.

 

PPP Loan

 

During May 2020, we entered into a long-term loan agreement with the U. S. Small Business Administration for a Payroll Protection Program (PPP) loan, for $64,895 with an annual interest rate of one percent (1%), with a term of twenty-four (24) months, whereby a portion of the loan proceeds have been used for certain labor costs, office rent costs and utilities, which may be subject to a loan forgiveness, pursuant to the terms of the SBA/PPP program.

 

Economic Injury Disaster Loan

 

During April and June 2020, the Company executed the standard loan documents required for securing a loan from the SBA under its Economic Injury Disaster Loan assistance program (the “EIDL Loan”) considering the impact of the COVID-19 pandemic on the Company’s business. Pursuant to the Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL Loan was $154,900, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due twelve months from the date of the SBA Loan Agreement in the amount of $731. The balance of principal and interest is payable over a 360 month period from the date of the SBA Loan Agreement. In connection therewith, the Company received a $5,000 advance, which does not have to be repaid. The SBA requires that the Company collateralize the loan to the maximum extent up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.

 

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Restatement of Promissory Notes

 

During September 2019, the Notes of $282,983 plus accrued interest amended in December 2018 were restated. The restated principal balance of $333,543 were due September 2020. In connection with this restated note, we issued 20,000,000 shares of our common stock. The common stock was valued at $5,090 and recorded as a debt discount that was amortized over the life of the note. The Note is in default and negotiation of settlement.

 

During September 2019, the Note of $36,000 with original issuance discount of $6,000 amended in September 2018 was restated. The $6,000 original issuance discount from the Note amended in September 2018 has been repaid in full as of September 2019. The restated principal balance was $36,000 with the original issuance discount of $6,000 and was due September 2020. The $6,000 original issuance discount from the Note amended in September 2019 has been repaid in full as of September 2020. The Note was further restated in September 2020. The restated principal balance was $36,000 with the original issuance discount of $6,000 and is due March 2021. The Note is in default and negotiation of settlement.

 

During January 2020, the Note of $60,000 with original issuance discount of $10,000 amended in November 2018 and the Note of $88,225 plus accrued interest at a rate of 2.5% monthly to an unrelated third party were combined and restated. The restated principal balance was $148,225 that carries interest at a rate of 2.0% monthly due July 2020. During July 2020, the restated Note of $148,225 plus accrued interest of $18,701 was further restated. The new principal balance was $166,926 that carries interest at a rate of 2.0% monthly and was due January 2021. During February 2021, we issued 29,072,500 shares of common stock to satisfy the accrued interest of $23,258 with fair value of $343,056. The settlement of accrued interest resulted in a loss on settlement of debt in other income for $319,798. The principal balance of $166,926 was further restated. The restated balance is $183,619 with an original issuance discount of $16,693 and is due August 2021.

 

Settlement of Convertible Promissory Notes

 

During August 2019, the Note of $12,000 with original issuance discount of $2,000 originated in December 2019 was settled for $12,000 with scheduled payments through December 1, 2019. In connection with this settlement, we issued 1,500,000 shares of common stocks with a fair value of $450. Repayment of $3,500 was made as of December 2020. The remaining balance of $8,500 is in default and in negotiation of settlement.

 

During December 2019, two Notes for a total of $9,900 with original issuance discount of $900 originated in February 2018 were settled with 40,000,000 shares of common stocks. The shares were valued at fair value of $24,000.

 

During December 2019, three Notes for a total of $49,684 with original issuance discount of $2,700 originated in May 2017, January and September 2018, respectively, were settled with 260,000,000 shares of common stocks. The shares were valued at fair value of $130,000.

 

During December 2019, two Notes for a total of $46,500 originated in October and November 2018 and the accounts payable of $39,000 for consulting fees were settled with 500,000,000 shares of common stocks. The shares were valued at fair value of $300,000, and have not been issued.

 

During February through August 2018, we issued seven convertible promissory notes to an unrelated third party due one year from the execution dates. The principal balance of these Notes on June 30, 2019 was $511,319. During September 2020, a Note holder received a total of 107,133,333 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,140. During October 2020, the Note holder received a total of 107,817,770 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,345. During October 2020, the Note holder sold the remaining debt of $467,000 and accrued interest of $166,168 for $250,000 to a non-related party.

 

Date Number of Fair Value of
shares converted Debt Converted
9/22/2020 107,133,333 $171,413
10/5/2020 107,817,770     64,691

 

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Settlement and Restatement of Promissory Notes

 

During March 2020, $50,000 of the Note of $120,000 with original issuance discount of 20,000 originated in November 2017 was settled for 125,000,000 shares. An additional 36,000,000 shares were issued to satisfy the default provision of the original note and 10,000,000 shares were issued along with the restatement. The total fair value of issued stock was $119,700. The remaining balance of $70,000 was restated with additional issuance discount of $14,000. The $84,000 due in September 2020 is in default and negotiation of further settlement.

 

Settlement of a Related-Party Note

 

During June 2020, the Note of $14,400 with original issuance discount of $2,400 to a related party amended in December 2018 was settled with cash payment of $14,400 and 5,000,000 shares of common stocks. The shares were valued at fair value of $3,000.

 

Advances

 

During the periods from October 2019 through May 2020, the Company received a total of $175,000 in deposits from a third party in connection with a Joint Venture proposal. The deposits were considered as payments towards the purchase of equity in the joint venture. The joint venture is currently on hold pending the outcome of the lawsuit with the SEC.

 

Common Stock Issued for Default Payments

 

During August 2019, we issued a total of 2,000,000 additional restricted shares to the two Note holders due to default on repayments. These shares were valued at fair value of $700.

 

During July 2019, we issued a total of 5,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $282,983 plus accrued interest amended in December 2018. The shares were valued at fair value of $1,500.

 

During September 2019, we issued a total of 10,000,000 restricted shares to a Note holder due to the default on repayments of the original issuance discount of $10,000 for the convertible promissory notes of $60,000 amended in November 2018. The shares were valued at fair value of $4,000.

 

During January 2020, we issued a total of 75,000,000 restricted shares to a Note holder due to the default on repayments of the convertible promissory note of a total of $148,225 amended in August and November 2018. The shares were valued at fair value of $45,000.

 

During July 2020, we issued a total of 1,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $22,000 originated in December 2019. The shares were valued at fair value of $700.

 

During September 2020, we issued a total of 10,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $333,543 plus accrued interest amended in September 2019. The shares were valued at fair value of $6,000.

 

During October 2020, we issued a total of 1,500,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $84,000 amended in March 2020. The shares were valued at fair value of $900.

 

During January 2021, we issued a total of 25,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $166,926 amended in July 2020. The shares were valued at fair value of $107,500.

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Introduction

 

Our business during the first quarter of 2019 has focused upon marketing our homeopathic drugs for the treatment of pain:

 

· Nyloxin® (Stage 2 Pain)
· Nyloxin® Extra Strength (Stage 3 Pain)
· Pet Pain–Away

 

During our second quarter of 2019 and thereafter, the following has occurred:

 

On April 10, 2019 we announced that we had responded to an FDA warning letter that was issued on March 11, 2019 regarding our website and social media sites for the sales and marketing of our Nyloxin® products. In response to the FDA’s letter, we explained the basis of each of our claims as they relate to the concerns identified in the Warning Letter and made any and all necessary changes to the marketing materials for the Nyloxin Products to properly and legally continue to market and distribute its products.

 

On May 30, 2019 we announced that the iRemedy Healthcare Companies added the entire Nyloxin product line to their marketplace at www.IRemedy.com.

 

On September 22, 2020, Dr. Dale VanderPutten, our Chief Scientific Officer was invited by the Defense Threat Reduction Agency (DTRA) to present our nerve agent countermeasure technology in a Tech Watch talk to an audience of military and civilian experts in chem/bio defense. The talk titled “A Nicotinic Acetylcholine Receptor (nAChR) Directed Organophosphate Countermeasure” was presented in a virtual internet meeting to a select expert audience invited by DTRA. The consensus of the comments and questions on the presentation supported the idea that despite past efforts, there remains an unmet need for nAChR directed defenses and that our demonstration of human safety in the clinic and pre-clinical proof of concept deserves aggressive follow up.

 

On November 4, 2020 we announced the elimination of toxic institutional debt as the last institutional note was purchased by a long-term individual investor.

 

On November 11, 2020 we announced that Nyloxin has been accepted to be listed on the Walmart Marketplace and is now available there for purchase on www.Walmart.com.

 

On February 12, 2021 we announced that we are focusing on our intellectual property portfolio and have engaged new IP attorneys at Christopher & Weisberg P.A.

 

On February 23, 2021 we provided updates on our work in improving our existing facilities for manufacturing and validation of our drug products. This included the renewal of our lease for our current lab space and bringing all of manufacturing in-house.

 

On March 11, 2021 we announced that we had engaged AccuReg, Inc. as outside Regulatory and Quality Assurance consultants as part of our work in improving our existing facilities for manufacturing and validation of our drug products.

 

On March 16, 2021 we announced our plans for the marketing and distribution of Luxury Feet; an over-the-counter pain reliever and anti-inflammatory product that is designed for women who experience pain or discomfort due to high heels and stilettos.

 

On April 15, 2021 we announced that our newest product, Luxury Feet, was available for purchase on Amazon.com.

 

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Nyloxin®/Nyloxin® Extra Strength

 

We offer Nyloxin®/Nyloxin® Extra Strength as our over–the–counter (OTC) pain reliever that has been clinically proven to treat moderate to severe (Stage 2) chronic pain.

 

Nyloxin® and Nyloxin® Extra Strength are 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.

 

Nyloxin® and Nyloxin® Extra Strength offer several benefits as a pain reliever. With increasing concern about consumers using opioid and acetaminophen–based pain relievers, the Nyloxin® products provide an alternative that does not rely on opiates or non–steroidal anti–inflammatory drugs, otherwise known as NSAIDs, for their pain relieving effects. Nyloxin® also has a well–defined safety profile. Since the early 1930s, the active pharmaceutical ingredient (API) of Nyloxin®, 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 Nyloxin® are rare, but may include headache, nausea, vomiting, sore throat, allergic rhinitis and coughing.

 

The primary difference between Nyloxin® and Nyloxin® Extra Strength is the dilution level of the venom. The approximate dilution levels for Nyloxin® and Nyloxin® Extra Strength are as follows:

 

Nyloxin®

 

· Topical Gel: 30 mcg/mL
· Oral Spray: 70 mcg/mL

 

Nyloxin® Extra Strength

 

· Topical Gel: 60 mcg/mL
· Oral Spray: 140 mcg/mL

 

In December 2011, we began marketing Nyloxin® and Nyloxin® Extra Strength at www.nyloxin.com and on www.Amazon.com/nyloxin. 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.

 

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.

 

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Nyloxin® Military Strength

 

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. In February of 2018, Nyloxin was added to the Federal Supply Schedule but was subsequently removed the following week without an adequate explanation. We have continued to work with our consultants to understand why our products were improperly removed the Federal Supply Schedule and when we may be able to get re-listed on the Federal Supply Schedule for eventual sales to governmental agencies or to the US Military.

 

International Sales

 

We are pursuing international drug registrations in Canada, Mexico, India, Australia, New Zealand, 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. On March 25, 2013 we announced the publication of our patent and trademark for Nyloxin® in India. We are actively seeking new distribution partners in India.

 

On May 14, 2015 we announced that we had engaged the Nature's Clinic to begin the process of regulatory approval of our Company's Over–the–Counter pain drug, Nyloxin® for marketing and distribution in Canada. The Nature’s Clinic has already begun setting up their Chatham, Ontario warehouse. Due to lack of funding, we have waited to complete the approval process to begin distributing Nyloxin® and expect to re-engage in the process in 2021.

 

On February 1, 2018 we announced a Distribution Agreement with the Australian company, Pharmachal PTY LTD to market and distribute Nyloxin® in Australia and New Zealand. Pharmachal has begun the registration process with the TGA (Therapeutic Goods Administration). At this time, we do not know if our products will qualify for TGA registration and cannot provide a timeline for the eventual distribution in Australia.

 

Additionally, we plan to complete several human clinical studies aimed at comparing the ability of Nyloxin® Extra Strength to replace prescription pain relievers. We have provided protocols to several hospitals and will provide details and timelines when those protocols have been accepted. 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 and cats. The initial product run was completed in December of 2014 and launched through Lumaxa Distributors on December 19, 2014.

 

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In May of 2016, we signed a license agreement to begin the process of creating an infomercial (Direct Response) campaign for Pet Pain–Away™. In November of 2016, we announced the license agreement with DEG Productions for the marketing and distribution of Pet Pain–Away globally. DEG has the ability to earn the exclusive distribution rights for the product by reaching certain sales milestones. DEG has created their own website (www.getpetpainaway.com) and began airing commercials in December of 2016.

 

In February of 2020, we took back the marketing of Pet Pain-Away and are currently selling the product on Amazon.com and through www.petpainaway.com.

 

Luxury Feet

 

In June of 2017 we announced the creation of Luxury Feet; an over–the–counter pain reliever and anti–inflammatory product that is designed for women who experience pain or discomfort due to high heels and stilettos. In March of 2021 we announced plans for the marketing and distribution of Luxury Feet and on April 15, 2021 we announced that the product was available for purchase on Amazon. We will continue with the marketing efforts of Luxury Feet throughout 2021 with plans to start social media campaigns and a retail rollout later in the year.

 

Equine Pain-Away (Formerly 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. We had 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. Equine Nyloxin was rebranded as Equine Pain-Away and officially rolled into the market in October of 2019. Equine Pain-Away is being marketed through several retailers and online at www.EquinePainAway.com and on Amazon.

 

Drug Discovery and Pipeline

 

Nutra Pharma is developing proprietary therapeutic protein products for the biologics market. The Company has two leading drug candidates: RPI–MN and RPI–78M.

 

RPI–MN

 

RPI–MN inhibits the entry of several viruses that are known to cause severe neurological damage in such diseases as encephalitis and Human Immunodeficiency Virus (HIV). It is being developed first for the treatment of HIV.

 

RPI–78M

 

RPI–78M is being developed for the treatment of Multiple Sclerosis (MS) and Adrenomyeloneuropathy (AMN). Other neurological and autoimmune disorders that may be served by RPI–78M include Myasthenia Gravis (MG), Rheumatoid Arthritis (RA) and Amyotrophic Lateral Sclerosis (ALS).

 

RPI–78M and RPI–MN contain anticholinergic peptides that recognize the same receptors as nicotine (acetylcholine receptors) but have the opposite effect. In a specific chemical process unique to Nutra Pharma, the drugs are created through a process of chemical modification.

 

In September, 2015 RPI–78M was granted Orphan Status by the FDA for the treatment of pediatric Multiple Sclerosis. This allows for much shorter timelines to drug approval, waiver of FDA fees (around $2.5M), rolling review and fast–track approval. Orphan status also allows for potential grant money and other funding opportunities through the clinical process.

 

RPI–MN and RPI–78M possess several desirable properties as drugs:

 

· 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.
· They display no serious adverse side effects following years of investigations in humans and animals.
· They are extremely stable and resistant to heat, which gives the drugs a long shelf life. The drugs' stability has been determined to be over 4 years at room temperature. This is extremely unusual for a biologic drug.
· RPI–78M may be administered orally –– a first for a biologic MS drug. This will present MS patients with additional quality of life benefits by eliminating the requirement for routine injections.
· They are easy to administer.

 

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We are currently working with consultants to develop trial protocols for a Phase I/II trial for the use of RPI–78M in the treatment of Pediatric Multiple Sclerosis. We expect to begin the trial in FY2021.

 

Critical Accounting Policies and Estimates

 

Our condensed consolidated unaudited financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applied on a consistent basis.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our condensed consolidated financial statements.  In general, management’s estimates are based on historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management under different and/or future circumstances.

 

We believe that our critical accounting policies and estimates include our ability to continue as a going concern, revenue recognition, accounts receivable and allowance for doubtful accounts, inventory obsolescence, accounting for long–lived assets and accounting for stock based compensation.

 

Ability to Continue as a Going Concern:  Our ability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity, and attain profitable operations.  In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate.

 

Revenue Recognition: On January 1, 2018, we adopted Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers" ("ASC Topic 606") using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. The cumulative impact of adopting ASC Topic 606 resulted in no changes to retained earnings at January 1, 2018. The impact to revenue for the six months ended June 30, 2018 was an increase of $2,780 as a result of applying ASC Topic 606 to certain revenues generated through online distributors which are now presented gross as we have control over providing the products related to such revenues. This new revenue recognition standard (new guidance) has a five-step process: a) Determine whether a contract exists; b) Identify the performance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as) performance obligations are satisfied. The Company has evaluated the impact of ASC Topic 606 and determined that there is no change to the Company's accounting policies, except for the recording of certain product sales to a distributor, in which a portion of the cash proceeds received is remitted back to the distributor. Under ASC Topic 606, the Company determined that these sales should be recorded on a gross basis.

 

Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled upon delivery of products. We record revenues net of promotions and discounts. For certain product sales to a distributor, we record revenue including a portion of the cash proceeds that is remitted back to the distributor.

 

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.

 

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.

 

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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.

 

Results of Operations – Comparison of Three Months Periods Ended June 30, 2019 and June 30, 2018

 

Sales for the three–month period ended June 30, 2019 were $10,215 compared to $29,381 for the three months period ended June 30, 2018.  The decrease in net sales is primarily attributable to the decrease in Pet Pain-Away products sales.

 

Cost of sales for the three–month period ended June 30, 2019 is $3,774 compared to $16,570 for the three–month period June 30, 2018.  Our cost of sales includes the direct costs associated with manufacturing, shipping and handling costs. Our gross profit margin for the three–month period ended June 30, 2019 is $6,441 or 63.05% compared to $12,811 or 43.60% for the three–month period ended June 30, 2018. The increase in our profit margin is primarily due to decrease in the manufacturing cost.

 

Selling, general and administrative expenses (“SG&A”) decreased $14,373 or 4.12% from $348,660 for the quarter ended June 30, 2018 to $334,287 for the quarter ended June 30, 2019, generally due to the overall decrease of approximately $14,000 in professional fees.

 

Interest expense, including related party interest expense, decreased $100,994 or 50.39%, from $165,194 for the quarter ended June 30, 2018 to $64,200 for quarter ended June 30, 2019.  

 

We carry certain of our debentures and common stock warrants at fair value. For the three months ended June 30, 2019 and 2018, the liability related to these hybrid instruments fluctuated, resulting in a loss of $1,275,111 and $849,376, respectively.

 

Gain on settlement of debts and accounts payable decreased $20,727 or 105.34%, from a gain of $$19,677 for the three months ended June 30, 2018 to a loss of $1,050 for the three months ended June 30, 2019.  This decrease was due to the decrease in settlement of debts.

 

As a result of the foregoing, our net loss increased by $337,465 or 25.36%, from $1,330,742 for the quarter ended June 30, 2018 to $1,668,207 for the quarter ended June 30, 2019.

 

Comparison of Six Months Ended June 30, 2019 and June 30, 2018

 

Net sales for the six months ended June 30, 2019 are $51,537 compared to $60,357 for the six months ended June 30, 2018.  The decrease in net sales is primarily attributable to the overall decrease in Pet Pain-Away products sales.

 

Cost of sales for the six months ended June 30, 2019 is $19,399 compared to $20,929 for the six months ended June 30, 2018.  Our cost of sales includes the direct costs associated with Pet Pain-Away manufacturing. Our gross profit margin for the six months ended June 30, 2019 is $32,138 or 62.36% compared to $39,428 or 65.32% for the six months ended June 30, 2018.

 

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Interest expense, including related party interest expense, decreased $296,942 or 67.41%, from $440,483 for the six months ended June 30, 2018 to $143,541 for the comparable 2019 period.  This decrease was due to an overall decrease in short term indebtedness in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Interest expense on these debentures is included in the fair value loss in the statements of operations.

 

We carry certain of our debentures and common stock warrants at fair value. For the six months ended June 30, 2019 and 2018, the liability related to these hybrid instruments fluctuated, resulting in a loss of $1,404,528 and $1,982,864, respectively.

 

Gain on settlement of debt and accounts payable decreased $712,120 or 92.68%, from gain of $768,323 for the six months ended June 30, 2018 to the gain of $56,203 for the comparable 2019 period.  This decrease was due to the decrease in settlement of debts.

 

Our net loss decreased by $259,679 or 11.15%, from $2,328,329 for the six months ended June 30, 2019 to $2,068,650 for the comparable 2019 period.

 

Liquidity and Capital Resources

 

We have incurred significant losses from operations and working capital and stockholders’ deficits raise substantial doubt about our ability to continue as a going concern.  Further, as stated in Note 1 to our condensed consolidated unaudited financial statements for the period ended June 30, 2019, we have an accumulated deficit of $63,341,492 at June 30, 2019. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $7,622,011 and a stockholders’ deficit of $7,652,158 at June 30, 2019.

 

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 May 7, 2021, we do not believe that our source of cash is adequate for the next 12 months of operation and there is substantial doubt about our ability to continue as a going concern.

 

Historically, we have relied upon loans from our Chief Executive Officer, Rik Deitsch, to fund our operations. At June 30, 2019, the balance due to our President and CEO, Rik Deitsch, is $161,418, which is an unsecured demand loan that bears interest at 4%. During the six months ended June 30, 2019, we repaid $61,715 to and collected $4,100 from Mr. Deitsch and the Companies owned by him, and increased the reserve by $29,000 for the amounts receivables from companies owned by the Company's CEO. Additionally, accrued interest on the demand loan was $3,536 and is included in the due to officer account.

 

During the six months ended June 30, 2019, we raised $484,879 through the issuance of convertible notes. Current operations are being funded through a combination of product sales, loans from our CEO and convertible notes. 

 

We expect to utilize the proceeds from these funds and additional capital to manufacture Nyloxin® and Pet Pain–Away and reduce our debt level.  We estimate that we will require approximately $240,000 to fund our existing operations and ReceptoPharm’s operations through December 31, 2019.  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® during the first quarter of 2011.  We began generating revenues from the sale of Pet Pain–Away™ in the fourth quarter of 2014. Our ability to meet our future operating expenses is highly dependent on the amount of such future revenues.  To the extent that future revenues from the sales of Nyloxin® and Pet Pain–Away™ are insufficient to cover our operating expenses we may need to raise additional equity capital, which could result in substantial dilution to existing shareholders.  There can be no assurance that we will be able to raise sufficient equity capital to fund our working capital requirements on terms acceptable to us, or at all.  We may also seek additional loans from our officers and directors; however, there can be no assurance that we will be successful in securing such additional loans.

 

Selling, general and administrative expenses (“SG&A”) decreased $103,811 or 14.57% from $712,733 for the six months ended June 30, 2018 to $608,922 for the six months ended June 30, 2019, generally due to the overall decrease of approximately $104,000 in professional fees.

 

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Impact of COVID-19 on our Operations

 

The ramifications of the outbreak of the novel strain of COVID-19, reported to have started in December 2019 and spread globally, are filled with uncertainty and changing quickly. Our operations have continued during the COVID-19 pandemic and we have not had significant disruption. Beginning in June 2020, the Company experienced a delay in retail rollout as a downstream implication of the slowing economy. We also closed our Coral Springs office in effort to save money. During May 2020, we received approval from SBA to fund our request for a PPP loan for $64,895. We intended to use the proceeds primarily for payroll costs. During April and June 2020, we obtained the loan in the amount of $154,900 from SBA under its Economic Injury Disaster Loan assistance program. We intended to use the proceeds primarily for working capital purpose.

 

The Company is operating in a rapidly changing environment so the extent to which COVID-19 impacts its business, operations and financial results from this point forward will depend on numerous evolving factors that the Company cannot accurately predict. Those factors include the following: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the development of widespread testing or a vaccine.

 

Uncertainties and Trends

 

Our operations and possible revenues are dependent now and in the future upon the following factors:

 

· whether Nyloxin®, Nyloxin® Extra Strength and Pet Pain–Away will be accepted by retail establishments where they are sold;
· because Nyloxin® is a novel approach to the over–the–counter pain market, whether it will be accepted by consumers over conventional over–the–counter pain products;
· whether Nyloxin® Military Strength will be successfully launched and be accepted in the marketplace;
· whether our international drug applications will be approved and in how many countries;
· whether we will be successful in marketing Nyloxin®, Nyloxin® Extra Strength and Pet Pain–Away in our target markets and create nationwide and international visibility for our products;
· whether our drug delivery system, i.e. oral spray and gel, will be accepted by consumers who may prefer a pain pill delivery system;
· whether competitors’ pain products will be found to be more attractive to consumers;
· whether we successfully develop and commercialize products from our research and development activities;
· whether we compete effectively in the intensely competitive biotechnology area;
· whether we successfully execute our planned partnering and out–licensing products or technologies;
· whether the current economic downturn and related credit and financial market crisis will adversely affect our ability to obtain financing, conduct our operations and realize opportunities to successfully bring our technologies to market;
· whether we are subject to litigation and related costs in connection with use of products;
· whether we will successfully contract with domestic distributor(s)/advertiser(s) for our products and whether that will cause interruptions in our operations;
· whether we comply with FDA and other extensive legal/regulatory requirements affecting the healthcare industry.

 

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:

 

· An obligation under a guarantee contract.
· 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.
· Any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument.
· 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.

 

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We do not have any off–balance sheet arrangements or commitments other than those disclosed in this report 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

As of June 30, 2019, 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 June 30, 2019, as defined in Rule 13a–15 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 Section 9A of our annual report on Form 10–K, our disclosure controls and procedures were not effective, at a reasonable assurance level, as of June 30, 2019. In light of this, we performed additional post–closing procedures and analyses in order to prepare the Condensed Consolidated Unaudited Financial Statements included in this report. As a result of these procedures, we believe our Condensed Consolidated Unaudited 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.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, who also acted as our Principal Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

 

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 quarter ended June 30, 2019 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc.

 

On June 1, 2015, ReceptoPharm entered into a settlement agreement with Patricia Meding, a former officer and shareholder of ReceptoPharm.  The settlement relates to a lawsuit filed by Ms. Meding against ReceptoPharm (Patricia Meding, et. al. v. ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06, New York Supreme Court, Queens County) in which she claimed to own certain shares of ReceptoPharm stock and claimed to be owed amounts on a series of promissory notes allegedly executed in 2001 and 2002.

 

The settlement agreement executed on June 1, 2015 provides that ReceptoPharm will pay Ms. Meding a total of $360,000 over 35 months. The first payment of $20,000 was made on July 1, 2015. A second payment of $20,000 was made on August 17, 2015 with 32 subsequent monthly $10,000 payments due on the 15th of every month thereafter. To date, ReceptoPharm has made all monthly payments due under the agreement.  In the event of default on any of the payments due under the settlement agreement, the settlement amount would increase by an additional $200,000.  As of December 31, 2018, all payments were made and the settlement is concluded. We have recorded $200,000 in other income for the over accrual of default upon payments in full in April 2018.

 

Paul Reid et al. v. Nutra Pharma Corp. et al.

 

On August 26, 2016, certain of former ReceptoPharm employees and a former ReceptoPharm consultant filed a lawsuit in the 17th Judicial Circuit in and for Broward County, Florida (Case No. CACE16–015834) against Nutra Pharma and Receptopharm to recover $315,000 allegedly owing to them under a settlement agreement reached in an involuntary bankruptcy action that was brought by the same individuals in 2012 and for payment of unpaid wages/breach of written debt confirms.  

 

Nutra Pharma and Receptopharm believe that the lawsuit is without merit, especially in light of gross misconduct by these former employees that was discovered after execution of the aforementioned settlement agreement. On October 9, 2020, the Court entered an Order denying the plaintiffs’ motion for summary judgment with respect to Count I of the Complaint (for alleged breach of the aforementioned settlement agreement), and the parties continue to engage in discovery regarding their respective claims and defenses. The case is currently set for trial during the period from May 10, 2021 to May 28, 2021, but it is unclear at this time with the ongoing COVID-19 pandemic (and the resultant cessation of jury trials in Broward County) whether the trial will proceed at that time. 

 

Get Credit Healthy, Inc. v. Nutra Pharma Corp. and Rik Deitsch, Case No. CACE 18-017055

 

On August 1, 2018, Get Credit Healthy, Inc. filed a lawsuit against Nutra Pharma Corp. and Rik Deitsch (collectively the “Defendants”) in the 17th Judicial Circuit Court in and for Broward County, Florida (Case No. CACE 18-017055) to recover $100,000 allegedly owed under an amended promissory note dated April 12, 2017. Counsel for Get Credit Healthy, Inc. requested an early mediation conference in an attempt to resolve our dispute. We agreed to this request, and mediation took place on February 15, 2019.  At December 31, 2018, we owed principal balance of $101,818 and accrued interest of $21,023. At mediation, Get Credit Healthy, Inc. claimed that the individual that breached the binding memorandum of understanding with Nutra Pharma Corp. was never an owner of Get Credit Healthy, Inc., but rather, a close friend that encouraged Get Credit Healthy, Inc. to make the subject loan to Nutra Pharma Corp.  Ultimately, the parties were able to reach a Confidential Settlement Agreement to resolve the dispute, and an Agreed Order was entered dismissing the lawsuit. The lawsuit was settled on February 15, 2019 for $104,000 with scheduled payments through May 1, 2020. The repayments were made in full as of November 2020 (See Note 6).

 

CSA 8411, LLC v. Nutra Pharma Corp., Case No. CACE 18-023150

 

On October 12, 2018, CSA 8411, LLC filed a lawsuit against the Company in the 17th Judicial Circuit Court in and for Broward County, Florida (Case No. CACE 18-023150) to recover $100,000 allegedly owed under an amended promissory note dated April 12, 2017. On November 1, 2018, the Company filed its Answer and Affirmative Defenses to the Complaint. The Company believes that this lawsuit is without merit. Moreover, the Company believes that it has a number of valid defenses to this claim. Among other things, the owner of CSA 8411, LLC violated the terms of a Binding Memorandum of Understanding by failing to invest in the Company and fraudulently inducing the Company to enter into the subject amended promissory note (contrary to the Get Credit Healthy lawsuit discussed above, we are certain that this individual is the majority owner of CSA 8411, LLC). Opposing counsel reached out to schedule mediation, and mediation was set for June 21, 2019 in Plantation, FL however the mediation was unsuccessful.  At June 30, 2019, we owed principal balance of $91,156 and accrued interest of $24,433 (See Note 6) if the defenses and our new claims are deemed be of no merit.

 

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The Company also filed affirmative claims against the Plaintiff, its owner Dan Oran and several relate entities. The case has not been set for trial as of this date.

 

Securities and Exchange Commission v. Nutra Pharma Corporation, Erik Deitsch, and Sean Peter McManus

 

On September 28, 2018, the United States Securities and Exchange Commission (the “SEC”) filed a lawsuit in the United States District Court for the Eastern District of New York (Case No. 2:18-cv-05459) against the Company, Mr. Deitsch, and Mr. McManus. The lawsuit alleges that, from July 2013 through June 2018, the Company and the other defendants defrauded investors by making materially false and misleading statements about t and violated anti-fraud and other securities laws.

 

The violations alleged against the Company by the SEC include: (a) raising over $920,000 in at least two private placement offerings for which the Company failed to file required registration statements with the SEC; (b) issuing a series of materially false or misleading press releases; (c) making false statements in at least one Form 10-Q; and (d) failing to make required public filings with the SEC to disclose the Company’s issuance of millions of shares of stock. The lawsuit makes additional allegations against Mr. McManus and Mr. Deitsch, including that Mr. McManus acted as a broker without SEC registration and defrauded at least one investor by making false statements about the Company, that Mr. Deitsch engaged in manipulative trades of the Company’s stock by offering to pay more for shares he was purchasing than the amount the seller was willing to take, and that Mr. Deitsch failed to make required public filings with the SEC. The lawsuit seeks both injunctive and monetary relief.

 

On May 29, 2019 (following each of the defendants filing motions to dismiss), the SEC filed a First Amended Complaint which generally alleged the same conduct as its original Complaint, but accounted for certain guidance provided by the United States Supreme Court in a case that had been recently decided. Each of the defendants then moved to dismiss the SEC’s First Amended Complaint. On March 31, 2020, the Court entered an Order granting in part and denying in part the various motions to dismiss. Following that Order, the SEC filed a Second Amended Complaint (the operative pleading) and the defendants have filed their answers which generally deny liability. At this time, discovery is closed and the SEC has indicated an intent to file a summary judgment motion regarding certain non-fraud claims asserted in its Second Amended Complaint. The defendants have opposed the SEC’s request to file such motion(s). The Court conducted a hearing on February 23, 2021 and set an initial briefing schedule for the SEC’s Motion for Partial Summary Judgment wherein the Plaintiffs’ Motion for Partial Summary Judgment was due on April 5, 2021, the Defendants’ Consolidated (i.e., collectively, Nutra Pharma Corporation, Erik “Rik” Deitsch, and Sean McManus) Response Brief to the SEC’s Motion is due May 3, 2021, and the Plaintiffs’ Reply Brief is due on May 19, 2021.  On March 23, 2021, the Plaintiff filed a Motion for Extension of Time to file the Motion for Partial Summary Judgment. On March 24, 2021, the Court entered an order granting the Motion for Extension of Time and modified the briefing schedule as follows: Plaintiffs’ Motion is due on or before April 9, 2021, the Defendants’ Response is due on or before May 7, 2021, and the Plaintiffs’ Reply is due on or before May 21, 2021. Nutra Pharma disputes the allegations in this lawsuit and continues to vigorously defend against the SEC’s claims. Mr. Deitsch and Mr. McManus have similarly defended the lawsuit since its filing and each contest liability. The Company does not believe that it engaged in any fraudulent activity or made any material misrepresentations concerning the Company and/or its products.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Common Stock Issued with Indebtedness

 

During May 2019, the Notes of $48,000 with original issuance discount of $8,000 amended in October 2018 were restated. In connection with this restated note, we issued 3,000,000 shares of our common stock. The common stock was valued at $900.

 

During May 2019, the Notes of $24,000 with original issuance discount of $4,000 amended in November 2018 were restated. In connection with this restated note, we issued 3,000,000 shares of our common stock. The common stock was valued at $900.

 

During September 2019, the Notes of $282,983 plus accrued interest amended in December 2018 were restated. The restated principal balance of $333,543 were due September 2020. In connection with this restated note, we issued 20,000,000 shares of our common stock. The common stock was valued at $5,090.

 

Common Stock Issued for Conversion of Convertible Debt

 

During May 2019 through February 2020, the Note holder received a total of 1,250,000,000 shares of our restricted common stock in satisfaction of $275,000 of a Note originated in February 2019. During February through March 2021, the Note holder received an additional 205,080,000 shares of our restricted common stock in satisfaction the $102,540 of the Note.

 

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During September 2020, a Note holder received a total of 107,133,333 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,140 from a Note originated in March 2018. During October 2020, the Note holder received a total of 107,817,770 shares of our restricted common stock in satisfaction of the principal balance of $22,000 and accrued interest of $10,345 from a Note originated in March 2018.

 

During November 2020, the Note received a total of 100,000,000 shares of our restricted common stock in satisfaction the $20,000 of the Note amended in January 2019 with a fair value of $120,000.

 

Common Stock Issued for Conversion of Promissory Note

 

During August 2019, in connection with the settlement, we issued 1,500,000 shares of common stocks with a fair value of $450 for the Note of $12,000 with original issuance discount of $2,000 originated in December 2019.

 

During December 2019, two Notes for a total of $9,900 with original issuance discount of $900 originated in February 2018 were settled with 40,000,000 shares of common stocks. The shares were valued at fair value of $24,000.

 

During December 2019, three Notes for a total of $49,684 with original issuance discount of $2,700 originated in May 2017, January and September 2018, respectively, were settled with 260,000,000 shares of common stocks. The shares were valued at fair value of $130,000.

 

During December 2019, two Notes for a total of $46,500 originated in October and November 2018 and the accounts payable of $39,000 for consulting fees were settled with 500,000,000 shares of common stocks. The shares were valued at fair value of $300,000.

 

During March 2020, $50,000 of the Note of $120,000 with original issuance discount of 20,000 originated in November 2017 was settled for 125,000,000 shares. An additional 36,000,000 shares were issued to satisfy the default provision of the original note, and 10,000,000 shares were issued along with the restatement. The total fair value of issued stock was $119,700.

 

During February 2021, we issued 29,072,500 shares of common stock to satisfy the accrued interest of $23,258 with fair value of $343,056 for the Note with principal balance of $166,926 restated in July 2020.

 

Common Stock Issued for Default Payments

 

During May 2019, we issued a total of 3,000,000 restricted shares to two Note holders due to the default on repayments of the convertible note of $48,000 originated in October 2018 and $24,000 originated in November 2018. The shares were valued at fair value of $900.

 

During August 2019, we issued a total of 2,000,000 additional restricted shares to two Note holders due to the default on repayments. The shares were valued at fair value of $700.

 

During June 2019, we issued a total of 500,000 restricted shares to a Note holder due to the default on repayments of the convertible note of $12,000 originated in December 2018. The shares were valued at fair value of $150.

 

During July 2019, we issued a total of 5,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $282,983 plus accrued interest amended in December 2018. The shares were valued at fair value of $1,500.

 

During September 2019, we issued a total of 10,000,000 restricted shares to a Note holder due to the default on repayments of the original issuance discount of $10,000 for the convertible promissory notes of $60,000 amended in November 2018. The shares were valued at fair value of $4,000.

 

During January 2020, we issued a total of 75,000,000 restricted shares to a Note holder due to the default on repayments of the convertible promissory note of a total of $148,225 amended in August and November 2018. The shares were valued at fair value of $45,000.

 

During July 2020, we issued a total of 1,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $22,000 originated in December 2019. The shares were valued at fair value of $700.

 

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During September 2020, we issued a total of 10,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $333,543 plus accrued interest amended in September 2019. The shares were valued at fair value of $6,000.

 

During October 2020, we issued a total of 1,500,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $84,000 amended in March 2020. The shares were valued at fair value of $900.

 

During January 2021, we issued a total of 25,000,000 restricted shares to a Note holder due to the default on repayments of the promissory note of $166,926 amended in July 2020. The shares were valued at fair value of $107,500.

 

 

Common Stock Issued for Services

 

During April 2019, we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 120,000,000 shares of our restricted common stock were issued. The shares were valued at $24,000.

 

During June 2019, we signed an agreement with a consultant to provide investor relation services for twelve months. In connection with the agreement, 15,000,000 shares of our restricted common stock were issued. The shares were valued at $6,000.

 

Settlement of a Related-Party Note

 

During June 2020, the Note of $14,400 with original issuance discount of $2,400 to a related party amended in December 2018 was settled with cash payment of $14,400 and 5,000,000 shares of common stocks. The shares were valued at fair value of $3,000.

 

Item 3. Defaults Upon Senior Securities

 

Debt owed to a Director

 

During 2010, we borrowed $200,000 from one of our directors. 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. The loan is under personal guarantee by Mr. Deitsch. We repaid principal balance in full as of December 31, 2016. At June 30, 2019 and December 31, 2018, we owed this director accrued interest of $150,372 and $141,808.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit No.   Title
31.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NUTRA PHARMA CORP.
  Registrant
   
Dated: May 7, 2021 /s/ Rik J. Deitsch
  Rik J. Deitsch
  Chief Executive Officer/Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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