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NPHC > SEC Filings for NPHC > Form 10-Q on 19-Nov-2013All Recent SEC Filings

Show all filings for NUTRA PHARMA CORP

Form 10-Q for NUTRA PHARMA CORP


19-Nov-2013

Quarterly Report


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

Introduction

Our business during the third quarter of 2013 has focused upon marketing our fully developed three homeopathic drugs for the treatment of pain:

ˇ CobroxinŽ, an over the counter pain reliever designed to treat moderate to severe (Stage 2) chronic pain; and

ˇ NyloxinŽ (Stage 2 Pain) and NyloxinŽ Extra Strength (Stage 3 Pain).

We will continue this focus during the remainder of 2013.

During our third quarter of 2013 and thereafter, the following has occurred:

On June 24, we announced the launch of our new homeopathic formula for the treatment of chronic pain in companion animals, Pet Pain-Away. Pet Pain-Away is a homeopathic, non-narcotic, non-addictive, over-the-counter pain reliever, primarily aimed at treating moderate to severe chronic pain in companion animals. It is specifically indicated to treat pain from hip dysplasia, arthritis pain, joint pain, and general chronic pain in dogs, cats and horses.

On August 15, we announced that our Chief Executive Officer, Rik J Deitsch, was interviewed by Chris Castaldo of Wall Street Buy Sell Hold. The interview was the CEO's first in almost two years and outlined the short, mid-term and long-term goals of the company. Mr. Castaldo also interviewed Jonathan Flicker, the CEO of our NyloxinŽ Distributor, New Vitality.

On August 19, we provided an update on our efforts to register NyloxinŽ with US Governmental agencies. In December 2012, we had announced that we were introducing a stronger version of NyloxinŽ to be called NyloxinŽ Military Strength. we are registering the NyloxinŽ Military Strength as well as NyloxinŽ and NyloxinŽ Extra Strength with US government agencies that will allow for the eventual sales and distribution of these products into the active military, US military base stores and foreign embassies.

On August 22, weannounced that we had begun the process of registering our homeopathic treatment for chronic pain, NyloxinŽ, in the country of South Africa. We stated a goal to begin marketing in South Africa by mid-2014.

On August 29, we announced that New Vitality, a marketing and distribution company, had placed and received their first order of the Company's all-natural, non-addictive pain reliever, NyloxinŽ. The order was pursuant to New Vitality's successful test radio campaign to gauge the market acceptance of the product.

On September 11, we announced that we had completed the process of moving our inventory of our all-natural, non-addictive pain reliever, NyloxinŽ, into our Plantation, Florida facility and that we will be handling fulfillment services in-house. This will save time on shipments as well as improve our margins by more than 10%. We moved over 43 pallets of the NyloxinŽ product to our existing facility in Plantation, Florida providing saleable goods at retail as well as wholesale prices to our customers and Distributors.

On September 25, our CEO, Rik J Deitsch, published a letter to Shareholders on our website outlining the current efforts and the future goals of the Company.

On October 08, we provided updates on the sales and marketing activities of TCN, a distributor of Nutra Pharma's over-the-counter (OTC) pain reliever, NyloxinŽ. We announced the launch of TCNs global marketing and distribution campaign for NyloxinŽ. In September 2012, we had announced the beginning of distribution efforts by the TCN group of direct distributors. Since that time, TCN has worked diligently to introduce NyloxinŽ to approximately 40,000 distributors in the United States and almost 400,000 distributors globally. In August 2013, TCN re-launched their company as the "True Cash Network" and have subsequently expanded their internet presence. They have been working to overhaul their product offerings and have allowed their distributors personal websites under their www.MyNyloxin.com portal. Additionally, TCN has scheduled marketing efforts in the US that will include internet, radio and television.

On October 22, we announced that our Chief Executive Officer, Rik J Deitsch, was interviewed by Chris Castaldo of Wall Street Buy Sell Hold. This was the second interview by Mr. Castaldo and provided an update to the interview conducted in August. Mr. Castaldo conducted an updated interview with Jonathan Flicker, the CEO of our NyloxinŽ Distributor, New Vitality.

On Oct 30, we announced that we were in the process of launching the newest addition to our line of homeopathic treatments for chronic pain, Equine NyloxinŽ, a topical therapy for horses that is packaged as a two piece kit:
NyloxinŽ Topical Gel comprises Step 1 and a solution of DMSO (dimethylsulfoxide) comprises Step 2.

CobroxinŽ

We offer CobroxinŽ, our over-the-counter pain reliever that has been clinically proven to treat moderate to severe (Stage 2) chronic pain. CobroxinŽwas developed by ReceptoPharm, our drug discovery arm and wholly owned subsidiary. CobroxinŽ is not currently being marketed. In August 2009, we completed an agreement with XenaCare Holdings ("XenaCare") granting it the exclusive license to market and distribute CobroxinŽ within the United States. In mid-October 2009, XenaCare began selling CobroxinŽonline through its product website, www.Cobroxin.com.

In November 2009, XenaCare began selling CobroxinŽ to brick-and-mortar retailers, including distribution to CVS in March 2010 and Walgreens in May 2010. On April 1, 2011, we notified our CobroxinŽ Distributor, XenaCare that they were in breach of our agreement. As a result of this, the distribution agreement was terminated effective April 10, 2011. XenaCare had a large stock of the product that they had ordered from us and we have allowed them to continue to market their existing inventory of CobroxinŽ. In October, 2011 we discontinued their website at www.Cobroxin.com. All current traffic to that website is now redirected to www.Nyloxin.com. On June 10, 2013, we announced a new licensing agreement for the distribution of CobroxinŽ with Cobra Pharmaceuticals, LLC. The new distributors expect to begin a direct response campaign by the first quarter of 2014 with the return to retail in late 2014.

CobroxinŽ is currently available as a two ounce topical gel for treating joint pain and pain associated with arthritis and repetitive stress, and as a one ounce oral spray for treating lower back pain, migraines, neck aches, shoulder pain, cramps, and neuropathic pain. Both the topical gel and oral spray are packaged and sold as a one-month supply.

CobroxinŽ offers several benefits as a pain reliever. With increasing concern about consumers using opioid and acetaminophen-based pain relievers, CobroxinŽprovides an alternative that does not rely on opiates or non-steroidal anti-inflammatory drugs, otherwise known as NSAIDs, for its pain relieving effects. CobroxinŽ also has a well-defined safety profile. Since the early 1930s, the active pharmaceutical ingredient (API) of CobroxinŽ, 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:

ˇ safe and effective;

ˇ all natural;

ˇ long-acting;

ˇ easy to use;

ˇ non-narcotic;

ˇ non-addictive; and

ˇ analgesic and anti-inflammatory.

Potential side effects from the use of CobroxinŽ are rare, but may include headache, nausea, vomiting, sore throat, allergic rhinitis and coughing.

NyloxinŽ/NyloxinŽExtra Strength

NyloxinŽ and NyloxinŽExtra Strength are similar to CobroxinŽ in that they both contain the same active ingredient as CobroxinŽ, Asian cobra venom. The primary difference between NyloxinŽ, NyloxinŽ Extra Strength and CobroxinŽ is the dilution level of the venom. The approximate dilution levels for NyloxinŽ, NyloxinŽExtra Strength and CobroxinŽ are as follows:

NyloxinŽ

ˇ Topical Gel: 30 mcg/mL

ˇ Oral Spray: 70 mcg/mL

NyloxinŽ Extra Strength

ˇ Topical Gel: 60 mcg/mL

ˇ Oral Spray: 140 mcg/mL

CobroxinŽ

ˇ Topical Gel: 20 mcg/mL

ˇ Oral Spray: 35 mcg/mL

In December 2009, we began marketing NyloxinŽand NyloxinŽ Extra Strength at www.Nyloxin.com. Both NyloxinŽ and NyloxinŽ Extra Strength are packaged in a roll-on container, squeeze bottle and as an oral spray. Additionally, NyloxinŽ topical gel is available in an 8oz pump bottle.

In September of 2012 we began distributing NyloxinŽ through TCN International, a Network Marketing Company. TCN distributes products and software applications to approximately 400,000 independent agents in more than 30 countries, including more than 40,000 agents in the United States.

In April of 2013, we created a portal website for NyloxinŽ Distribution to a buyer's club, Freedom 10. The Freedom 10 group is able to buy our products at a discount based on the volume of products sold.

During June of 2013, we announced that New Vitality, a marketing and distribution company, had begun a test radio campaign to gauge the market acceptance of NyloxinŽ. The 60-second ads ran for several weeks on radio stations throughout the United States. As a result of positive testing, New Vitality added NyloxinŽ to their e-commerce website as they continue to advertise the product. In August of 2013, New Vitality had placed and received their first order of NyloxinŽ. The order was pursuant to New Vitality's successful test radio campaign to gauge the market acceptance of the product. New Vitality is currently marketing NyloxinŽ through a Direct Response campaign on over 2,000 radio stations around the US. They will continue this campaign over the coming months and will add television advertising in the fourth quarter of 2013.

We are currently marketing NyloxinŽand NyloxinŽ Extra Strength as treatments for moderate to severe chronic pain. NyloxinŽ 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. NyloxinŽ 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.

We are pursuing international drug registrations in India, Canada, Mexico, South Africa, Central and South America and Europe. Since European rules for homeopathic drugs are different than the rules in the US, we cannot estimate when this process will be completed. Additionally, we plan to complete two human clinical studies aimed at comparing the ability of NyloxinŽ Extra Strength to replace prescription pain relievers. We originally believed that these studies would begin during the second quarter of 2010; however, these studies have been delayed because of lack of funding. We cannot provide any timeline for these studies until adequate financing is available.

To date, our marketing efforts have been limited due to lack of funding. As sales increase, we plan to begin marketing more aggressively to increase the sales and awareness of our products.

Pet Pain-Away

During June of 2013, we announced the launch of our new homeopathic formula for the treatment of chronic pain in companion animals, Pet Pain-Away. Pet Pain-Away is a homeopathic, non-narcotic, non-addictive, over-the-counter pain reliever, primarily aimed at treating moderate to severe chronic pain in companion animals. It is specifically indicated to treat pain from hip dysplasia, arthritis pain, joint pain, and general chronic pain in dogs, cats and horses. We are seeking distributors for the product now as we begin manufacturing for eventual sales in the fourth quarter of 2013.

Equine NyloxinŽ

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 NyloxinŽ, a topical therapy for horses that is packaged as a two piece kit:
NyloxinŽ Topical Gel comprises Step 1 and a solution of DMSO (dimethylsulfoxide) comprises Step 2. We have been working with trainers and veterinarians in the equine industry and have already identified distributors for the product. The Equine NyloxinŽ represents the Company's first topical solution for the animal market. We expect to have it available in the first quarter of 2014.

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 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: In general, we record revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Provision for sales returns will be estimated based on the Company's historical return experience.

Accounts Receivable and Allowance for Doubtful Accounts: Our accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. In determining collectability, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances.

Inventory Obsolescence: Inventories are valued at the lower of average cost or market value. We periodically perform an evaluation of inventory for excess, impairments and obsolete items.

Long-Lived Assets: The carrying value of long-lived assets is reviewed annually and on a regular basis for the existence of facts and circumstances that may suggest impairment. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows attributable to the long-lived asset in question is less than its carrying amount. If less, we measure the amount of the impairment based on the amount that the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual disposal of the impaired assets.

Derivative Financial Instrument: We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments at inception and subsequent valuation dates. For complex embedded derivatives, we use a Dilution-Adjusted Black-Scholes method to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Share-Based Compensation: We record share-based compensation in accordance with FASB ASC 718, Stock Compensation. FASB ASC 718 requires that the cost resulting from all share-based transactions are recorded in the financial statements over the respective service periods. It establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement in accounting for share-based payment transactions with employees. FASB ASC 718 also establishes fair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based payment transactions.

Results of Operations -

Comparison of Three Months Periods Ended September 30, 2013 and September 30, 2012

Net sales for the three month period ended September 30, 2013 were $39,268 compared to $13,221 for the three month period ended September 30, 2012. The increase in net sales is primarily attributable to a significant increase in NyloxinŽ sales.

Cost of sales for the three-month period ended September 30, 2013 was $6,167 compared to $4,260 for the three-month period ended September 30, 2012. Our cost of sales includes the direct costs associated with NyloxinŽ manufacturing. Our gross profit margin for the three-month period ended September 30, 2013 was $33,101 or 84.3% was compared to $8,961 or 67.8% for the three-month period ended September 30, 2012. The increase in our profit margin is due primarily to a decrease in the costs of components associated with shipping.

Selling, general and administrative expenses ("SG&A") increased $363,475 or 169.9% from $213,987 for the quarter ended September 30, 2012 to $577,462 for the three months ended September 30, 2013, generally due to a increase in consulting, legal and professional fees. Our SG&A expenses include office expenses such as rent and utilities, product liability insurance and outside legal and accounting services. Also included in SG&A expenses is stock based compensation expense, which increased $190,145 or 905% from $21,000 for the three months ending September 30, 2012 to $211,145 for the three months ending September 30, 2013.

Interest expense increased $4,209 or 10.6%, from $39,772 for the three months ended September 30, 2012 to $43,981 for the comparable 2013 period. This increase was due to an overall increase in short term indebtedness in the three months ended September 30, 2013 compared to the three months ended September 30, 2012.

We carry certain of our debentures and common stock warrants at fair value. For the three months ended September 30, 2013 and 2012, the liability related to these hybrid instruments fluctuated, resulting in a loss of $1,446,489 and $57,986 change in fair value of derivatives, respectively.

Loss on settlement of debt and accounts payable increased $611,968 or 100%, from $nil for the three months ended September 30, 2012 to $611,968 for the comparable 2013 period. This increase was due to settlement of debts and accounts payable through issuance of stocks for the three months ended September 30, 2013.

As a result of the foregoing, our net loss increased by $2,344,015 or 774.2%, from $302,784 for the three months ended September 30, 2012 to $2,646,799 for the comparable 2013 period.

Comparison of Nine Months Ended September 30, 2013 and September 30, 2012

Net sales for the nine months ended September 30, 2013 were $99,129 compared to $44,456 for the nine months ended September 30, 2012. The increase in sales is primarily attributable to an overall increase in sales of NyloxinŽ.

Cost of sales for the nine months ended September 30, 2013 was $29,773 compared to $10,626 for the nine months ended September 30, 2012. Our cost of sales includes the direct costs associated with NyloxinŽ manufacturing. Our gross profit margin for the nine months ended September 30, 2013 was $69,356 or 70% compared to $33,830 or 76.1% for the nine months ended September 30, 2012. The decrease in our profit margin is due primarily to a increase in the direct costs of components associated with shipping.

Selling, general and administrative expenses ("SG&A") increased $256,210 or 24.5% from $1,047,794 for the nine months ended September 30, 2012 to $1,304,004 for the nine months ended September 30, 2013, generally due to an increase in advertising, consulting, legal and professional fees. Our SG&A expenses include office expenses such as rent and utilities, product liability insurance and outside legal and accounting services. Also included in SG&A expenses is stock based compensation expense, which increased $61,592 or 14.2% from $434,021 for the nine months ended September 30, 2012 to $495,613 for the nine months ended September 30, 2013.

Interest expense increased $9,177 or 8.0%, from $114,963 for the nine months ended September 30, 2012 to $124,140 for the comparable 2013 period. This increase was due to an overall increase in short term indebtedness for the nine months ended September 30, 2013 compared to the comparable period in 2012.

We carry certain of our debentures and common stock warrants at fair value. For the nine months ended September 30, 2013 and 2012, the liability related to these hybrid instruments fluctuated, resulting in a loss of $1,696,557 and $83,447, respectively.

Loss on settlement of debt and accounts payable increased $460,812 or 216.3%, from $213,090 for the nine months ended September 30, 2012 to $673,902 for the comparable 2013 period. This increase was due to an overall increase in settlement of debts and accounts payable through issuance of stocks for the nine months ended September 30, 2013 compared to the comparable period in 2012.

Our net loss increased by $2,303,783 or 161.6%, from $1,425,464 for the nine months ended September 30, 2012 to $3,729,247 for the comparable 2013 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 September 30, 2013, we have an accumulated deficit of $41,373,103 and working capital and stockholders' deficits of $4,616,323 and $4,568,952, respectively.

Our ability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity, and attain profitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in which we operate. As of September 30, 2013, 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. These loans are unsecured, accrue interest at a rate of 4.0% per annum and are due on demand. During the nine month period ended September 30, 2013, we borrowed an additional $125,979 from Mr. Deitsch and repaid him $18,300. In addition, Mr. Deitsch accepted a total of 50,000,000 shares of the Company's restricted common stock as a repayment to discharge $162,500 of his outstanding loan to the Company in nine months ended September 30, 2013. As of September 30, 2013, we owe Mr. Deitsch $570,124. Included in this amount is $343,630 of accrued interest.

Subsequent to September 30, 2013 and through November 19, 2013, the Company received additional advances from its President, Rik Deitsch in the amount of $17,534 and repaid $8,000. The amount owed to Mr. Deitsch at November 19, 2013 was $582,550, which includes $346,524 of accrued interest.

As of November 19, 2013, we raised $255,000 and $75,000 through the issuance of convertible notes and promissory note, respectively. We also raised $82,500 through sales of common stocks.

We expect to utilize the proceeds from these funds and additional capital to manufacture CobroxinŽ, NyloxinŽ and Pet Pain-Away and reduce our debt level. We estimate that we will require approximately $100,000 to fund our existing operations and ReceptoPharm's operations through December 31st. 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 CobroxinŽ in the fourth quarter of 2009 and from the sale of NyloxinŽ during the first quarter of 2011. 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 CobroxinŽ and NyloxinŽ 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.

Uncertainties and Trends

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

¨ whether CobroxinŽ, NyloxinŽ, and NyloxinŽExtra Strength will be accepted by retail establishments where they are sold;

¨ because CobroxinŽis 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 our international drug applications will be approved and in how many countries;

¨ whether we will be successful in marketing CobroxinŽ, NyloxinŽ and NyloxinŽExtra Strength 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 . . .

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