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NPHC Nutra Pharma

Filed: 23 Jul 21, 4:30pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10–Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2020

 

[  ]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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Ticker symbol(s) Name of each exchange on which registered
N/A N/A N/A

 

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 [  ] No [X]

 

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 S–T (§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 [X]

 

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

 

Large accelerated filer [  ]Accelerated filer [  ]
Non–accelerated filer [  ]Smaller reporting company [X]
 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. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes [  ] No [X]

 

As of July 23, 2021, there were 7,267,619,714 shares of common stock and 3,000,000 shares of Series A preferred stock issued and outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATIONF-1
  
Item 1. Financial StatementsF-1
  
Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019F-1
  
Condensed Consolidated Statements of Operations for the Three months ended March 31, 2020 and 2019 (Unaudited)F-2
  
Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three months ended March 31, 2020 and 2019 (Unaudited)F-3
  
Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2020 and 2019 (Unaudited)F-5
  
Notes to Condensed Consolidated Financial Statements (Unaudited)F-6
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations4
  
Item 3. Quantitative and Qualitative Disclosures about Market Risk12
  
Item 4. Controls and Procedures12
  
PART II. OTHER INFORMATION13
 
Item 1. Legal Proceedings13
  
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds14
  
Item 3. Defaults Upon Senior Securities15
  
Item 4. Mine Safety Disclosure15
  
Item 5. Other Information15
  
Item 6. Exhibits15

 

2
 

 

Nutra Pharma Corp (“Nutra Pharma”) and its wholly owned subsidiaries, ReceptoPharm, Inc. (“ReceptoPharm”) and Designer Diagnostics Inc. are referred to herein as “we”, “our” or “us” (ReceptoPharm is also individually referred to herein).

 

Forward Looking Statements

 

This Quarterly Report on Form 10–Q for the period ending March 31, 2020, 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.

 

3
 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

NUTRA PHARMA CORP.

Condensed Consolidated Balance Sheets

 

  March 31,  December 31, 
  2020  2019 
  (Unaudited)    
ASSETS        
Current assets:        
Cash $-  $- 
Accounts receivable  33,581   32,479 
Inventory, current portion  6,624   8,177 
Prepaid expenses and other current assets  21,265   17,150 
Total current assets  61,470   57,806 
         
Inventory, less current portion  65,568   52,183 
Property and equipment, net  6,051   6,763 
Operating lease right-of-use assets  200,276   207,530 
Security deposit  15,550   15,550 
Total assets $348,915  $339,832 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities:        
Accounts payable $570,239  $583,226 
Accrued expenses  630,274   612,547 
Accrued payroll due to officers  1,296,893   1,249,393 
Accrued interest to related parties  164,276   159,555 
Due to officer  199,290   122,812 
Derivative liabilities  1,146,521   835,868 
Other debt, net of discount, current portion  4,844,952   7,352,954 
Operating lease obligations, current portion  75,588   73,278 
Total current liabilities  8,928,033   10,989,633 
Convertible note, less current portion  225,597   907,912 
Operating lease obligations, less current portion  123,576   143,322 
Total liabilities  9,277,206   12,040,867 
         
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 March 31, 2019 and December 31, 2019  3,000   3,000 
Common stock, $0.001 par value, 8,000,000,000 shares authorized: 6,622,746,111 and 5,876,746,111 shares issued and outstanding at March 31, 2020 and December 31, 2019  6,622,746   5,876,746 
Additional paid-in capital  50,127,203   50,283,503 
Accumulated deficit  (65,681,240)  (67,864,284)
Total stockholders’ deficit  (8,928,291)  (11,701,035)
Total liabilities and stockholders’ deficit $348,915  $339,832 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F-1
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Operations

(Unaudited)

 

  For the Three Months ended March 31, 
  2020  2019 
       
Net sales $17,116  $41,322 
Cost of sales  (5,279)  (15,625)
Gross profit  11,837   25,697 
         
Operating expenses:        
Selling, general and administrative - including stock based compensation of $7,500 and $30,000, respectively  241,441   274,635 
Bad debt recovery - related party  (39,500)  - 
Total operating expenses  201,941   274,635 
Loss from operations  (190,104)  (248,938)
         
Other income (expenses)        
Rental Income  3,000   - 
Interest expense  (68,873)  (75,145)
Interest expense to related parties  (4,721)  (4,196)
Change in fair value of convertible notes and derivatives  2,542,942   (129,417)
Stock issued for loan modification  (77,200)  - 
Gain (loss) on settlement of debt and accrued expense, net  (22,000)  57,253 
Total other income (expenses)  2,373,148   (151,505)
Income (loss) before income taxes  2,183,044   (400,443)
Provision for income taxes  -   - 
Net income (loss) $2,183,044  $(400,443)
         
Net income (loss) per share - basic and diluted $0.00  $(0.00)
         
Weighted average number of shares outstanding during the period - basic  6,272,328,529   4,112,446,110 
         
Weighted average number of shares outstanding during the period - diluted  12,293,204,022   4,112,446,110 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F-2
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

For the three months ended March 31, 2020 and 2019

(Unaudited)

 

              Additional     Total 
  Preferred Stock  Common Stock  Paid-in  Accumulated  Stockholders’ 
  Shares  Amount  Shares  Amount  Capital  Deficit  Deficit 
Balance -December 31, 2019  3,000,000  $3,000   5,876,746,111  $5,876,746  $50,283,503  $(67,864,284) $(11,701,035)
                             
Common stock issued for debt modification and penalty  -   -   121,000,000   121,000   (43,800)  -   77,200 
Common stock issued for conversion of debt  -   -   500,000,000   500,000   (75,000)  -   425,000 
Common stock issued for settlement of debt  -   -   125,000,000   125,000   (37,500)  -   87,500 
Net income                      2,183,044   2,183,044 
Balance -March 31, 2020  3,000,000  $3,000   6,622,746,111  $6,622,746  $50,127,203  $(65,681,240) $(8,928,291)

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

F-3
 

 

        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)
                             
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                      (400,443)  (400,443)
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)

 

See the accompanying notes to the unaudited condensed consolidated financial statements.

 

F-4
 

 

NUTRA PHARMA CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

  For the Three Months Ended March 31, 
  2020  2019 
       
Cash flows from operating activities:        
Net income (loss) $2,183,044  $(400,443)
Adjustments to reconcile net income (loss) to net cash used in operating activities:        
Bad debt expense  -   2,789 
Bad debt recovery - related party  (39,500)  - 
Accrued interest expense for amount due to officer  1,678   1,817 
(Gain) loss on settlement of debt and accrued expense  22,000   (57,253)
Depreciation  712   1,105 
Stock-based compensation  7,500   30,000 
Stock-based loan modification cost  77,200   - 
Change in fair value of convertible notes and derivatives  (2,542,942)  129,417 
Amortization of loan discount  24,873   38,117 
Amortization of operating lease right-of-use assets  7,254   15,244 
Changes in operating assets and liabilities:        
Increase in accounts receivable  (1,102)  (13,723)
Increase in inventory  (11,832)  (1,282)
Increase(decrease) in prepaid expenses and other current assets  (11,615)  4,152 
Increase(decrease) in accounts payable  (12,987)  65,014 
Increase in accrued expenses  45,377   45,287 
Increase in accrued payroll due to officers  47,500   59,400 
Increase in accrued interest to related parties  4,721   4,196 
Decrease in operating lease obligations  (17,436)  (15,341)
Net cash used in operating activities  (215,555)  (91,504)
         
         
Cash flows from financing activities:        
Loans from officer  118,500   4,100 
Repayment of officer loans  (4,200)  (9,950)
Proceeds from convertible notes  107,926   100,508 
Advances from an unrelated third party  25,000   - 
Repayments of other notes payable  (31,671)  (3,154)
Net cash provided by financing activities  215,555   91,504 
         
Net increase in cash  -   - 
         
Cash - beginning of period  -   - 
         
Cash - end of period $-  $- 
         
Supplemental Cash Flow Information:        
Cash paid for interest $-  $500 
Cash paid for income taxes $-  $- 
Non Cash Financing and Investing:        
Stocks issued in settlement of notes, accounts payable, and accrued expenses $87,500  $32,400 
Shares issued for conversion of debt $425,000  $- 
Warrants issued with Debt—Debt discount $-  $8,147 
Right-of-use asset due to adoption of ASC 842 $-  $281,175 
Operating lease liabilities due to adoption of ASC 842 $-  $281,175 
Reclassification of accrued interest to debt $12,150  $- 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F-5
 

 

NUTRA PHARMA CORP.

Notes to Unaudited Condensed Consolidated Financial Statements

March 31, 2020

 

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, Nutra Pharma 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, 2019. 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. Designer Diagnostics Inc. has been inactive since June 2011. All intercompany transactions and balances have been eliminated in consolidation.

 

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 $65,681,240 at March 31, 2020. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $8,866,563 and a stockholders’ deficit of $8,928,291 at March 31, 2020.

 

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.

 

F-6
 

 

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 used the proceeds primarily for payroll costs. We expect forgiveness of this loan under the current terms of requirement by the SBA. During April and June 2020, we obtained the loan in the amount of $150,000 from SBA under its Economic Injury Disaster Loan assistance program. We used the proceeds primarily for rent, payroll, utilities, accounting and legal expenses (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 distribution of testing and 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 a 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 derivative 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.

 

Revenue from Contracts with Customers

 

The Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC Topic 606, revenue recognition 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

 

Our revenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations are fulfilled upon shipment 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.

 

F-7
 

 

Accounting for Shipping and Handling Costs

 

We account for shipping and handling as fulfillment activities and record amounts billed to customers as revenue and the related shipping and handling costs as cost of sales.

 

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 receivable.

 

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for uncollectible accounts. No allowance for doubtful account is deemed to be required at March 31, 2020 and December 31, 2019.

 

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. Commencing on October 1, 2019, we classify inventory as short-term or long-term inventory based on timing of when it is expected to be consumed. 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 March 31, 2020 and December 31, 2019, and increased the reserve on supplier advances for future venom purchases included in prepaid expenses and other current assets by $0 and $23,948, respectively. At both March 31, 2020 and December 31, 2019, the total valuation allowance for prepaid venom was $224,859.

 

Financial Instruments and Concentration of Credit Risk

 

Our financial instruments include cash, accounts receivable, accounts payable, accrued expenses, loans payable, due to officers and derivative financial instruments. Other than certain warrant and convertible instruments (derivative financial instruments) and liabilities to related parties (for which it was impracticable to estimate fair value due to uncertainty as to when they will be satisfied and a lack of similar type transactions in the marketplace), we believe the carrying values of our financial instruments approximate their fair values because they are short term in nature or payable on demand. Our derivative financial instruments are carried at a measured fair value.

 

Balances in various cash accounts may at times exceed federally insured limits. We have not experienced any losses in such accounts. We do not hold or issue financial instruments for trading purposes. In addition, for the three months ended March 31, 2020, there was one customer that accounted for 59% of the total revenues. For the three months ended March 31, 2019, there were two customers that accounted for 61% and 17% of the total revenues, respectively. As of March 31, 2020 and December 31, 2019, 100% of the accounts receivable balance are reserves due from two payment processors.

 

F-8
 

 

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.

 

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.

 

F-9
 

 

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 (“ASC Topic 815”). 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.

 

Derivative Accounting for Convertible Debt and Options and Warrants

 

The Company evaluated the terms and conditions of the convertible debt under the guidance of ASC Topic 815, Derivatives and Hedging. The conversion terms of some of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the debt is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debt and options and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, Embedded Derivatives, the fair values of the convertible debt, options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.

 

Property and Equipment

 

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.

 

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.

 

Income Taxes

 

The Company recorded no income tax expense for the three months ended March 31, 2020 and 2019 because the estimated annual effective tax rate was zero. As of March 31, 2020, 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.

 

F-10
 

 

Net Income (Loss) Per Share

 

Net income (loss) per share is calculated in accordance with FASB ASC Topic 260, Earnings per Share. Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which 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 conversion options and warrants would come from newly issued common shares from our remaining authorized shares.

 

  Three Months Ended 
  March 31, 
  2020  2019 
Basic and diluted numerator:        
         
Net income (loss) - basic $2,183,044  $(400,443)
Effect of dilutive securities:        
Change in fair value of convertible notes  (2,854,140)  - 
Interest on convertible debt  8,735   - 
Net loss - diluted $(662,361) $(400,443)
         
Basic and diluted denominator:        
         
Weighted-average common shares outstanding - basic  6,272,328,529   4,112,446,110 
         
Effect of dilutive securities:        
Convertible debt  6,020,875,493   - 
Weighted-average common shares outstanding - diluted (1)  12,293,204,022   4,112,446,110 
         
Net income (loss) per share - basic and diluted $(0.00) $(0.00)

 

(1) Includes potential common shares that are in excess of authorized shares.

 

As of March 31, 2020 and 2019, the following items were not included in dilutive loss as the effect is anti-dilutive:

 

  

March 31,

2020

  

March 31,

2019

 
Options and warrants  

46,500,000

   122,600,000 
Convertible notes payable at fair value  -   6,972,376,110 
Convertible notes payable  -   1,237,780,833 
Total  

46,500,000

   8,332,756,943 

 

Recent Accounting Pronouncements

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard, and does not believe that it will have a material effect on the accompanying consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies and clarifies certain calculation and presentation matters related to convertible and equity and debt instruments. Specifically, ASU-2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company will adopt this standard using a modified retrospective approach effective January 1, 2022. The Company is currently evaluating the impact of this standard, and does not believe that it will have a material effect on the accompanying consolidated 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 March 31, 2020 and December 31, 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).

 

F-11
 

 

The following table summarizes our financial instruments measured at fair value at March 31, 2020 and December 31, 2019:

 

  Fair Value Measurements at March 31, 2020 
Liabilities: Total  Level 1  Level 2  Level 3 
Warrant liability $866  $-  $-  $866 
Derivative liabilities $1,145,655  $-  $-  $1,145,655 
Convertible notes at fair value $2,562,049  $-  $-  $2,562,049 

 

  Fair Value Measurements at December 31, 2019 
Liabilities: Total  Level 1  Level 2  Level 3 
Warrant liability $1,411  $-  $-  $1,411 
Derivative liabilities $834,457  $-  $-  $834,457 
Convertible notes at fair value $5,814,047  $-  $-  $5,814,047 

 

The following table shows the changes in fair value measurements for the warrant liability using significant unobservable inputs (Level 3) during the three months ended March 31, 2020 and the year ended December 31, 2019:

 

Description 

March 31,

2020

  

December 31,

2019

 
Beginning balance $1,411  $1,468 
Total gain included in earnings (1)  (545)  (57)
Ending balance $866  $1,411 

 

(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) 0.17% to 1.59% risk-free rate, (2) warrant life is the remaining contractual life of the warrants, (3) expected volatility of 320%-348% (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.

 

We valued derivative liabilities using the number of potential convertible shares for warrants in equity and convertible notes with fixed conversion price that are recorded at amortized cost times the closing stock price of our restricted common stock at March 31, 2020. These derivative liabilities are recorded due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit and the equity environment is tainted, and therefore all convertible debt and options and warrants should be accounted for as liabilities.

 

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 March 31, 2020 and December 31, 2019:

 

           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
March 31, 2020 $1,084,629  8%-10% 20%-24% N/A $0.00030-$0.00040 50%-60% 3 to 25 Days
December 31, 2019 $1,244,204  8%-10% 20%-24% N/A $0.00010-$0.000293 50%-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 three months ended March 31, 2020 and the year ended December 31, 2019:

 

Description 

March 31,

2020

  

December 31,

2019

 
Beginning balance $5,814,047  $1,156,341 
Purchases and issuances  15,425   688,274 
Day one loss on value of hybrid instrument (1)  18,181   926,109 
(Gain) loss from change in fair value (1)  (2,871,776)  3,423,935 
Debt discount  11,172   (22,344)
Settlement through issuance of common stock  -   (83,268 
Conversion to common stock  (425,000)  (275,000)
Ending balance $2,562,049  $5,814,047 

 

(1)The (gains) 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.

 

F-12
 

 

3. INVENTORIES

 

Inventories are valued at the lower of cost or net realizable value on an average cost basis. At March 31, 2020 and December 31, 2019, inventories were as follows:

 

  

March 31,

2020

  

December 31,

2019

 
Raw Materials $65,568  $52,183 
Finished Goods  6,624   8,177 
Total Inventories  72,192   60,360 
Less: Long-term inventory  (65,568)  (52,183)
Current portion $6,624  $8,177 

 

4. PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following at March 31, 2020 and December 31, 2019:

 

  

March 31,

2020

  

December 31,

2019

 
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  (209,982)  (209,270)
Property and equipment, net $6,051  $6,763 

 

We review our long-lived assets for recoverability if events or changes in circumstances indicate the assets may be impaired. At March 31, 2020, we believe the carrying values of our long-lived assets are recoverable. Depreciation expense for the three months ended March 31, 2020 and 2019 was $712 and $1,105, respectively.

 

5. DUE TO/FROM OFFICER

 

At March 31, 2020, the balance due to our President and CEO, Rik Deitsch, is $199,290, which is an unsecured demand loan that bears interest at 4%. During the three months ended March 31, 2020, we advanced $4,200 to and collected $118,500 from Mr. Deitsch and the companies owned by him. Additionally, accrued interest on the demand loan was $1,678 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 $524,970 and $564,470 as of March 31, 2020 and December 31, 2019, which represents a full valuation allowance for amounts owed by these companies. For the three months ended March 31, 2020 and 2019, we recorded a bad debt recovery of $39,500 and $0, respectively.

 

At December 31, 2019, the balance due to our President and CEO, Rik Deitsch, is $122,812, which is an unsecured demand loan that bears interest at 4%. During the year ended December 31, 2019, we advanced $134,015 to and collected $5,000 from Mr. Deitsch and the companies owned by him. Additionally, accrued interest on the demand loan was $6,330 and is included in the due to officer account.

 

6. DEBTS

 

Debts consist of the following at March 31, 2020 and December 31, 2019:

 

  

March 31,

2020

  

December 31,

2019

 
Note payable– Related Party (1) $14,400  $14,400 
Notes payable – Unrelated third parties (Net of discount of $19,947 and $8,921, respectively) (2)  1,394,693   1,385,163 
Convertible notes payable – Unrelated third parties (Net of discount of $15,893 and $17,370, respectively) (3)  899,407   872,256 
Convertible notes payable, at fair value (Net of discount of $11,172 and $22,344, respectively) (4)  2,562,049   5,814,047 
Other advances from an unrelated third party (5)  200,000   175,000 
Ending balances  5,070,549   8,260,866 
Less: Long-term portion-Convertible Notes payable-Unrelated third parties  (225,597)  (907,912)
Current portion $4,844,952  $7,352,954 

 

F-13
 

 

(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 March 31, 2020 and December 31, 2019, we owed this director accrued interest of $164,276 and $159,555, respectively. The interest expense for the three months ended March 31, 2020 and 2019 was $4,721 and $4,196, 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 March 31, 2020 and December 31, 2019, the principal balance of the loan is $14,400. The Note was settled in June 2020.
  
(2)At March 31, 2020 and December 31, 2019, the balance of $1,394,693 and $1,385,163 net of discount of $19,947 and $8,921, 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 December 31, 2018, we owed principal balance of $192,974, and accrued interest of $40,033. 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. During the first quarter of 2020, the settlement was amended to $88,500. We recorded a gain on settlement of debt in other income for $15,500 and $18,841 during the three months ended March 31, 2020 and 2019, respectively. The Company repaid $13,500 during the year ended December 31, 2019. Additionally, $22,500 was repaid during the three months ended March 31, 2020. At March 31, 2020 and December 31, 2019, we owed principal balance of $143,656 and $160,633, and accrued interest of $32,676 and $50,971, respectively. $52,500 of the balance owed was repaid in full through November 2020. The remaining principal balance of $91,156 and accrued interest of $32,676 is being disputed in court and negotiation for settlement (See Note 12).
   
 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, and it 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 March 31, 2020 and December 31, 2019, the accrued interest is $4,006 and $3,755, respectively.
   
 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 March 31, 2020 and December 31, 2019, the outstanding principal balance is $50,000 and accrued interest is $53,001 and $49,967, respectively.
   
 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 March 31, 2020 and December 31, 2019, the outstanding principal balance is $50,000 and accrued interest is $46,200 and $43,166, respectively.

 

F-14
 

 

 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 was 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 was 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 was restated. The restated principal balance of $282,983 bears monthly interest at a rate of 2.0% and was due June 17, 2019. 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 this debt discount for the years ended December 31, 2019 and 2018 was $3,616 and $329, respectively. 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 $5,895 and recorded as a debt discount that was amortized over the life of the note. Amortization for this debt discount for the year ended December 31, 2019 was $1,474 and debt discount at December 31, 2019 is $4,421. Amortization for this debt discount for the three months ended March 31, 2020 was $1,474 and debt discount at March 31, 2020 is $2,947. The Note is in default and negotiation of settlement. At March 31, 2020 and December 31, 2019, the principal balance is $333,543, and the accrued interest is $45,362 and $25,127, 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 March 2018, $15,000 of the principal balance of the note was assigned to an unrelated third party and is in negotiation of settlement. In January 2019, the remaining principal balance of $60,000 and accrued interest of $15,900 was restated in the form of a Convertible Note (See Note 6(4)). At March 31, 2020 and December 31, 2019, the principal balance outstanding is $15,000, and the accrued interest is $1,371.
   
 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 March 31, 2020 and December 31, 2019, the accrued interest is $42,500 and $39,466, respectively.
   
 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 March 31, 2020 and December 31, 2019, the accrued interest is $3,528 and $3,212, respectively.
   
 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 December 31, 2018. During June 2018, the loan was settled with two unrelated third parties for $130,401 and $40,000, respectively, with the monthly scheduled repayments of approximately $5,000 and $2,000 per month to each unrelated party through July 2020. We recorded a gain on settlement of debt in other income for $20,927 in June 2018. The Company repaid a total of $34,976 and $42,698 during 2018 and 2019, respectively. The Company repaid $12,694 during the three months ended March 31, 2020. At March 31, 2020 and December 31, 2019, the principal balance is $80,034 and $92,728, respectively. The portion of settlement of $130,401 was repaid in full in April 2021. The remaining balance of $33,874 is in default and negotiation of settlement.
   
 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 March 31, 2018. The note is in default and in negotiation of settlement. At March 31, 2020 and December 31, 2019, the principal balance of the note is $50,000.
   

 

F-15
 

 

 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 due in September 2019 and 2020. The Note was further restated in September 2020. The restated principal balance was $33,000 with the original issuance discount of $3,000 and was due March 2021. The original issue discount is amortized over the term of the loan. Amortization for the debt discount for the years ended 2019 and 2018 was $7,500 and $4,000, respectively. Repayments of $1,500, $7,000 and $5,000 have been made during 2017, 2018 and 2019, respectively. Additionally, repayment of $2,000 was made during the three months ended March 31, 2020. The Note is under personal guarantee by Mr. Deitsch. At March 31, 2020 and December 31, 2019, the principal balance of the note is $29,500 and $30,000, net of debt discount of $3,000 and $4,500, respectively. During March 2021, the remaining balance of $30,000 was sold to an unrelated third party in the form of a convertible note at a fixed conversion price of $0.01 per share. The new note carries interest at 12% with scheduled monthly payments of $1,000 beginning in April 2021 through March 2024.
   
 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 for a total of $18,678 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. During September 2019, we issued additional 10,000,000 restricted shares due to the late payment of the original issuance discount of $10,000. The shares were valued at fair value of $4,000. 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 three months ended March 31, 2020 and 2019 was $0 and $4,127, respectively, for the restated Note in November 2018. The total debt discounts of $12,381 were fully amortized as of June 30, 2019. As of December 31, 2019, the amount due is $60,000. During January 2020, the Note of $60,000 and the Note of $76,076 (See Note 6(3)) plus accrued interest of $12,149 were combined and restated at a rate of 2.0% monthly due July 2020. At March 31, 2020, the restated principal balance and accrued interest was $148,225 and $7,710, respectively. The principal balance plus accrued interest was further restated in July 2020 and February 2021 and is due in August 2021(See Note 12).
   
 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. 1,500,000 shares of common stocks were issued due to the default of repayments with a fair value of $2,250 in May 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 with a fair value of $87,500. We recorded a loss on settlement in other expense for $37,500 (See Note 7). An additional 46,000,000 shares with a fair value of $32,200 were issued due to the default on repayment of the promissory note. 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 March 31, 2020 and December 31, 2019, the principal balance of the loan is $70,000 and $120,000, net of discount of $14,000 and $0, respectively.
   
 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. In September 2018, 7,000,000 shares of common stock were issued due to the default of repayments with a fair value of $5,600. At March 31, 2020 and December 31, 2019, the principal balance of the note is $18,000 and the accrued interest is $2,000.

 

F-16
 

 

(3)At March 31, 2020 and December 31, 2019, the balance of $899,407 and $872,256 net of discount of $15,893 and $17,370, respectively, consisted of the following convertible loans:

 

 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 was 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 December 31, 2019, the convertible note payable was recorded at $76,076 with accrued interest of $12,149. During January 2020, this Note and the Note of $60,000 amended in November 2018(See Note 6(2)) were combined and restated with principal balance of $148,225(See Note 12).
   
 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 and a conversion option. 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 December 31, 2018. The loan is in default and in negotiation of settlement. In April 2018, 1,000,000 shares of common stock were issued due to the default of repayments with a fair value of $1,500. At March 31, 2020 and December 31, 2019, 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. At December 31, 2018, the principal balance of the notes, net of discount of $28,421 was $589,829.

 

F-17
 

 

During February 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. During December 2019, $22,000 of the Note was amended to extend the maturity date to June 2020. In connection with the issuance and restatements of the notes, the Company granted the following warrants at an exercise price of $0.001 per share in 2019. The warrants were valued 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 August and October 2020 and are currently in default and in negotiation of settlement.

 

Month of

Issuance

 

Number of

Warrants

  

Fair Value of

Warrants

  

Month of

Expiration

February, 2019  110,000,000  $8,147  August, 2019
December, 2019  44,000,000  $7,370  August, 2020

 

During May 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. 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.

 

During November and December 2019, we issued two convertible promissory notes to two unrelated third parties for $159,500 with original issuance discount of $14,500. The notes were due six months from the execution and funding of each note. The Noteholder had the right to convert the note into shares of Common Stock at a fixed conversion price ranging from $0.0002 to$0.000275. The Notes are in default and negotiation of settlement.

 

During 2019, repayments of $13,500 were made in cash to three of the Notes. Six of the Notes for a total of $87,100 were repaid in stocks as the part of settlement of issuances of 800,000,000 shares of common stocks during December 2019.

 

Amortization for the year ended December 31, 2019 was $55,222. Additionally, $9,185 was amortized during the three months ended March 31, 2020. At December 31, 2019, the principal balance of the notes, net of discount of $17,370 is $736,180. Two of the above mentioned convertible notes payable for a total of $19,500 was settled in full in March and April 2021(See Note 12).

 

During the three months ended March 31, 2020, we issued convertible notes payable of $101,750 with original issuance discount of $9,250. Amortization for this discount for the three months ended March 31, 2020 was $1,542. $33,000 of the notes were due in six months from the execution and funding of each note. $68,750 of the notes were due in one year 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 $0.002 to 0.0005 per share. At March 31, 2020, the principal balance of the notes, net of discount of $15,893 is $839,407.

 

At the date of this report, all of the above mentioned convertible notes payable of $915,300 are in default and in negotiation of settlement.

 

 (4)At March 31, 2020 and December 31, 2019, the balance of $2,562,049 and $5,814,047 net of discount of $11,172 and $22,344, respectively, consisted of the following convertible loans:

 

F-18
 

 

 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. 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 March 31, 2020 and December 31, 2019, the convertible notes payable with principal balance of $20,000, at fair value, were recorded at $50,687 and $56,373, respectively.
   
 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, unless previously converted into shares of restricted common stock. 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. 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. During December 2019, the principal balance of $16,752 with accrued interest of $3,232 assigned and sold to a third party was settled as the part of settlement of issuances of 800,000,000 shares of common stocks during December 2019. At March 31, 2020 and December 31, 2019, the remaining principal of $12,629 plus accrued interest of $10,143 and $9,782, at fair value, was recorded at $38,404 and $62,253. The remaining principal balance of the Note is in default.
   
  All of the convertible notes discussed below are with a single unrelated third party.
   
 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. 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.
   
  The new note of $49,819 carries interest at 8% and was due on February 13, 2019, unless previously converted into shares of restricted common stock. We have increased the outstanding principal due by 10% and 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. The conversion discount was further decreased to fifty percent due to the default on the Note. During September 2018, the Noteholder made a conversion 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 March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $38,301, at fair value, was recorded at $103,311 and $246,819.
   
 During February 2018, we issued a convertible debenture in the amount of $200,000 to an unrelated third party. The note carries interest at 8% and was due in February 2019, unless previously converted into shares of restricted common stock. We have increased the outstanding principal due by 10% and 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $1,646,242. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $220,000, at fair value, was recorded at $591,197 and $1,412,175. 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 was due in February 2019, unless previously converted into shares of restricted common stock. We have increased the outstanding principal due by 10% and 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $110,700. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $71,500, at fair value, was recorded at $192,139 and $458,957.

 

F-19
 

 

 During March 2018, we issued a convertible debenture in the amount of $60,000 to an unrelated third party. The note carries interest at 8% and was due in March 2019, unless previously converted into shares of restricted common stock. We have increased the outstanding principal due by 10% and 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $48,418. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $66,000, at fair value, was recorded at $174,930 and $417,576. 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 was due in March 2019, unless previously converted into shares of restricted common stock. We have increased the outstanding principal due by 10% and 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $68,067. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $66,000, at fair value, was recorded at $174,929 and $417,577.
   
 During May 2018, we issued a convertible debenture in the amount of $60,000 to an unrelated third party. The note carries interest at 8% and was due in May 2019, unless previously converted into shares of restricted common stock. 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $59,257. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $60,000, at fair value, was recorded at $154,929 and $369,372.
   
 During August 2018, we issued a convertible debenture in the amount of $31,500 to an unrelated third party. The note carries interest at 8% and was due in August 2019, unless previously converted into shares of restricted common stock. 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. The conversion discount was further decreased to fifty percent due to the default on the Note. In connection with the issuance of the convertible note payable, we recorded a day-one derivative loss of $23,794. At March 31, 2020 and December 31, 2019, the convertible note payable with principal balance of $31,500, at fair value, was recorded at $77,195 and $183,565.

 

All of the above convertible notes with principal balance of a total of $553,301 including the additional principal increases due to the default terms were settled in October 2020 (See Note 12).

 

 During July 2018, we issued a convertible debenture in the amount of $50,000 to an unrelated third party. The note carries interest at 8% and was due in July 2019, unless previously converted into shares of restricted common stock. 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 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 March 31, 2020 and December 31, 2019, the convertible note payable, at fair value, was recorded at $113,546 and $180,176.
   
 During August 2018, we issued a convertible debenture in the amount of $20,000 to an unrelated third party. The note carries interest at 8% and was due in August 2019, unless previously converted into shares of restricted common stock. 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 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 March 31, 2020 and December 31, 2019, the convertible note payable, at fair value, was recorded at $44,557 and $70,635.
   
 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.

 

F-20
 

 

  At March 31, 2020 and December 31, 2019, the convertible note payable, at fair value, was recorded at $151,800 and $253,000.
   
 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 five tranches of the Note in the amount of $387,799 have been funded as of March 31, 2020. 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 $610,210. 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. During January and February 2020, the Note holder made conversions of a total of 500,000,000 shares of stock satisfying the principal balance of $175,000 for a fair value of $425,000 (See Note 7). At March 31, 2020, the convertible note payable with principal balance of $112,799, at fair value, was recorded at $225,597. Proceeds in the amount of $128,937 have been funded subsequent to March 31, 2020. During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the $120,175 of the Note with a fair value of $2,344,399. The remaining balance of $121,560 is due April 2023.
   
 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. 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. Amortization for the debt discount for the three months ended March 31, 2020 and 2019 was $11,172 and $0, respectively. At March 31, 2020 and December 31, 2019, the debt discount was $11,172 and $22,344. The convertible note payable, at fair value, was recorded at $480,000 and $800,000. The Note is in default and negotiation of settlement.
   
 (5)At March 31, 2020 and December 31, 2019, the balance of $200,000 and $175,000, respectively, consisted of the following advances received from a third party: During the periods from May 2019 through February 2020, the Company received a total of $200,000 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 Securities and Exchange Commission (see Note 11). During May 2020, the Company received an additional total of $25,000 in deposits from this third party in connection with a Joint Venture proposal.

 

7. STOCKHOLDERS’ DEFICIT

 

Authorized Shares

 

On March 7, 2018, we obtained written consents from stockholders holding a majority of our outstanding voting stock to approve an amendment of the Company’s articles of incorporation, as amended, to increase the number of authorized shares of common stock from 2,000,000,000 to 8,000,000,000.

 

Series A Preferred Stock

 

Effective October 30, 2017, pursuant to authority of its Board of Directors, the Company filed a Certificate of Determination to authorize the issuance of 20,000,000 shares of stock designated “preferred shares”, issuable from time to time in one or more series and authorize the Board of Directors to fix the number of shares constituting any such series, and to determine or alter the dividend rights, dividend rate, conversion rights, voting rights, right and terms of redemption (including sinking fund provisions), the redemption price or prices and the liquidation preference of any wholly unissued series of such preferred shares, and the number of shares constituting any such series.

 

Effective October 30, 2017 the Board of Directors authorized the issuance of 3,000,000 shares of Series A Preferred Stock (“Series A Preferred”). Terms of the Series A Preferred include the following:

 

 1.The Series A Preferred votes with the Company’s common stock as a single class on all matters or consents for the Company’s common stockholders. Each share of Series A Preferred is entitled to one thousand votes per share.
   
 2.The Series A Preferred will not be entitled to dividends unless the Company pays cash dividends or dividends in other property to holders of outstanding shares of common stock, in which event, each outstanding share of the Series A Preferred will be entitled to receive dividends of cash or property in an amount or value equal to one thousand multiplied by the amount paid in respect of one share of common stock. Any dividend payable to the Series A Preferred will have the same record and payment date and terms as the dividend payable on the common stock.

 

F-21
 

 

 3.Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of all shares of Series A Preferred then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount in cash equal to $0.133 in cash per share before any distribution is made on any shares of the Company’s common stock. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, the application of all amounts available for payments with respect to Series A Preferred would not result in payment in full of Series A Preferred, the holders shall share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled.
   
 4.The Series A Preferred does not have any redemption rights.

 

Common Stock Issued for Conversion of Convertible Debt

 

During January and February 2020, the Note holder made conversions of a total of 500,000,000 shares of stock satisfying the principal balance of $175,000 of a Note originated in February 2019 in the amount of up to $1,000,000(See Note 6).

 

  Number of  Fair Value of 
Date shares converted  Debt Converted 
1/21/2020  250,000,000  $150,000 
2/18/2020  250,000,000  $275,000 

 

Common Stock Issued for Settlement of Debt

 

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 with a fair value of $87,500. We recorded a loss on settlement in other expense for $37,500 (See Note 6).

 

Common Stock Issued for Debt Modification and Penalty

 

During January and March 2020, we issued a total of 121,000,000 shares to two Note holders due to the default on repayment of the promissory notes. The shares were valued at fair value of $77,200.

 

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 compensation charge of $120,000 has been fully amortized as of June 2019. The Company recorded an equity compensation charge of $0 and $30,000, respectively, during the three months ended March 31, 2020 and 2019.

 

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 equity compensation charge of $21,500 has been recorded during June through December 2019. $7,500 has been recorded during the three months ended March 31, 2020. The remaining unrecognized compensation cost of $1,000 will be recognized by the Company over the remaining service period.

 

F-22
 

 

8. STOCK WARRANTS

 

Common Stock Warrants

 

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 $0 and $539 using the Black-Scholes method on March 31, 2020 and December 31, 2019. The warrants expired 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 $866 and $872 using the Black-Scholes method at March 31, 2020 and December 31, 2019. The warrants expired 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 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 December 31, 2018. The warrants expired on April 9, 2019.

 

The Company granted the following warrants at an exercise price of $0.001 per share in connection with issuances of three convertible notes payable of $70,000 in February 2019 and amendment of one convertible notes payable of $22,000 in December 2019. The warrants were valued using the Black-Scholes method and recorded as a debt discount and additional paid in capital. No warrants have been exercised.

 

Month of Issuance Number of Warrants  Fair Value of Warrants  Month of Expiration
         
February, 2019  110,000,000  $8,147  August, 2019
December, 2019  44,000,000  $7,370  August, 2020

 

A summary of warrants outstanding in conjunction with private placements of common stock were as follows during the three months ended March 31, 2020 and the year ended December 31, 2019:

 

  

Number Of

shares

  Weighted average exercise price 
       
Balance December 31, 2018  12,600,000  $0.026 
Exercised  -   - 
Issued  154,000,000   0.001 
Expired  (114,100,000)  0.0027 
Balance December 31, 2019  52,500,000  $0.0028 
Exercised  -   - 
Issued  -   - 
Expired  (6,000,000)  0.005 
Balance March 31, 2020  46,500,000  $0.0026 

 

The following table summarizes information about fixed-price warrants outstanding as of March 31, 2020 and December 31, 2019:

 

 Exercise Price  Weighted Average Number Outstanding  Weighted Average Contractual Life Weighted Average Exercise Price 
March 31, 2020 $0.001-0.03   46,500,000  0.42 years $0.0026 
December 31, 2019 $0.001-0.03   10,187,671  0.62 years $0.0028 

 

At March 31, 2020, 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 $0.0006, the closing stock price of our restricted common stock on March 31, 2020. There were no in-the-money warrants at March 31, 2020.

 

F-23
 

 

9. ACCRUED EXPENSES

 

Accrued expenses consisted of the following:

 

  

March 31,

2020

  

December 31,

2019

 
Accrued consulting fees $161,550  $161,550 
Accrued settlement expenses  35,000   35,000 
Accrued payroll taxes  179,911   167,906 
Accrued interest  238,354   231,186 
Accrued others  15,459   16,905 
Total $630,274  $612,547 

 

10. PREPAID EXPENSES

 

Prepaid expenses and other current assets consist of the following:

 

  

March 31,

2020

  

December 31,

2019

 
Supplier advances for future purchases $224,859  $224,859 
Reserve for supplier advances  (224,859)  (224,859)
Net supplier advances  -   - 
Prepaid professional fees  20,265   8,650 
Deferred stock compensation  1,000   8,500 
Total $21,265  $17,150 

 

We performed an evaluation of our inventory and related accounts at March 31, 2020 and December 31, 2019, and increased the reserve on supplier advances for future venom purchases by $0 and $23,948, respectively. At March 31, 2020 and December 31, 2019, the total valuation allowance for prepaid venom is $224,859.

 

F-24
 

 

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.

 

  March 31, 
  2020 
Lease cost    
Operating lease cost $22,255 
Short-term lease cost  11,219 
Total lease cost $33,474 
     
Balance sheet information    
Operating ROU Assets $200,276 
     
Operating lease obligations, current portion  75,588 
Operating lease obligations, non-current portion  123,576 
Total operating lease obligations $199,164 
     
Weighted average remaining lease term (in years) – operating leases  2.42 
Weighted average discount rate-operating leases  8%
     
Supplemental cash flow information related to leases were as follows, for the three months ended March 31, 2020:    
     
Cash paid for amounts included in the measurement of operating lease liabilities $32,437 

 

Future minimum payments under these lease agreements are as follows:

 

December 31, Total 
2020(Remaining nine months) $66,339 
2021  91,379 
2022  62,274 
Total future lease payments $219,992 
Less imputed interest  20,828 
Total $199,164 

 

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 March 31, 2020 and December 31, 2019. We have accrued the $142,500 in accrued expense and equity compensation.

 

F-25
 

 

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 March 31, 2020 and December 31, 2019, $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

 

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.

 

On June 24, 2021, the parties entered into a confidential settlement agreement of the lawsuit. Nutra Pharma has fully performed under the settlement and considers the case fully resolved.

 

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. The lawsuit was settled on February 15, 2019 for $104,000 and was further amended. 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 March 31, 2020, we owed principal balance of $91,156 and accrued interest of $32,676 (See Note 6) if the defenses and our new claims are deemed to be of no merit.

 

F-26
 

 

Defendant also filed affirmative claims against the Plaintiff, its owner Dan Oran and several related 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 was due May 3, 2021, and the Plaintiffs’ Reply Brief was 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 April 9, 2021, the Plaintiff filed a Motion for Partial Summary Judgment, Defendants’ filed a Memorandum of Law in Opposition to Plaintiff’s Motion on May 7, 2021, and Plaintiff filed its Reply brief on May 21, 2021. At this time the Court has not ruled on the pending Motion. 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.

 

12. SUBSEQUENT EVENTS

 

Convertible Notes Payable

 

During August 2020, the convertible promissory notes of $38,500 was amended with additional original issuance discount of $7,550 due February 2021. During October 2020, the convertible promissory note of $16,500 was amended with additional original issuance discount (OID) 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. No warrants have been exercised. The gross proceeds of the notes were allocated to debt and warrants issued on a relative fair value basis. The debt discounts associated with the warrants and OID for $29,481 and $9,200, respectively, are amortized over the life of the notes.

 

  Number of  Fair Value of  Month of
Month of Issuance Warrants  Warrants  Expiration
August, 2020  92,100,000  $20,848  August, 2021
October, 2020  39,930,000  $8,633  October, 2022

 

Pursuant to the Note agreement in the amount up to $1,000,000 signed in February 2019, the principal balance of the note is $112,799 as of March 31, 2020. Proceeds in the amount of $128,937 have been funded subsequent to March 31, 2020. During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the $120,175 of the Note with a fair value of $2,344,399. The remaining balance of $121,560 is due April 2023.

 

  Number of  Fair Value of 
Date shares converted  Debt Converted 
2/25/2021  137,700,000  $1,500,930 
3/3/2021  67,380,000  $599,682 
4/26/2021  27,070,000  $192,197 
6/1/2021  5,700,000  $35,340 
6/24/2021  2,500,000  $16,250 

 

F-27
 

 

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 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 note was due January 2021. The Note is in default and negotiation of settlement.

 

During August 2020, we issued a convertible promissory note 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 note was due February 2021. The Note is in default and negotiation of settlement.

 

During October and November 2020, we issued convertible promissory notes to 3 unrelated third parties for $208,800 with original issuance discount of $19,800. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging from $0.00022 to $0.0005 per share. The notes were due in April and May 2021. The Notes are in default and negotiation of settlement.

 

During November 2020, we issued a convertible promissory note to an unrelated third party for $139,150 with original issuance discount of $12,650. The Noteholder has the right to convert the note into shares of Common Stock at a fixed conversion price of $0.00055. The note is due November 2021.

 

During November and December 2020, we issued two convertible promissory notes to unrelated third parties for a total of $57,500 with original issuance discount of $7,500. The notes are due one year from the execution and funding of the notes. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price of $0.0008. In connection with the issuance of convertible notes, the Company granted the 71,875,000 warrants at an exercise price of $0.002 per share that expire one year from the date of issuance. The warrants are valued using the Black-Scholes method and recorded as a debt discount. No warrants have been exercised. The gross proceeds of the notes were allocated to debt and warrants issued on a relative fair value basis. The debt discounts associated with the warrants and OID for $30,417 and $7,500, respectively, are amortized over the life of the notes.

 

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 $140,000. 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.

 

F-28
 

 

During the first quarter of 2021, we issued convertible promissory notes to the unrelated third parties for a total of $717,667 with original issuance discount of $93,609. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging from $0.0003 to $0.002 per share. The notes are due one year from the execution and funding of the notes.

 

During the second quarter of 2021, we issued convertible promissory notes to the unrelated third parties for a total of $864,225 with original issuance discount of $112,725. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price ranging from $0.0008 to $0.002 per share. The notes are due one year from the execution and funding of the notes.

 

During July 2021, we issued convertible promissory notes to the unrelated third parties for a total of $16,100 with original issuance discount of $2,100. The Noteholders have the right to convert the note into shares of Common Stock at a conversion price of $0.002 per share. The notes are due one year from the execution and funding of the notes.

 

PPP Loan

 

During May 2020, we entered into a two-year 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 $150,000, with proceeds to be used for rent, payroll, utilities, accounting and legal expenses. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due twenty-four 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.

 

Restatement of Promissory Notes

 

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 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 March 31, 2020 was $553,301. During September 2020, the 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 $467,319 and accrued interest of $166,168 for $250,000 to a non-related party.

 

  Number of  Fair Value of 
Date shares converted  Debt Converted 
9/21/2020  107,133,333  $171,413 
10/5/2020  107,817,770   64,691 

 

During March 2021, in connection with this settlement of the $6,000 of the Note of $11,000 originated in November 2018, we issued 11,000,000 shares of common stocks in satisfaction of $6,000 of the Note with a fair value of $104,500 and made a repayment of $5,000 in cash. The settlement resulted in a loss on settlement of debt in other expense for $98,500.

 

F-29
 

 

During April 2021, in connection with this settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018, we issued 2,000,000 shares of common stocks in satisfaction of $4,000 of the Note with a fair value of $15,200 and made a repayment of $4,500 in cash. The settlement resulted in a loss on settlement of debt in other expense for $11,200.

 

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.

 

Common Stock Issued for Default Payments

 

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.

 

Common Stock Issued for Consulting Service

 

During June 2021, the Company signed an agreement with a consultant for services for six months for which the Company is to issue 30,000,000 shares of the Company’s restricted common stock. 5,000,000 of the shares were issued upon execution of the agreement and 5,000,000 shares will be issued every 30 days through November 2021. The compensation charge will be amortized over the term of the agreement.

 

Convertible notes receivable

 

On March 10, 2021, we purchased a convertible note from an unrelated third party for a total of $26,950 with original issuance discount of $2,450. The note is convertible into common shares for $0.01 per common share and mature on March 10, 2022.

 

On May 20, 2021, we purchased a convertible note from an unrelated third party for a total of $145,200 with original issuance discount of $13,200. The note is convertible into common shares for $0.01 per common share and mature on May 20, 2022.

 

F-30
 

 

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

 

Introduction

 

Our business during the first quarter of 2020 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 first quarter of 2020 and thereafter, the following has occurred:

 

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.

 

On May 24, 2021, we announced plans for expanding the marketing of our over-the-counter pain relievers and anti-inflammatory products by working with influencers on several social media platforms. These will include celebrities as well as professional and Olympic athletes that have benefitted from our products.

 

On May 27, 2021, we provided updates on increasing our manufacturing capabilities for the production of our line of over-the-counter pain relievers and anti-inflammatory drugs. As part of this process, we have completed the design and purchase for a new liquid filling line that includes automatic filling, capping, coding, labeling and heat shrinking for most of our products. The new equipment will allow production of up to 40 bottles per minute, which greatly increases our manufacturing capacity. The equipment is expected to be validated, certified and in production by the end of July of 2021.

 

On June 2, 2021, we announced that we had signed an agreement with professional snowboarder Jake Vedder as a celebrity endorser of Nyloxin for Chronic Pain relief. Mr. Vedder will provide marketing content, videos and testimonials on the use of our product and as a social media influencer.

 

On June 4, 2021, we announced our plans for increasing sales of our over-the-counter pain relievers through private label agreements that will rebrand Nyloxin. The first private label distributor contract has been executed with sales expected to start within the next 4-6 weeks. Their marketing plan includes direct sales, targeted landing pages and aggressive marketing through social media.

 

On June 8, 2021, we announced that Diverse Health Services of Metro-Detroit has added the Nyloxin line of products to their offerings. Nyloxin is already being sold in-house at their facilities and will be added shortly to their online marketplace. Their marketing plan includes direct sales to patients and other medical facilities, sales through their websites and social media utilizing their online platforms as well as videos featuring Dr. Randall Tent.

 

4
 

 

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.

 

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.

 

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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: The Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC Topic 606, revenue recognition 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.

 

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 receivable.

 

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

 

Inventory Obsolescence: Inventories are valued at the lower of average cost or market value. We periodically perform an evaluation of inventory for excess, impairments and obsolete items. At March 31 2020, our inventory consisted entirely of raw materials and finished goods that are utilized in the manufacturing of finished goods. These raw materials generally have expiration dates in excess of 10 years. Commencing on October 1, 2019, we classify inventory as short-term or long-term inventory based on timing of when it is expected to be consumed.

 

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: 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 (“ASC Topic 815”). 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.

 

Derivative Accounting for Convertible Debt and Options and Warrants: The Company evaluated the terms and conditions of the convertible debt under the guidance of ASC 815, Derivatives and Hedging. The conversion terms of some of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the debt is indeterminate. Due to the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment is tainted, and all additional convertible debt and options and warrants are included in the value of the derivative liabilities. Pursuant to ASC 815-15, Embedded Derivatives, the fair values of the convertible debt, options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period.

 

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.

 

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Results of Operations – Comparison of Three Months Periods Ended March 31, 2020 and March 31, 2019

 

Sales for the three–month period ended March 31, 2020 were $17,116 compared to $41,322 for the three months period ended March 31, 2019. 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 March 31, 2020 is $5,279 compared to $15,625 for the three–month period March 31, 2019. 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 March 31, 2020 is $11,837 or 69.16% compared to $25,697 or 62.19% for the three–month period ended March 31, 2019. The increase in our profit margin is primarily due to decrease in the manufacturing cost.

 

Selling, general and administrative expenses (“SG&A”) decreased $33,194 or 12.09% from $274,635 for the quarter ended March 31, 2019 to $241,441 for the quarter ended March 31, 2020, generally due to the overall decrease approximately $33,000 in professional fees. In addition, we had a bad debt recovery from the receivables from companies owned by the Company’s CEO for $39,500 and $0 for the three months ended March 31, 2020 and 2019.

 

Rental income increased $3,000 or 100%, from $0 for the three months ended March 31, 2019 to $3,000 for the three months ended March 31, 2020. This increase was due to a month-to-month sublease agreement entered in November 15, 2019.

 

Interest expense, including related party interest expense, decreased $5,747 or 7.24%, from $79,341 for the quarter ended March 31, 2019 to $73,594 for the quarter ended March 31, 2020. This decrease was primarily due to decrease in amortization of loan discounts in the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019.

 

We carry certain of our debentures and common stock warrants at fair value. For the three months ended March 31, 2020 and 2019, the liability related to these hybrid instruments fluctuated, resulting in a gain of $2,542,942 and a loss of $129,417, respectively.

 

Gain/loss on settlement of debts decreased $79,253 or 138.43%, from a gain of $57,253 for the three months ended March 31, 2019 to a loss of $22,000 for the three months ended March 31, 2020. This decrease was primarily due to loss on settlement of debt through issuance of shares of common stock for the three months ended March 31, 2020 compared to the comparable 2019 period. Stock issued for loan modification increased $77,200 or 100% from $0 for the three months ended March 31, 2019 to $77,200 for the three months ended March 31, 2020.

 

As a result of the foregoing, our net income/loss increased by $2,583,487 or 645.16%, from a loss of $400,443 for the quarter ended March 31, 2020 to an income of $2,183,044 for the quarter ended March 31, 2020.

 

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 March 31, 2020, we have an accumulated deficit of $65,681,240 at March 31, 2020. In addition, we have a significant amount of indebtedness in default, a working capital deficit of $8,866,563 and a stockholders’ deficit of $8,928,291 at March 31, 2020.

 

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 the date of the filing of this report, 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 March 31, 2020, the balance due to our President and CEO, Rik Deitsch, is $199,290, which is an unsecured demand loan that bears interest at 4%. Additionally, accrued interest on the demand loan was $1,678 and is included in the due to officer account.

 

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During the three months ended March 31, 2020, we raised $107,926 through the issuance of convertible notes and $25,000 from advances from an unrelated third party. 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 $200,000 quarterly to fund our existing operations and ReceptoPharm’s operations for the next twelve months from the date of filing. 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.

 

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 used the proceeds primarily for payroll costs. We expect forgiveness of this loan under the current terms of requirement by the SBA. During April and June 2020, we obtained the loan in the amount of $150,000 from SBA under its Economic Injury Disaster Loan assistance program. We used the proceeds primarily for rent, payroll, utilities, accounting and legal expenses.

 

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 distribution of testing and 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;

 

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● 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.

 

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 March 31, 2020, 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 March 31, 2020, 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 March 31, 2020. 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 March 31, 2020 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

 

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. On June 24, 2021, the parties entered into a confidential settlement agreement of the lawsuit. Nutra Pharma has fully performed under the settlement and considers the case fully resolved.

 

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 settlement amount was further amended and 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 March 31, 2020, we owed principal balance of $91,156 and accrued interest of $32,675 (See Note 6) if the defenses and our new claims are deemed be of no merit.

 

The Company also filed affirmative claims against the Plaintiff, its owner Dan Oran and several related 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.

 

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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 was due May 3, 2021, and the Plaintiffs’ Reply Brief was 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 April 9, 2021, the Plaintiff filed a Motion for Partial Summary Judgment, Defendants’ filed a Memorandum of Law in Opposition to Plaintiff’s Motion on May 7, 2021, and Plaintiff filed its Reply brief on May 21, 2021. At this time the Court has not ruled on the pending Motion. 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 for Conversion of Convertible Debt

 

During January and February 2020, a Note holder received a total of 500,000,000 shares of our restricted common stock in satisfaction the $175,000 of the Note. During February through June 2021, the Note holder received a total of 240,350,000 shares of our restricted common stock in satisfaction the $120,175 of the Note with a fair value of $2,344,399.

 

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.

 

During March 2021, in connection with this settlement of the $6,000 of the Note of $11,000 originated in November 2018, we issued 11,000,000 shares of common stocks in satisfaction of $6,000 of the Note with a fair value of $104,500.

 

During April 2021, in connection with this settlement of the remaining balance of $8,500 of the Note of $12,000 originated in December 2018, we issued 2,000,000 shares of common stocks in satisfaction of $4,000 of the Note with a fair value of $15,200.

 

Common Stock Issued for Conversion of Promissory Note

 

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.

 

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Common Stock Issued for Default Payments

 

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.

 

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.

 

Common Stock Issued for Consulting Service

 

During June 2021, the Company signed an agreement with a consultant for services for six months for which the Company is to issue 30,000,000 shares of the Company’s restricted common stock. 5,000,000 of the shares were issued upon execution of the agreement and 5,000,000 shares will be issued every 30 days through November 2021. The compensation charge will be amortized over the term of the agreement.

 

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 March 31, 2020 and December 31, 2019, we owed this director accrued interest of $164,276 and $159,555.

 

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: July 23, 2021/s/ Rik J. Deitsch
 Rik J. Deitsch
 Chief Executive Officer/Chief Financial Officer

 

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