UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM 10-K
  (Mark
One)
 
 x  ANNUAL REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
fiscal year ended December 31, 2009
 
  ̈  TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from _________ to ________
 
 Commission File Number 000-32141
 
 NUTRA PHARMA
CORP.
 (Exact
name of registrant as specified in its charter)
  California
                91-2021600(State
      or Other Jurisdiction of
                  Incorporation
      or organization)
                (IRS
      Employer Identification
Number)
 
 2776 University Drive,
      Coral Springs, Florida
                    33065(Address of principal executive offices)
                    (Zip
      Code)
 
 Registrant’s telephone number, including area
code:       (954) 509-0911
 
 Securities registered under Section 12(b) of the Exchange Act:
 
 Title of each class
                  Name of each exchange on which
      registeredNone
                  None
 
 Securities registered
pursuant to Section 12(g) of the Act:
 Common
stock, $0.001 par value
 (Title of
Class)
 
 Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
  Yes  ̈
     No x
  Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
  Yes  ̈
     No x
  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 x
     No  ̈
 
 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 o
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
  Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
  Large
      accelerated filer    o
              
              Accelerated
      filer    oNon-accelerated
      filer    o (Do not check if
      a smaller reporting company)
              
              Smaller
      reporting company    x
  Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act.
  Yes  ̈
     No x
  State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such
common equity, as of the registrant’s most recently completed second
quarter:  $4,097,518.
 
 As of
March 31, 2010, there were 272,925,232 outstanding shares of common
stock.
  
  INDEX
 
 Part
      IItem
      1.
                          Business
                          
                          
                          3Item
      1A.
                          Risk
      Factors
                          
                          
                          23Item
      1B.
                          Unresolved
      Staff Comments
                          
                          
                          23Item
      2.
                          Properties
                          
                          
                          23Item
      3.
                          Legal
      Proceedings
                          
                          
                          23Item
      4.
                          Removed
      and Reserved
                          
                          
                          23Part
      IIItem
      5.
                          Market
      for Registrant’s Common Equity; Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                          
                          
                          24Item
      6.
                          Selected
      Financial Data
                          
                          
                          26Item
      7.
                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          
                          26Item
      7A.
                          Quantitative
      and Qualitative Disclosures about Market Risk
                          
                          
                          29Item
      8.
                          Financial
      Statements and Supplementary Data
                          
                          
                          29Item
      9.
                          Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                          
                          
                          30Item
      9A.
                          Controls
      and Procedures
                          
                          
                          30Item
      9B.
                          Other
      Information
                          
                          
                          31Part
      IIIItem
      10.
                          Directors,
      Executive Officers and Corporate Governance
                          
                          
                          31Item
      11.
                          Executive
      Compensation
                          
                          
                          34Item
      12.
                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                          
                          
                          35Item
      13.
                          Certain
      Relationships and Related Transactions, and Director
      Independence
                          
                          
                          36Item
      14.
                          Principal
      Accountant Fees and Services
                          
                          
                          37Part
      IVItem
      15.
                          Exhibits
      and Financial Statement Schedules
                          
                          
                          38Signatures
                          
                          
                          
                          40
  2
 
 PART
I
 Nutra
Pharma Corp and its wholly owned subsidiaries, ReceptoPharm, Inc.
(“ReceptoPharm”) and Designer Diagnostics, Inc. (“Designer Diagnostics”) is
referred to herein as “we”, “our” or “us” (ReceptoPharm and Designer Diagnostics
are also individually referred to herein).
 
 Forward
Looking Statements
 
 This Annual Report on Form 10-K for the period ending December
31, 2009 contains forward-looking statements that involve risks and
uncertainties,most
significantly, Item 7 (Management’s Discussion and Analysis of Financial
Condition and Results of Operation),as well as assumptions
that, if they never materialize or prove incorrect, could cause our results to
differ materially from those expressed or implied by such forward-looking
statements. The words or phrases "would be," "will allow, "intends to," "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements."  All statements other than statements of
historical fact, are statements that could be deemed forward-looking statements,
including any projections of revenue, gross margin, expenses, earnings or losses
from operations, synergies or other financial items; any statements of the
plans, strategies and objectives of management for future operations; and any
statement concerning developments, plans, or performance. Unless otherwise
required by applicable law, we do not undertake and we specifically disclaim any
obligation to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.
 Item 1.
Business
 
 Introduction
 
 We were
incorporated in the state of California on February 1, 2000.  Our
operations are conducted through our two wholly owned subsidiaries, ReceptoPharm
and Designer Diagnostics.
 
 We are a
biopharmaceutical company that engages in the acquisition, licensing and
commercialization of pharmaceutical products and technologies as well as
homeopathic and ethical drugs for the management of pain, neurological
disorders, cancer, autoimmune and infectious diseases.   An
ethical drug requires Federal Drug Administration (“FDA”)
approval.   We seek strategic licensing partnerships to reduce
the risks associated with the drug development process.
 
 ReceptoPharm
carries out our homeopathic and drug discovery research and clinical development
and has fully developed three homeopathic drugs for the treatment of
pain:
 ·
              Cobroxin,
      an over-the-counter pain reliever designed to treat moderate to severe
      (Stage 2) chronic pain; and
 ·
              Nyloxin
      OTC and Nyloxin Rx, stronger versions of
  Cobroxin.
 
 Additionally,
ReceptoPharm has developed two drug candidates as detailed beginning on page
7:
 ·
              RPI-78M,
      to treat the neurological diseases, including Multiple Sclerosis
      (MS), Adrenomyeloneuropathy (AMN), Amyotrophic Lateral Sclerosis (ALS
      orLou
      Gehrig’s disease ) and Myasthenia Gravis;
  and
 ·
              RPI-MN,
      to treat the viral diseases, including HIV/AIDS and
      Herpes.
 
 ReceptoPharm
is developing proprietary therapeutic protein products primarily for the
prevention and treatment of viral and neurological diseases, including Multiple
Sclerosis, Adrenomyeloneuropathy (AMN), Human Immunodeficiency Virus (HIV) and
pain in humans. These potential products are subject to FDA
approval.  ReceptoPharm also provides contract research services
through its ISO class 5 and Good Manufacturing Practice (“GMP”) certified
facilities.
 
 Our other
wholly-owned subsidiary, Designer Diagnostics, engages in the research and
development of and sale of diagnostic test kits designed to be used for the
rapid identification of infectious diseases, such as Nontuberculous Mycobacteria
(NTM).
 
 We
continue to identify intellectual property and companies in the biotechnology
arena with similar synergies to us with which we may potentially be able to
enter into arrangements, agreements or to potentially acquire.
  We
commenced sales of our first consumer product, Cobroxin, in October 2009. 
Cobroxin, Nyloxin OTC and Nyloxin Rx are homeopathic drugs that were developed
within the first 3 months of 2009 as a result of ReceptoPharm’s on-going
research for approximately 6 years.  During 2009, we generated
revenues of $618,010, $583,955 of which were from sales of Cobroxin, and $34,055
of which were from clinical research services.
 
 Our
Products
 
 Cobroxin
 
 Currently,
we offer Cobroxin, our over-the-counter pain reliever clinically proven to treat
moderate to severe (Stage 2) chronic pain that was developed by ReceptoPharm,
our drug discovery arm and wholly owned subsidiary.  Cobroxin is
marketed through our United States distributor, XenaCare Holdings,
Inc.(“XenaCare”), both online and at various retailers.
  3
 
 Cobroxin
is currently available as a two ounce topical gel for treating joint pain and
pain associated with arthritis and repetitive stress, and as a one ounce oral
spray for treating lower back pain, migraines, neck aches, shoulder pain,
cramps, and neuropathic pain. Both the topical gel and oral spray are packaged
and sold as a one-month supply.
  Cobroxin
offers several benefits as a pain reliever.  With increasing concern
about consumers using opioid and acetaminophen-based pain relievers, Cobroxin
provides an alternative that does not rely on opiates or non-steroidal
anti-inflammatory drugs, otherwise known as NSAIDs, for its pain relieving
effects.  Cobroxin also has a well defined safety profile. Since the
early 1930s, the active pharmaceutical ingredient (API) of Cobroxin, Asian cobra
venom, has been studied in more than 46 human clinical studies. The data from
these studies provide clinical evidence that cobra venom provides an effective
treatment for pain with few side effects and has the following
benefits:
 
 ·
              safe
      and effective;
 ·
              all
      natural;
 ·
              long-acting;
 ·
              easy
      to use;
 ·
              non-narcotic;
 ·
              non-addictive;
      and
 ·
              analgesic
      and anti-inflammatory
 
 Potential
side effects from the use of Cobroxin include headache, nausea, vomiting, sore
throat, allergic rhinitis and coughing.
  Nyloxin
OTC/Nyloxin Rx
 
 Nyloxin
OTC and Nyloxin Rx are similar to Cobroxin in that they both contain the same
active ingredient as Cobroxin, Asian cobra venom.  The primary
difference between Nyloxin OTC/Nyloxin Rx and Cobroxin is the dilution level of
the venom, with Nyloxin OTC and Nyloxin Rx being more concentrated then Cobroxin
and Nyloxin Rx being more concentrated than Nyloxin OTC.
 
 We intend
to market Nyloxin OTC and Nyloxin Rx as treatments for moderate to severe (Stage
2) chronic pain during our fourth quarter of 2010, pending successful completion
of international drug applications.   Nyloxin OTC will be
available as an oral spray for treating lower back pain, migraines, neck aches,
shoulder pain, cramps and neuralgia as a topical gel for treating joint pain and
pain associated with repetitive stress and arthritis.  Nyloxin Rx will
be available as an oral spray and gel application for treating the same physical
indications, as well as Angina Pectoris,Angina Faucium and
Ovarian Pain, but is aimed at treating the most severe (Stage 3) pain that
inhibits one’s ability to function fully.
 
 We intend
to begin selling Nyloxin Rx in the form of gel and spray products outside of the
United States upon completion of international drug registrations, which we
estimate will be completed during the fourth quarter of
2010.  Additionally, we plan to complete two additional human clinical
studies aimed at comparing the ability of Nyloxin Rx to replace prescription
pain relievers. Both of these studies are planned to begin during the second
quarter of 2010.
 
 Regulation
  The
active pharmaceutical ingredient (API) in Cobroxin, Nyloxin OTC and Nyloxin Rx,
Asian cobra venom, has an approved United States monograph under the Homeopathic
Pharmacopoeia of the United States (HPUS), which allowed us to register them
with the FDA as homeopathic drugs.  A United States monograph is a
prescribed formulation for the production of any drug or product that is
recognized by law for a specific application and that may be introduced into
commerce.  The FDA requires this registration process to maintain full
compliance of companies marketing and selling medicines classified as
homeopathic.  In August 2009, we successfully completed submission of
final packaging and labeling to the FDA to begin selling our over-the-counter
pain reliever, Cobroxin. In December 2009, we completed our submission of final
packaging and labeling to the FDA of Nyloxin OTC and Nyloxin
Rx.
  4
  Manufacturing
  ReceptoPharm
oversees Cobroxin’s manufacturing activities, both at its Good Manufacturing
Practice (GMP) certified facility and at a third-party manufacturing and
bottling facility.   ReceptoPharm is also responsible for
acquiring appropriate amounts of Asian cobra venom required to manufacture
Cobroxin.
 
 ReceptoPharm
also plans to begin additional clinical studies for its prescription pain
reliever, Nyloxin Rx. These studies will be designed to compare the efficacy of
Nyloxin Rx to other prescription strength pain relievers. A ReceptoPharm
study published inToxicon, which is the journal of the International Society of Toxinology,
showed that ReceptoPharm’s leading drug treatment for the treatment of pain,
drug candidate RPI-78 had pain reducing effects that lasted four times as long
as morphine without the negative side effects associated with opioid-based pain
relievers.
 
 The FDA
requires those companies manufacturing homeopathic medicines to have their
facilities certified as GMP.   As of October 2005, ReceptoPharm’s
manufacturing and laboratory facility has been fully compliant with its GMP
certification.  In March 2009, ReceptoPharm received an ISO Class 5
certification for its clean room facility. An ISO Class 5 certification is a
type of classification granted for a clean room facility according to the number
and size of particles permitted per volume of air. An ISO Class 5 clean room has
at most, 3,500 particles per square meter.
  Manufacturing
Cobroxin entails a two-step process, the first of which consists of ReceptoPharm
manufacturing the bulk raw materials and completing the dilution levels of
Cobroxin’s active pharmaceutical ingredient (API) as provided for in the
Homeopathic Pharmacopoeia of the United States, which is a compilation of
continuously updated statements of Homeopathic Pharmacopoeia standards and
monographs as recognized by that organization. Once this process is completed,
the second step entails transport of raw materials to a third-party manufacturer
that completes the final mixing, bottling and shipping processes.
  To date,
we have not manufactured Nyloxin OTC or Nyloxin Rx.  We intend to
manufacture these products by the fourth quarter of 2010 under the same
manufacturing guidelines summarized above.
 
 Marketing
and Distribution
  In August
2009, we completed an agreement with XenaCare granting it the exclusive license
to market and distribute Cobroxin within the United States. To maintain this
market exclusivity, XenaCare is required to meet certain minimum performance
requirements.
  In
mid-October 2009, XenaCare began selling Cobroxin online through its product
website, Cobroxin.com.  In November 2009, XenaCare began selling
Cobroxin to brick-and-mortar retailers, including distribution to CVS which
began March 2010 and Walgreens by May 1, 2010.
  In
December 2009, we began marketing Nyloxin OTC and Nyloxin Rx at www.nyloxin.com.
 
 To
support ongoing sales, XenaCare intends to conduct an extensive marketing
campaign, consisting of print, online and broadcast advertising.  To
date, XenaCare has accomplished the following:
  ·
              Launched
      its initial print advertising campaign with advertisements appearing in
      Prevention, Health, Star, Woman's World, Soap Opera, and Selfmagazines;
 ·
              Announced
      that the Chain Drug Marketing Association will begin making Cobroxin
      available for purchase through its 6,000 member
  pharmacies;
 ·
              Completed
      an agreement to advertise Cobroxin in NASCAR’s Racing One publication,
      for the 2010 racing season;
  5
  ·
              Completed
      an agreement to advertise Cobroxin in the2009 National Football Alumni
      Guide and
      Yearbook, a publication that is distributed to football fans,
      current and past NFL players, team owners, coaches and league
      executives;
 ·
              Partnered
      with the Arthritis Foundation, which allows that foundation’s logo to be
      used on Cobroxin packaging, websites, print advertisements, retail
      catalogs and on direct mailers to 100,000 Arthritis Foundation
      members;
 ·
              Secured
      agreements to advertise Cobroxin in the 2010 Super Bowl XLIV program guide
      and the 2010 NBA All-Star Game program
guide;
 ·
              Produced
      and began airing Cobroxin direct response commercials in select markets in
      the United States;
 ·
              Began
      production for a series of Cobroxin television commercials scheduled to
      begin airing during the second quarter of
2010;
 ·
              Secured
      an agreement to advertise Cobroxin in select Major League Baseball (MLB)
      yearbooks;
 ·
              Completed
      an athletic sponsorship agreement with Megan Wallin, a professional beach
      volleyball player, to build awareness about
  Cobroxin.
 
 Dependence
on one or a Few Major Customers
 
 With
respect to Cobroxin, Nyloxin OTC and Nyloxin Rx, we have only one customer, our
distributor, XenaCare that then distributes our product online and to various
retailers.
 
 International
Drug Registrations
 
 In 2010,
we plan to expand the presence of our Cobroxin and Nyloxin pain relievers
internationally through a series of out-licensing and master distribution
agreements and/or arrangements.  On September 21, 2009, we announced
our plan to begin the drug registration process in Canada and Europe for
Cobroxin.  On November 12, 2009, we announced plans to begin the drug
registration process in South America for Cobroxin.  We are continuing
our efforts to begin the registration process in other countries. While many
countries adopt similar regulation to the United States for registering
homeopathic drugs, the international application process is more complex and may
be lengthier.
 
 ReceptoPharm’s
Homeopathic Drug Pain Relief Studies
 
 MS Neuropathic Pain Phase
IV
 We will
continue our research and development into this area, with the ultimate goal of
completing development of our future product, Nyloxin Rx, which is a treatment
for stage 3 pain.  Our estimated start and completion dates are March
2010 and September 2010, respectively, which includes a 10-week patient trial
period.  We have thus far incurred costs of $5,000 with a total
estimated budget of $130,000.
 
 Chronic Back Pain Phase
I
 We will
continue our research and development in this area, with the ultimate goal of
completing development of our future product, Recet, which is an injectable
version of Cobratoxin.  Our estimated start and completion dates are
April 2010 and November 2011, respectively, which includes a 4 week patient
trial period. We have thus far incurred costs of $25,000 with a total estimated
budget of $250,000.
 
 Chronic
Back Pain Phase IV
 We will
continue our research and development, with this ultimate goal of completing
development of our future product, Nyloxin Rx, which is a treatment for stage 3
pain.  If this study proceeds, our estimated start and completion
dates are April 2010 and November 2010, respectively, which includes a 4 week
patient trial period.  We have an estimated budget of
$250,000.    We have not yet incurred any costs associated
with the Chronic Back Pain Phase IV project.
  6
  Pain
Market
 
 A 2006
article published by the American Pain Society reported that pain is one of the
most common reasons that patients seek medical care and accounts for half of all
physician office visits in the United States.  According to the
American Pain Foundation, a non-profit organization, as of 2007 at least 25
million people in the United States experience acute pain as a result of injury
or surgery.  Additionally, more than 50 million people in the United
States are affected by ongoing chronic pain.
 
 The
market for pain management products in the United States, including prescription
and nonprescription analgesics, reached $20.4 billion in 2005 according to an
April 2006 published report by Medtech Insight, a market research
firm.  According to a more recent report conducted by IMS Health, a
market research firm, the sales of opioid-based prescription pain drugs,
including OxyContin, exceeded $6 billion in 2008. The current market for pain
drugs is expected to continue to grow according to Global Industry Analysts
Inc., a market research firm, believes that the aging baby boomer population
will continue to trigger growth in this market resulting in a market size of
$35.5 billion by 2015.
 
 ReceptoPharm – Research and
Development
 
 ReceptoPharm
is engaged in the research and development of novel anticholinergic therapeutic
protein products for the treatment of autoimmune and neurologic disorders,
including Human Immunodeficiency Virus (HIV), Multiple Sclerosis (MS)
Adrenomyeloneuropathy (AMN), Rheumatoid Arthritis (RA) and pain.
 
 Drug
Applications
 
 We have
set forth below a summary of ReceptoPharm’s proposed drugs and their potential
applications.
 
 Drug
                    
                    Potential ApplicationsRPI-78M
                    
                    MS,
      AMN, Myasthenia Gravis (MG) and Amyotrophic Lateral Sclerosis
      (ALS)RPI-MN
                    
                    HIV,
      general anti-viral applicationsRPI-78
                    
                    Pain,
      ArthritisRPI-70
                    
                    Pain
 
 We
believe that ReceptoPharm’s pharmaceutical products have a wide range of
applications in a number of chronic, inherited and/or life-threatening viral,
autoimmune and neuromuscular degenerative diseases, even though none of these
products have FDA or other approval for the treatment of such diseases. These
disorders target nerve cells, especially one specific type of cell receptor that
is sensitive to the neurotransmitter,acetylcholine, which
plays an important role in the transmission of nerve impulses at synapses and
myoneural (muscle-nerve) junctions.
 
 Primary
Disease Targets
 
 Through
ReceptoPharm’s research program, our goal is to obtain required regulatory
approvals of ReceptoPharm’s  HIV, MS, and AMN products, so that they
can be marketed. We plan to apply for Orphan drug status with the FDA to
expedite approval for our AMN product; however there is no assurance we will
obtain such status. ReceptoPharm secures confidentiality agreements prior to
initiating contract research in order to protect any patentable
opportunities.
 
 Human Immunodeficiency Virus
(HIV) Infection
 Decision
Resources, Inc., a research and advisory firm focusing on pharmaceutical and
health care issues, forecasts that the HIV drug market will grow to more than $8
billion by 2013. According to the latest Epidemic Update, an estimated 39.5
million people were living with HIV in 2006. There were 4.3 million new
infections in 2006 with 2.8 million (65%) of these occurring in sub-Saharan
Africa and important increases in Eastern Europe and Central Asia, where there
are some indications that infection rates have risen by more than 50% since
2004. In 2006, 2.9 million people died of AIDS-related illnesses. Growth in the
HIV therapy market will continue to be driven by the rapidly growing HIV and
AIDS population. In the absence of therapeutic intervention, the vast majority
of individuals infected with HIV will ultimately develop AIDS, on average in
about 10 years, which has a mortality rate approaching 100%. Experts say that
the drugs currently available only extend life on average 1.8 years. The
foregoing information was obtained from the World Health Organization website at
www.who.int.
  7
 
 To cause
infection, HIV needs to gain entry into cells through the attachment to
receptors on the cell membrane. These receptors are called chemokine receptors.
There are two principal types, CCR5 and CXCR4. Different HIV strains use one of
these types. A single drug that would block all of the chemokine receptors
("tropism-independent") could be more useful, for several reasons, than a
mixture of molecules that would have to be used to do the same.
 
 HIV
infection therapy currently uses antiviral drug therapies that are associated
with the virus’s attachment, fusion with and entry into the host cell. At the
present time, there are 16 licensed antiretroviral drugs employed to combat
HIV-1 infection and one drug licensed by the FDA that is a binding/entry
inhibitory drug.
 
 New drugs
and adjunct therapies with novel mechanisms of action or unique resistance
profiles are needed in the fight against HIV. Constant innovation, in terms of
efficacy, side effect profile and dosing are occurring. Current research and
development for HIV is focused on adjunctive therapy, which when combined with
existing HAART (Highly Active Anti-Retroviral Therapy) regimens reduce side
effects, enhance the efficacy of existing treatments and delay the progression
of the HIV virus.
 
 Both of
ReceptoPharm’s drugs inhibited HIV replication in MAGI cells by 50-60% and
peripheral mononucular cells by 90% in testing conducted by Dr. Juan Lama of the
La Jolla Institute for Molecular Medicine in San Diego, California. Separate
Phase I studies by Cure Aids Now of Miami, Florida, were  conducted by
Dr. Jamal with orally and parentally administered RPI-78M in HIV patients
confirmed safety, tolerability and provided preliminary evidence of
efficacy.
 
 RPI-MN
demonstrated the ability to inhibit the replication of highly drug-resistant
strains of HIV isolates. Drug resistance has become a critical factor in
long-term management of HIV infection with some viral strains developing
resistance in as little as 3 weeks.
 
 Multiple Sclerosis
(MS)
 Multiple
Sclerosis (MS) is thought to be an autoimmune disease that primarily causes
central nervous system problems. In MS, the insulating fatty material
surrounding the nerve fibers, also known as myelin, which functions to speed
signaling from one end of the nerve cell to the other, is attacked by cells of
the immune system causing problems in signal transduction. MS is the most common
of demyelinating disorders, having a prevalence of approximately 1 per 1,000
persons in most of the United States and Europe. According to the Accelerated
Cure Project for Multiple Scherosis, a national nonprofit organization, 400,000
people in the US are affected by MS and another 2 million globally.
 
 People
with MS may experience diverse signs and symptoms. MS symptoms may include pain,
fatigue, cognitive impairment, tremors, loss of coordination and muscle control,
loss of touch sensation, slurred speech and vision impairment. The course of the
disease is unpredictable and for most MS patients, the disease initially
manifests a "relapsing-remitting" pattern.  Periods of apparent
stability are punctuated by acute exacerbations that are sudden unpredictable
episodes that might involve impaired vision, diminished ability to control a
limb, loss of bladder control, or a great variety of other possible neurologic
deficits. In relapsing-remitting MS, some or all of the lost function returns,
however, the patient sustains an unceasing, often insidious, accumulation of
neuronal damage. As the burden of neural damage grows, new lesions are more
likely to produce irreversible impairment of function. Typically, about eight to
fifteen years after onset, MS patients enter the secondary-progressive phase.
Eventually, progressive MS sufferers become wheelchair-bound, and may become
blind and even incapable of speech. There is currently no FDA approved drug that
reverses the course of the progressive form of MS.
 
 RPI-78M
has shown efficacy in animal models (EAE) for MS and ReceptoPharm is planning
new animal studies to gain more insight into the levels of protection that the
drugs afford. In one study conducted in August 2007, all members of an untreated
animal control group developed signs of disease with different levels of
paralysis/muscle weakness. A similar group in the August 2007 study treated with
RPI-78M showed no disease in 90% of the animals in both acute and chronic
applications of the test. Moreover, there were no toxicities reported though the
animals received doses the equivalent of 280 times a human
dose.
  8
 
 Furthermore,
we believe that the ability to modulate the host immunostimulatory environment
could form the basis of an effective strategy for the long-term control of
autoimmunity in diseases like MS and Myasthenia gravis (MG) and is being studied
as a therapeutic model for other neuromuscular diseases. Also, we believe our
data suggests that it is possible that our novel therapeutic proteins could have
a general application in autoimmune diseases based on human studies in
Rheumatoid Arthritis and anecdotal reports from patients with MS.
  In August
of 1984, Biogenix applied for and received an Intrastate Investigational Drug
(FSDHRS Protocol RA-1 (002)) from the Department of Health and Rehabilitation
(HRS) in Florida that permitted the 4-week study of RPI-MN in 13 patients with
Rheumatoid arthritis ranging in age from 49 to 81. Patients were enrolled for a
period of 4 weeks; the results showed 30% to 49% improvement in range of joint
motion, early morning stiffness and stamina (this data is a small section of the
acquired research referenced above). We believe that the data obtained from the
examination of clinical efficacy in these three diseases can augment information
from prior clinical studies and lead to the future investigation of treatments
for other chronic conditions.
 
 Adrenomyeloneuropathy (AMN)
and Orphan Indications
 Adrenoleukodystrophy,
or ALD, is a genetically determined neurological disorder that, according to the
Adrenoleukodystrophy Foundation, affects 1 in every 17,900 boys worldwide. The
presentation of symptoms occurs between the ages of 4 and 10, and affects the
brain with demyelination, which is the stripping away of the fatty coating that
keeps nerve pulses confined and maintains the integrity of nerve signals. This
process inhibits the nerves’ ability to conduct properly, which causes
neurological deficits, including visual disturbances, auditory discrimination,
impaired coordination, dementia and seizures. Demyelination is an inflammatory
response and nerve cells throughout the brain are destroyed.
  Adrenomyeloneuropathy
(AMN) is the most common form of X-ALD, a maternally inherited type of
ALD.  AMN  affects about 40-45% of X-ALD patients and
usually presents itself in adolescence or adult life and may be preceded by
hypoadrenalism. It is characterized by spastic paraplegia and a peripheral
neuropathy, often being diagnosed as Multiple Sclerosis (MS). Nerve conduction
studies in AMN show a predominant axonal neuropathy and show a loss of all
axons. Lorenzo’s oil, a mixture of glyceryltrioleate and glyceryltrierucate, has
been used for over a decade in an open, unblinded fashion with mixed
results.
 
 Pain and
Arthritis
 Pain
control products represent a huge market, especially those that reduce
dependency on opiate-based drugs. Protein or peptide-based drugs are penetrating
this market with neurotoxins taking the lead. Botox (Allergan) and Ziconitide
(Elan) have the potential to substitute over the long-term for morphine and
other opiates in chronic pain indications. Opiates, though potent painkillers,
suffer from drawbacks because they are addictive, short acting, and
drug-resistance inducing. We plan to assess the effects of several peptides in
animal models of pain in association with Soochow University in China. Several
peptides have demonstrated positive effects and the research and development
continues.
 
 August
2007 studies at Soochow University proved the potential of ReceptoPharm’s drug
candidates, RPI-78 and RPI-70. When compared to Dolantin, an opiate-based drug
subordinate to morphine, the effects were very encouraging. While Dolantin
provided immediate pain relief it began wearing off just as RPI-70 began to take
effect. The effects of RPI-70 do not seem dramatic in contrast to Dolantin,
considering the quantity of drug employed in this animal model. The
concentration of RPI-70 was approximately 100 times less than the opiate
product. Also, RPI-70 showed real potential for combining with other pain
killing medications. RPI-78 was calculated to be 150,000 times more potent than
aspirin. This product can be injected systemically providing evidence of a more
practical application than Ziconitide, which must be administered intrathecally
(into the spinal chord). Opiate drugs induce tolerance and
dependence.  This problem is not encountered with RPI-70 and
RPI-78.
 
 In
February 2009, ReceptoPharm filed a patent application with the United States
Patent and Trademark Office for the use of RPI-78 as a novel method for treating
arthritis in humans. Also in February 2009, ReceptoPharm, in collaboration with
Soochow University in China published positive data from its recent animal
studies on the use of RPI-78 (Cobratoxin) as a method for treating
arthritis.
  9
  Market
Values
 
 Human Immunodeficiency Virus
(HIV)
 The World
Health Organization estimates that 39.5 million people worldwide are HIV
positive with the majority of these occurring in third world countries. In the
United States alone, an estimated 900,000 people are infected and the majority
undergoes treatment for HIV-related conditions at an individual cost of $14,000
(HAART) to $34,000 (AIDS patients).   According to a 2007 article
published by United Press International, the worldwide market for HIV drugs
exceeds $7 billion in 2008 and is expected to grow to $11.4 billion by 2015.
 
 Multiple Sclerosis
(MS)
 Multiple
sclerosis affects an estimated 2.5 million people globally. There are 5 approved
drugs for the treatment of this disease. The average annual cost of these drugs
is $12,000 per person. In 2004, sales by one manufacturer, Biogen, were reported
to be $1.4 billion for its drug, Avonex. According to a December 2009 report by
GlobalData, the worldwide MS market was valued at $8.7 billion in 2008 and is
expected to grow to $11.4 billion by 2015.
 
 Adrenomyeloneuropathy
(AMN)
 AMN/ALD
affects an estimated 30,000 people in the US with some estimates exceeding this
number.
 
 Current
Technologies
 
 ReceptoPharm,
operating in its capacity as a clinical stage biotechnology company, has a
process that safely modifies proteins derived from cobra venom. ReceptoPharm
also has rights of a drug delivery method that uses an aerosol formulation,
which is administered under the tongue. By using this shared
aerosol delivery technology, oral delivery is attainable, an important step for
a biologic product. The system is 50% efficient and affects drug delivery in
approximately 40% of patients in which it was tested. Topical preparations are
being examined for future applications in treatment of such conditions as pain
and Rheumatoid Arthritis (RA).
 
 Business
Strategy
 
 ReceptoPharm
seeks to develop proprietary pharmaceutical products for human illnesses that
qualify for “Fast-Track” or “Orphan Drug” status under FDA regulations, which
can expedite regulatory review.  For some conditions, the FDA has
created the “two animal rule” which permits ReceptoPharm to collect data from
ongoing animal research for human treatment applications.
 
 We
believe the results from ReceptoPharm’s research will assist in getting its
applications processed through the FDA’s “Fast-Track” approval process and
enable ReceptoPharm to plan the commercialization of each product independently
and/or through joint ventures, partnerships and licensing arrangements. “Fast-Track”
denotes life-threatening illnesses, while “Orphan” status refers to serious
ailments affecting less than 200,000 individuals nationwide. AMN qualifies under
both labels because it is considered an orphan disease and has no known
cure.
 
 In the
areas of HIV and MS, ReceptoPharm plans to conduct clinical studies of its HIV
and MS drugs under development. These "Phase II" studies will either prove or
disprove the preliminary efficacy of ReceptoPharm's HIV and MS drugs under
development. ReceptoPharm is in the process of attempting to secure agreements
with third parties to conduct such clinical studies.
 
 We
believe that ReceptoPharm’s proposed unique pharmaceutical products can be used
alone or licensed for use in combination with other therapeutic products and may
be of interest to other established pharmaceutical companies as a means of
extending the patent life of their proprietary products.
 
 Short-term
Goal
 Although
we focused our drug development efforts from 2006 to 2008 on clinical trials for
ReceptoPharm’s HIV drug, RPI-MN, our primary focus now is on RPI-78M for the
treatment of AMN.  In January of 2007, ReceptoPharm began their
clinical study in AMN.  The clinical study, which was completed at the
Charles Dent Metabolic Unity located in London, England, is classified as a
Phase IIb/IIIa study.   ReceptoPharm plans to complete analysis
of this clinical study in approximately the third quarter of 2010.
  10
  Mid-term
Goal
 Our
midterm strategy for the past three years has been to license ReceptoPharm’s
AMN, MS and HIV technologies in our attempt to bring these technologies to
market within 5 years.  Should we obtain adequate financing, our midterm
strategy remains the same – to accomplish these midterm goals in the next two
years of that 5 year period.
 
 Long-Term
Goal
 Our
long-term goal is the use of drugs developed by ReceptoPharm in the field of
neurological diseases, infectious diseases and autoimmune disorders. Due to our
limited financial and operational resources, this goal will require us to
establish strategic partners or alliances with pharmaceutical companies,
academic institutions, biotechnology companies, and clinical diagnostic
laboratories, which will: (a) complement ReceptoPharm’s research and development
efforts; (b) reduce the risks associated with undertaking the entire process of
drug development and marketing; and (c) generate licensing based revenue
streams.  Additionally, we plan to continue identifying intellectual
property and companies in the biotechnology arena as potential acquisition
candidates.
 
 Compassionate
Release Programs
 
 Certain
countries, such as Canada and the United Kingdom permit their citizens to have
access to investigational medications without being approved for any application
by their respective “FDA type” agencies, and permit physicians to prescribe
drugs they believe are of possible benefits to the patients. Through these
“Compassionate Release Programs” ReceptoPharm has supplied RPI-78M, its drug
under investigation for MS and AMN, to physicians in the United Kingdom. The FDA
does not offer this program.
 
 Clinical
Trial Applications
 
 ReceptoPharm
has developed Common Technical Documents (CTD) for both RPI-78M and RPI-MN that
are used to support any clinical trial application. The CTD is a complete
history of the individual drug, including all of the in-vitro and in-vivo work
accomplished to date, as well as pre-clinical development work on the drug.
Having these completed documents allows for expedited due diligence from
regulatory bodies reviewing ReceptoPharm’s applications for trials and
approvals. With these documents, ReceptoPharm has successfully applied for
approval to conduct a clinical investigation in the United Kingdom under the
regulation of the Medicines Health and Regulatory Agency (MHRA), which is the
British equivalent of the US-FDA.
 
 Current Research and
Development Projects
 
 Neurological
Studies
 
 AMN Phase
II
 ReceptoPharm
has been conducting research and development in this area since February 2006
with an expected completion date of September 2010, which includes a 12 month
patient trial period that has already been completed.  We have
thus far expended approximately $400,000. Because ReceptoPharm has completed its
AMN Phase II project, there is no further budget for this project.
 
 AMN Phase
III
 ReceptoPharm
will continue research and development, with the ultimate goal of completing
development of its future drug, RPI-78M.   ReceptoPharm’s
estimated start and completion dates are July 2010 and December 2011,
respectively, which includes a 12 month patient trial period. ReceptoPharm has
thus far incurred costs of $5,000.  ReceptoPharm has an estimated
budget of $500,000.
 
 MS Phase
II
 ReceptoPharm
will continue its research and development, with the ultimate goal of completing
development of its future drug, RPI-78M. ReceptoPharm’s estimated start and
completion dates are October 2010 and October 2012, respectively, which includes
a 12 month patient trial period. ReceptoPharm has thus far incurred costs of
$40,000.  ReceptoPharm has an estimated budget of $2,000,000.
 
 ReceptoPharm’s
total estimated costs for all of the above projects are approximately
$3,000,000.
  11
  Research
and Development
 
 During
2008 and 2009, we had research and development costs of $229,790 and $222,558,
respectively.
 
 Dependence on one or a Few Major Customers
 
 We have
no customers with respect to our research and development projects since we have
not received FDA approval for our drug candidates
 
 Marketing
 
 We
currently do not have a marketing program for our drug candidates because none
of ReceptoPharm’s products have received FDA approval. Our lack of financing has
hampered our efforts to navigate the regulatory process in a timely fashion;
however, if and when we have FDA approved drug treatments, we plan to develop a
marketing strategy to market ReceptoPharm’s products through pharmaceutical
companies, other biotechnology companies, and diagnostic laboratories. Our Chief
Marketing Officer, David Isserman, will market the treatments to licensing and
development officers of those companies and will otherwise direct our marketing
program. Additionally, we will attempt to secure consulting agreements with
marketing consultants who will actively market our products to such companies
and/or provide our Chief Marketing Officer with marketing guidance.
 
 Potential
Revenue Segments
 
 Our
potential revenue segments are composed of our attempt to generate revenues from
license agreements, joint ventures in foreign countries, drug, and test kit
sales with pharmaceutical companies, biotechnology companies and clinical
diagnostic laboratories that generate license fees.
 
 To date,
we have not earned any significant revenues regarding any drug candidate
potential revenue segments.
 
 Product
Liability
 
 We have
product liability insurance for our commercial products. Even so, product
liability claims may result in significant legal costs related to our defense of
such actions if damage amounts exceed our product liability insurance coverage.
The design, development, and manufacture of drug products or diagnostic tests
involves an inherent risk of product liability claims and corresponding damage
to our brand name reputation, including claims of product failure or harm caused
by the drug product. ReceptoPharm has product liability insurance for purpose of
manufacturing the drugs currently under clinical trials; however, there is no
assurance that such insurance would protect us against any product liability
claims. Designer Diagnostics has product liability insurance for its portfolio
of test kits; however, there is no assurance that such insurance would protect
us against any product liability claims.
 
 Sources
and Availability of Raw Materials
 
 ReceptoPharm
uses the raw material, cobra venom, for the drugs that it studies and in the
production of Cobroxin. We currently have no supplier agreement or
arrangements for obtaining cobra venom, which we obtain on an as-needed basis.
  There are at least three cobra venom based suppliers each in the United
States and the Peoples Republic of China from which ReceptoPharm may acquire
cobra venom, in addition to other suppliers in Thailand and India.  Paul
Reid, ReceptoPharm’s Chief Executive Officer, is responsible for locating cobra
venom suppliers on an as-needed basis, which involves obtaining a small test
amount from a supplier for scientific validation of that raw material prior to
purchase.  Apart from cobra venom, we do not currently use raw materials in
our business.
 
 Compliance
with Government Regulations and Need for Government Approval
 
 The
production and marketing of potential drug products as well as research and
development activities generally are subject to regulation by numerous
governmental authorities in the United States and other countries. In the United
States, vaccines, drugs and certain diagnostic products are subject to FDA
review of safety and efficacy. The Federal Food, Drug and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations govern or
influence the testing, manufacture, safety, labeling, storage, record keeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in criminal prosecution and fines, recall or
seizure of products, total or partial suspension of production, or refusal of
the government to approve Biological License Applications ("BLAs"), Product
License Applications ("PLAs"), New Drug Applications ("NDAs") or refusal to
allow a company to enter into supply contracts. The FDA also has the authority
to revoke product licenses and establishment licenses previously
granted.
  12
 
 In order
to obtain FDA approval to market a new biological or pharmaceutical product,
proof of product safety, purity, potency and efficacy, and reliable
manufacturing capability must be submitted. This requires companies to conduct
extensive laboratory, pre clinical and clinical tests. This testing, as well as
preparation and processing of necessary applications, is expensive,
time-consuming and often takes several years to complete. There is no assurance
that the FDA will act favorably in making such reviews. Our potential partners,
or we, may encounter significant difficulties or costs in their efforts to
obtain FDA approvals, which could delay or preclude from marketing any products
that may be developed. The FDA may also require post-marketing testing and
surveillance to monitor the effects of marketed products or place conditions on
any approvals that could restrict the commercial applications of such products.
Product approvals may be withdrawn if problems occur following initial
marketing, such as, compliance with regulatory standards is not maintained.
Delays imposed by governmental marketing approval processes may materially
reduce the period during which a company will have the exclusive right to
exploit patented products or technologies. Refusals or delays in the regulatory
process in one country may make it more difficult and time consuming to obtain
marketing approvals in other countries.
 
 The FDA
approval process for a new biological or pharmaceutical drug involves completion
of preclinical studies and the submission of the results of these studies to the
FDA in an Initial New Drug application, which must be approved before human
clinical trials may be conducted. The results of preclinical and clinical
studies on biological or pharmaceutical drugs are submitted to the FDA in the
form of a BLA, PLA or NDA for product approval to commence commercial sales. In
responding to a BLA, PLA or NDA, the FDA may require additional testing or
information, or may deny the application. In addition to obtaining FDA approval
for each biological or chemical product, an Establishment License Application
("ELA") must be filed and the FDA must inspect and license the manufacturing
facilities for each product. Product sales may commence only when both BLA/ PLA/
NDA and ELA are approved. In certain instances in which a treatment for a rare
disease or condition is concerned, the manufacturer may request the FDA to grant
the drug product Orphan Drug status for a particular use. "Orphan Drug" status
refers to serious ailments affecting less than 250,000 individuals. In this
event, the developer of the drug may request grants from the government to
defray the costs of certain expenses related to the clinical testing of such
drug and be entitled to marketing exclusivity and certain tax
credits.
 
 In order
to gain broad acceptance in the marketplace of a medical device, our partners or
we will need to receive approval from the FDA and other equivalent regulatory
bodies outside of the United States. This approval will be based upon clinical
testing programs at major medical centers. Data obtained from these institutions
will enable us, or our partners, to apply to the FDA for acceptance of its
technology as a "device" through a 510(k) application or exemption process. Once
the data have been fully gleaned, it is expected that this process would
take ninety days.
 
 According
to the FDA, a "device" is: "an instrument, apparatus, implement, machine,
contrivance, implant, in vitro reagent, or other similar or related article,
including a component part, or accessory which is recognized in the official
National Formulary, or the United States Pharmacopoeia, or any supplement to
them, intended for use in the diagnosis of disease or other conditions, or in
the cure, mitigation, treatment, or prevention of disease, in man or other
animals, or intended to affect the structure or any function of the body of man
or other animals, and which does not achieve any of its primary intended
purposes through chemical action within or on the body of man or other animals
and which is not dependent upon being metabolized for the achievement of any of
its primary intended purposes."
 
 The FDA
classifies devices as either Class I/II-exempt, Class II, or Class
III.
 
 Class
III: Pre-Marketing Approval, or PMA: A Pre-Marketing Approval or PMA is the most
stringent type of device marketing application required by FDA. A PMA is an
application submitted to FDA to request clearance to market, or to continue
marketing of a Class III medical device. A PMA is usually required for products
with which FDA has little previous experience and in such cases where the safety
and efficacy must be fully demonstrated on the product. The level of
documentation is more extensive than for a 510(k) application and the review
timeline is usually longer. Under this level of FDA approval, the manufacturing
facility will be inspected as well as the clinical sites where the clinical
trials are being or have been conducted. All the appropriate documents have to
be compiled and available on demand by the FDA. The manufacturing facility is
registered with the FDA and the product or device is registered with the
FDA.
  13
 
 Class II:
510(k). This is one level down from the PMA and it is applied to devices with
which the FDA has had previous experience. A 510(k) is a pre-marketing
submission made to FDA to demonstrate that the device to be marketed is as safe
and effective, that is, substantially equivalent, to a legally marketed device
that is not subject to pre-market approval. Applicants must compare their 510(k)
device to one or more similar devices currently on the U.S. market and make and
support their substantial equivalency claims. The legally marketed device to
which equivalence is drawn is known as the "predicate" device. Applicants must
submit descriptive data and, when necessary, performance data to establish that
their device is SE to a predicate device. Again, the data in a 510(k) is to show
comparability, that is, substantial equivalency (SE) of a new device to a
predicate device. Under this level of approval, the manufacturing facility is
registered with the FDA and the product or device is registered with the FDA.
Inspections under this classification are possible. All the appropriate cGMP and
clinical data backing the claims made must be on file and available on demand by
the FDA.
 
 Class
I/II Exemption: This is the lowest level of scrutiny. Most Class I devices and a
few Class II devices are exempt from the pre-marketing notification requirements
subject to the limitations on exemptions. However, these devices are not exempt
from other general controls. All medical devices must be manufactured under a
quality assurance program, be suitable for the intended use, be adequately
packaged and properly labeled, and have establishment registration and device
listing forms on file with the FDA. However, as described above, all the
appropriate documentation including cGMP and clinical data supporting the claims
being made has to be on hand and available on demand by the FDA. The data must
be available to support all the product claims.
 
 Sales of
biological and pharmaceutical products and medical devices outside the United
States are subject to foreign regulatory requirements that vary widely from
country to country. Whether or not FDA approval has been obtained, approval of a
product or a device by a comparable regulatory authority of a foreign country
must generally be obtained prior to the commencement of marketing in that
country.
 
 Designer
Diagnostics is also subject to regulation by the Occupational Safety and Health
Administration ("OSHA") and the Environmental Protection Agency ("EPA") and to
regulation under the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other regulatory statutes, and may in the future be subject to
other federal, state or local regulations. Designer Diagnostics believes that
they are in compliance with regulations regarding the disposal of its
biological, radioactive and chemical waste. Designer Diagnostics voluntarily
complies with NIH guidelines regarding research involving recombinant DNA
molecules. Such guidelines, among other things, restrict or prohibit certain
recombinant DNA experiments and establish levels of biological and physical
containment that must be met for various types of research.
 
 Effect
of Compliance with Federal, State, and Local Provisions for the Protection of
the Environment
 
 We have
no present or anticipated direct future costs associated with environmental
compliance, since we are not and will not be directly involved in manufacturing
drug products as result of our research and development; however, we may be
affected in the percentage licensing fees we receive, since a company may
consider the environmental expense as an offset to a determination of the
percentage amount we receive. ReceptoPharm produces a drug that has limited
waste issues and related costs, but handles environmentally related matters
through the FDA's Good Manufacturing Practices, the FDA mandated guidelines
pertaining to the production of drugs in the United States.
 
 Ability
to Compete
 
 The
biotechnology research and development field is extremely competitive and is
characterized by rapid change. Our competitors have substantially greater
financial, scientific, and human resources, and as a result greater research and
product development capabilities. Our competitors have competitive advantages
with greater potential to develop revenue streams. Our competitors are located
in the United States as well as around the world. We will attempt to complete by
establishing strategic partners or alliances with pharmaceutical companies,
academic institutions, biotechnology companies, and clinical diagnostic
laboratories, which will enter into joint ventures, emphasizing that the drugs
RPI-MN and RPI-78M possess the following properties:
  14
 
 ·
              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 adverse side effects following years of investigations in
      humans and animals.
 ·
              The
      products are stable and resistant to heat, which gives the drug a long
      shelf life. The drugs’ stability has been determined to be over 4 years at
      room temperature.
 
 RPI-78M
can be administered orally; however, ReceptoPharm has not yet developed an
orally administered RPI-78M. RPI-78M has been routinely delivered by injection
in a manner similar to insulin, but research over the past two years has given
rise to administration by mouth.  Oral delivery presents patients with
additional “quality of life” benefits by eliminating or decreasing the
requirements for routine injections.  Should we receive adequate
funding, ReceptoPharm plans to develop an orally administered RPI-78M by
initiating new trials with an oral version of that drug.
 
 Main
Competitors (Biologics)
 
 Competition
is intense among companies that develop and market products based on advanced
cellular and molecular biology. ReceptoPharm’s competitors, including Amgen,
Aventis, Cephalon, Genetech, Genzyme, Immunex Corp., Novartis, Regeneron and
Schering-Plough, which have far superior financial, technological and
operational resources. We face significant competition from these and other
biotechnology and pharmaceutical firms in the United States, Europe and
elsewhere. Certain specialized biotechnology firms have also entered into
cooperative arrangements with major companies for development and
commercialization of products, creating an additional source of
competition.
 
 Any
products or technologies that successfully address viral or neurological
indications could negatively impact the market potential for RPI-78M or RPI-MN.
These include products that could receive approval for indications similar to
those for which RPI-78M or RPI-MN seeks approval, development of biologic or
pharmaceutical treatments that are more effective than existing treatments and
the development of other modalities with reduced toxicity and side
effects.
 
 Interferon-based
drugs and their indications represent target markets for ReceptoPharm. Sales of
interferon-based drugs annually exceed $6 billion and have attracted the
participation of several major drug companies, including Schering-Plough and
Roche. Currently, there are five interferon-based drugs licensed in Canada and
the U.S.; three for the treatment of the milder Relapsing-Remitting form of MS
and two for Hepatitis C. These interferons are also used in the treatment of
other conditions where treatment options are limited. The interferons for MS are
Betaseron (Berlex/Schering), Avonex (Biogen) and Rebif (Serono). Since the
launch of these drugs, the number of patients undergoing treatment has
stabilized at current levels, indicating that there is a high turnover rate of
patients in the administration of these individual drugs due to cost and side
effects. Biogen developed Avonex in the early 1990’s and has been shipping the
drug since late 1996. In the United Kingdom,  the National Institute
for Clinical Efficiency (NICE) has called for the withdrawal of Betaseron and
another unrelated drug, Copaxone (Teva), from the market based on poor
cost/effectiveness.
 
 Schering-Plough
manufactures alpha-interferon (Intron-A) and Roche produces Roferon as the only
treatments for Hepatitis C. Schering-Plough also developed the drug Ribavirin as
a general antiviral agent which, when combined, with Intron-A, is a treatment
for Hepatitis C.  This combination is called
Ribitron.  Treatment with Intron-A costs $19,000 per year though
initial treatment periods are usually for 12 months.  It is the high
cost and significant side effects that prevents the widespread uptake of this
drug by the 4 million Hepatitis C sufferers in the US. Other companies producing
interferon-based products include Amgen (INFERGEN) and Viragen.
 
 Main
Competitors (Venom-Based Drugs)
 
 We view
our main competitors as those who also engage in the development of
protein-based neurotoxins as therapeutics. Employing venoms as therapeutics is
not new. A large number
of well-known pharmaceutical companies are developing novel therapies derived
from snake venoms and other reptiles. Most of those using snake venoms employ
the anticoagulant enzymes usually from viperids (adders and rattlesnakes) though
elapids (cobra family) are also being investigated.
  15
  
 
 We have
set forth below a summary of venom-based drugs and their potential
applications.
 
 Company
                  
                  Drug
                  
                  ApplicationKnoll
      Pharmaceutical
                  
                  Ancrod
                  
                  Anticoagulant
      from rattlesnakesMedicure
                  
                  Aggrastat
                  
                  Antiplatelet
      drug from vipersMillennium
      Pharmaceutical
                  
                  Integrilin
                  
                  Antiplatelet
      drug from rattlesnakesAmylin
      Pharmaceuticals
                  
                  Extendin-4
                  
                  Treatment
      for type 2 diabetes and obesity from Gila
  Monster
 
 Current
cobra venom-based therapies include Keluoqu, a pain-killing drug on the market
in China since 1978. Keluoque contains cobrotoxin as its primary ingredient and
is used to control severe pain in advanced cancer patients and for
post-operative pain.
 
 Contract
Research Services
 
 In
addition to its drug discovery research, ReceptoPharm is also engaged in
providing contract research services to third-party biotechnology and
pharmaceutical companies. ReceptoPharm announced in December 2008 that it had
received a clinical drug supply contract for Celtic Biotech, an Ireland-based
biotechnology company developing a treatment to cancer.  ReceptoPharm
fulfilled this contract during the fourth quarter of 2009 and will continue to
seek additional clients for its contract research services.
 
 Designer
Diagnostics
 
 Designer
Diagnostics’ Nontuberculous Mycobacteria (“NTM”) test kits are now being
marketed and will continue to be marketed to a global audience,
including:
 
 ·
              Hospitals;
 ·
              Pharmaceutical
      companies;
 ·
              Biotechnology
      companies;
 ·
              Medical
      device distributors;
 ·
              Governmental
      organizations;
 ·
              Environmental
      testing facilities; and
 ·
              Government
      water and soil testing facilities at the local, state and federal
      levels.
 
 Over the
next twelve months, Designer Diagnostics will attempt to distribute the test
kits to the above companies and organizations.  Our first sales
occurred during our second quarter of 2006 with limited sales throughout
2007 and 2008. Our sales efforts during 2007, 2008 and 2009 have been inhibited
by the necessity for FDA validation prior to active marketing in United States
based markets. These markets include the Centers for Disease Control and
Prevention (CDC) and the World Health Organization (WHO). Researchers at
National Jewish Hospital in Denver, Colorado, are currently validating Designer
Diagnostics’ Tuberculosis (TB) and Nontuberculous Mycobacteria (NTM) Test Kits.
This research has been protracted due to budget restrictions at the hospital as
well as our own limited funding. We currently anticipate the completion of
this research and regulatory filing by the fourth quarter of 2010.
 
 Additionally,
the test kits are now utilized for environmental analysis for the presence of
NTM in the water and/or soil. This allows investigators to more easily find the
source of contamination and may greatly reduce NTM infections and
outbreaks.  When, and if, sales of the test kits exceed our
operating budget, we will use the test kit proceeds to fund drug research and
clinical studies.
 
 Designer
Diagnostics’ management will attempt to develop a distribution network and
actively market the test kits to supply administrators of companies and/or
governmental organizations in the following markets: hospitals; pharmaceutical;
biotechnology; medical device distributors. Designer Diagnostics will also
attempt to acquire other medical diagnostic products to develop that same
distribution market. Designer Diagnostic’s management will also seek license
agreements to develop revenue streams consisting of drug discovery, drug
development, and new medical device technologies.
  16
 
 Nontuberculous Mycobacterium
(NTM)
 Nontuberculous
Mycobacterium (NTM), also known as atypical Tuberculosis (Atypical TB) or
Mycobacterium other than Tuberculosis (MOTT) are bacteria that can be found in
water, some domestic and wild animals, and soil. NTM is a primary cause of
respiratory disease in humans and is a leading cause of death in HIV/AIDS
patients. In countries (such as the U.S. and Canada) that have dramatically
reduced TB as a major disease, NTM bacteria have become a larger issue. National
Jewish Medical Research Center in Denver, Colorado, has reported a major
increase in the U.S., with over 800 patients infected in Denver in 2005 and 1500
regional centers around the country are using the National Jewish Research
Center for NTM testing.
 
 A study
done in India on HIV/AIDS patients has shown that over 9% of HIV/AIDS patients
that have TB also have some form of NTM that requires different antibiotic
procedures.
 
 The NTM
bacteria usually enter the body through inhalation or by drinking water that has
been contaminated by the NTM bacteria. Additionally, the NTM bacteria can enter
the body through open wounds. These bacteria cannot be spread directly between
people. There are over 20 different types of NTM, which include
Para-Tuberculosis, Nocardia, Pseudomonas and M.avium Complex (MAC).
 
 Tuberculosis
(TB)
 Tuberculosis
(TB) is a contagious disease. Like the common cold, it spreads through the air.
Only people who are sick with TB in their lungs are infectious. When infectious
people cough, sneeze, talk or spit, they propel TB germs, known as bacilli, into
the air. A person needs only to inhale a small number of these to be infected.
Left untreated, each person with active TB disease will infect on average
between 10 and 15 people every year. It is estimated that 1.7 million deaths
resulted from TB in 2004. Strains of TB resistant to all major anti-TB drugs
have recently emerged. A particularly dangerous form of drug-resistant TB is
multidrug-resistant TB (MDR-TB), which is defined as the disease caused by TB
bacilli resistant to at least isoniazid and rifampicin, the two most powerful
anti-TB drugs. Rates of MDR-TB are high in some countries, especially in the
former Soviet Union, and threaten TB control efforts. More recently, XDR-TB
(Extensively drug-resistant tuberculosis) has been discovered. XDR-TB is a
mutated form of MDR-TB that seems to be highly resistant to all of the known
treatments for the disease.
 
 Designer
Diagnostics’ kits are being developed to detect the NTM and TB bacteria. 
If this product development is successful, it may lead to the treatment
of patients before dangerous (often fatal) symptoms appear.
 
 Market
Competition – Designer Diagnostics
 
 We view
the main competition to Designer Diagnostics’ Test Kit technology to be divided
into two areas: Tuberculosis and Nontuberculous Mycobacterium. In the TB
(Tuberculosis) Test Kit arena, Designer Diagnostics’ main competitors are
Becton, Dickinson and Company and their TB test kit is widely used throughout
the world.
 
 We intend
to emphasize the advantages of our Designer Diagnostic kit on the basis of lower
cost and that it does not require refrigeration or specialized equipment for
utilization.  When looking at NTM (Nontuberculous Mycobacterium) Test Kits,
there is no competition with a kit that will work on all 15 identified types of
NTMs.  Becton, Dickinson and Company is a purveyor and major competition
for kits that can be used for NTMs, but they require different tests for most
types. The Designer Diagnostics NTM Test Kit can be used to identify all types
and subtypes of NTMs in a single test. Additionally, there is currently no
competition for the use of an NTM test for environmental applications. Designer
Diagnostics has begun marketing the first ever diagnostic test for identifying
NTMs in soil, water and other environmental media.
  17
  Nanologix
  On
January 24, 2006, we entered into an Agreement with NanoLogix whereby we
exchanged our holding of NanoLogix common stock for the intellectual property
pertaining to the manufacture of test kits for the rapid isolation, detection
and antibiotic sensitivity testing of certain microbacteria. Designer
Diagnostics owns 11 issued patents and has licensing rights to 18 issued patents
related to the rapid isolation, growth, identification and antibiotic
sensitivity of disease causing pathogens such as Tuberculosis ("TB") and
Mycobacterium avium-intracellulare ("MAI"). The patented technologies are
related to a technique known as "paraffin baiting". The researchers discovered
that certain grades of paraffin wax, when used in conjunction with a microscope
slide, and combined with a nutrient broth, provides for the rapid isolation,
growth and identification of various disease causing pathogens. Designer
Diagnostics markets a diagnostic test kit based on this technology. Designer
Diagnostics plans to market its products to hospitals, clinical laboratories,
medical research institutions, medical schools, physician's offices, and even
pharmaceutical companies, as the antibiotic sensitivity testing methodology may
be useful in creating new drugs to treat paraffinophilic
microorganisms.
 
 Bio-Therapeutics,
Inc.
 
 On
October 3, 2003, we entered into a non-assignable license agreement between
Bio-Therapeutics, Inc. and us, which was then amended to make the license
agreement assignable. This agreement was in settlement of a lawsuit that we
filed against Bio-Therapeutics alleging that Bio-Therapeutics owed us $850,000
in connection with a merger agreement between us and Bio-Therapeutics, which was
cancelled.
 
 The 2003
license agreement provides that for a non-exclusive license to certain
intellectual property of Bio-Therapeutics, Inc, which consists of the following
two distinct technology platforms:
 
 ·
              Alteration
      of Proteins and Peptides - These include patented methods for altering the
      3-Dimensional structure of certain proteins and peptides. The natural
      peptides bind to receptors in the body with toxic effects. This technology
      allows us to alter the structure of these peptides, preserving their
      receptor-binding characteristics, while making them non-toxic and
      therapeutic. Different receptors have various functions in many disease
      states. By the peptides binding to these receptors in a controlled
      fashion, certain disease symptoms may be treated.  In connection
      with MS, binding to the acetylcholine receptor on the nerves allows for
      more efficient nerve conduction. With HIV, binding to chemokine receptors
      may prevent the virus from entering and infecting new
    cells.
 
 ·
              Non-
      Exclusive License for “Buccal Delivery System”(“Buccal”)  – An
      innovative aerosolized drug delivery system that is patent
      pending.   Many therapeutic agents cannot be effectively
      delivered by aerosol formulation due to their large size and/or irregular
      shapes. Since these therapeutic agents cannot be ingested orally without
      being degraded by the digestive system, patients have no alternative but
      to directly inject these drugs. We have a non-exclusive license to the
      Bucall patent pending proprietary aerosol formulation, which greatly
      enhances the permeability of the mucous membranes found on the roof of the
      mouth and the back of the throat. This allows for the easy and efficient
      systemic delivery into the bloodstream of a much wider variety of proteins
      and peptides. This non-exclusive license for "Buccal Delivery
      System"  and patent pending application includes claims that
      identify the active mucosal enhancer, its combination with therapeutic
      agents and the mode of delivery through aerosol. This may allow for the
      effective and pain-free delivery of peptide and protein therapeutics for
      the treatment of HIV and MS.
 
 Patents,
Trademarks, Licenses and Intellectual Property
 
 We have
the following patents expiring at various dates indicated below:
 
 Bio-Therapeutics
Patents
 We hold
the license to certain intellectual property belonging to Bio-Therapeutics that
has either been granted a patent or is in the patent application process as
follows:
 
 U.S.
Patent No. 5,989,857, Polypeptide compositions and methods was granted in
November 1999 with 10 claims. The patent outlines a method of preparing a
bioactive polypeptide in a stable, inactivated form, the method comprising the
step of treating the polypeptide with ozonated water in order to oxidize and/or
stabilize the cysteine residues, and in turn, prevent the formation of disulfide
bridges necessary for bioactivity.  This patent expires on May 10,
2016.
  18
 
 U.S.
Patent No. 6,670,148, Compositions comprising bioactive peptides prepared
without formation of native disulfide bonds was granted in December 2003, with 9
claims. The patent further describes a method of preparing a bioactive
polypeptide in a stable, inactivated form, the method comprising the step of
treating the polypeptide with ozonated water in order to oxidize and/or
stabilize the cysteine residues, and in turn, prevent the formation of disulfide
bridges necessary for bioactivity. The method can involve the use of ozonated
water to both oxidize the disulfide bridges in a bioactive polypeptide, and to
then stabilize the resultant cysteine residues. Optionally, and preferably, the
method can involve the use of ozonated water to stabilize the cysteine residues,
and thereby prevent the formation of disulfide bridges, in a polypeptide
produced by recombinant means in a manner that allows the polypeptide to be
recovered with the disulfide bridges unformed.  This Patent expires on
May 10, 2016.
 
 U.S.
Patent Application Number 11/415377, Buccal Delivery System, with 20 claims. The
patent describes a delivery formulation and system for delivering inactivated
bioactive peptides to the body. The formulation includes effective amounts of
the peptide as well as a mucosal permeation enhancer selected from the group
consisting of quaternary ammonium salts. The system can be used by spraying the
formulation into the buccal cavity, e.g., to the roof of the mouth. This
application is currently listed as abandoned as of December 2009.
 
 U.S.
Patent Application Number 11/431126, Immunokine composition and method with 31
claims. The patent describes a composition and method for preventing HIV
infection of mammalian cells. One aspect of the invention relates to an
anti-immunodeficiency virus immunokine capable of binding to a cellular protein
in a manner that prevents HIV infection of that cell. The compositions can
include either an active bioactive polypeptide, such as native cobratoxin,
and/or an inactivated bioactive polypeptide, such as cobratoxin in which one or
more of the native disulfide bridges have been prevented from forming. The term
"immunokine" is used to refer to an inactivated bioactive polypeptide, whether
inactivated by chemical, genetic, and/or synthetic means as described herein,
with the proviso that a corresponding active bioactive polypeptides can be
included where applicable (e.g., for in vitro use). This application is
currently listed as abandoned as of June 2009
 
 ReceptoPharm
Patents
 ReceptoPharm
has several patents pending with the United States Patent and Trademark Office.
These patents include:
 
 U.S.
Patent Application Number 11/217,713, Modified venom and venom components as
anti-retroviral agents with 10 claims was filed in September 2005. The present
invention describes a method of treatment of human subject suffering from
infection with HIV, comprising administering a disease mitigating amount of a
detoxified, modified cobra venom composition in an amount effective to
ameliorate at least one symptom of said infection. This patent is meant to
protect and support our work in the production of anti-viral treatments.
Currently, this would be applied to RPI-MN and RPI-78.
 
 U.S.
Patent Application Number 11/592,896, Modified elapid venoms as stimulators of
the immune reaction with 20 claims was filed in November 2006. The patent
describes a method of protection from infections by administering a detoxified
and neurotropically active modified venom containing alpha-cobratoxin.
Protection includes bacterial, viral and parasitic infections. This patent is
meant to protect and support our work in our production of anti-infective
treatments. Currently, this would be applied to RPI-MN and RPI-78.
 
 U.S.
Patent Application Number 11/642,312, Use of cobratoxin as an analgesic with 5
claims was filed in December 2006. The patent describes a composition of matter
for an analgesic and its method of use is disclosed. The method of use is for
the treatment of chronic pain, especially to the treatment of heretofore
intractable pain as associated with advanced cancer. The pain associated with
neurological conditions, rheumatoid arthritis, viral infections and lesions is
also contemplated. The method includes administering to a host an
alpha-neurotoxin that is characterized by its ability to blocking of the action
of acetylcholine at nicotinic acetylcholine receptors. This patent is meant to
protect and support the Company’s work in the production of drugs for the
treatment of pain.
 
 U.S.
Patent Application Number 10/947,434, Modified Anticholinergic Neurotoxins as
Modulators of the Autoimmune Reaction was filed in September 2004. The patent
describes a method of treatment of a human patient suffering from Multiple
Sclerosis comprising the administration of a disease-mitigating amount of a
composition consisting of detoxified and modified alpha-cobratoxin in a saline
solution. This patent is meant to protect and support our work in the production
of drugs for the treatment of auto-immune diseases.
  19
 
 U.S.
Patent Application Number 11/784,607, Treatment of Autoimmune Disorders Using
Detoxified Cobratoxin was filed in April 2007. The patent describes a method of
treating patients suffering from autoimmune disorders comprising the
administration of detoxified cobra venom. This patent is meant to protect and
support our work in the production of drugs for the treatment of auto-immune
diseases. Currently, this would be applied to RPI-78MN.
 
 U.S.
Patent Application Number 12/317,115, Alpha-neurotoxin Proteins with
Anti-inflammatory Properties and Uses Thereof was filed in December 2008. The
patent describes a method of treating an arthritic condition comprising the
administration to a subject in need thereof an effective amount of a
pharmaceutical composition comprising an isolated alpha-neurotoxin protein or an
effective fragment thereof. This patent is meant to protect and support our work
in the production of drugs for the treatment of inflammatory
diseases.
 
 Patents Assigned to Us by
Nanologix, Inc. and Used by Designer Diagnostics
 On
January 24, 2006 we entered into an Agreement with NanoLogix whereby we
exchanged our entire holding of NanoLogix common stock for intellectual property
pertaining to the manufacture of test kits for the rapid isolation, detection
and antibiotic sensitivity testing of certain mycobacteria. The agreement
provides that: (a) NanoLogix has reassigned to us 11 key patents protecting the
diagnostics test kit technology in exchange for our entire holding of NanoLogix
stock represented by 4,556,174 shares of that stock; (b) NanoLogix has licensed
to us the remaining 18 patents that protect the diagnostics test kit technology
in exchange for a 6% royalty on the gross sales of the products based on the
licensed technology or escalating minimum payments starting at $20,000 annually;
(c) we issued to NanoLogix 1 million options of our restricted common stock at
$.20 per share; and (d) we will allow NanoLogix to continue their use of these
patents for development of their hydrogen technology and other technologies
unrelated to medical diagnostic test kits.
 
 On or
about July 2009, we ceased paying the minimum royalties to Nanologix for the
licensed patents and have allowed full rights to those patents to revert back to
Nanologix.
 
 We own 11
issued U.S. patents covering technologies related to growing, detecting,
identifying, defining antibiotic sensitivity and designing apparatus for the
detection of 32 different paraffin-eating microorganisms that were assigned to
us by Nanologix, Inc.. These patents are used by our wholly owned subsidiary,
Designer Diagnostics.
  U.S.
Patent No. 5,989,902, Method for determining the antimicrobial agent sensitivity
of a nonparaffinophilic hydrophobic microorganism and an associated apparatus
was granted in November 1999 with 3 claims. The patent describes a method for
determining a sensitivity of a nonparaffinophilic hydrophobic microorganism to
an antimicrobial agent. The method includes providing at least one receptacle
containing an aqueous broth including a carbon source and introducing the
nonparaffinophilic hydrophobic microorganism into the receptacle. The method
further includes placing into the receptacle (i) a slide coated with a
hydrophobic material and (ii) a predetermined quantity of the antimicrobial
agent to be tested. By observing the nonparaffinophilic hydrophobic
microorganism growth or lack thereof on the slide, it can be determined whether
the predetermined quantity of the antimicrobial agent is effective in inhibiting
growth of the nonparaffinophilic hydrophobic microorganism on the slide. An
associated apparatus is also disclosed.  This Patent expires on
November 13, 2017.
 
 U.S.
Patent No. 5,981,210, Method for determining a presence or absence of a
nonparaffinophilic hydrophobic microorganism in a body specimen by using a DNA
extraction procedure and a novel DNA extraction procedure was granted in
November 1999 with 17 claims. The method of the invention involves providing a
first receptacle and a second receptacle. The first receptacle contains a
sterile aqueous broth and the second receptacle contains an aqueous broth
including a carbon source. The method then includes placing into the first
receptacle a first support surface having a paraffin wax coating thereon and
placing into the second receptacle a second support surface having a hydrophobic
material coating thereon. A body specimen, such as sputum, is then introduced
into each of the first and second receptacles. The presence of a
nonparaffinophilic hydrophobic microorganism in the body specimen is determined
by observing (i) a lack of microorganism growth on the paraffin coated material
of the first support surface and (ii) a presence of microorganism growth on the
hydrophobic material coating of the second support surface. The presence of the
nonparaffinophilic hydrophobic microorganism can be further confirmed by
performing a DNA extraction. An associated DNA extraction procedure is also
provided. This Patent expires on November 13, 2017.
  20
 
 U.S.
Patent No. 5,935,806, Method and apparatus for speciating and identifying MAI
(Mycobacterium Avium Intracellulare) and testing the same for antibiotic
sensitivity was granted in August 1999 with 3 claims. The patent describes a
method of speciating and identifying MAI in a specimen comprises placing a
paraffin coated slide in a receptacle containing a sterile aqueous solution
inoculated with the specimen, analyzing the slide after exposure to the specimen
to determine the presence or absence of atypical Mycobacteria, and after the
analysis step, if atypical Mycobacteria are determined to be present, performing
at least one speciation assay to ascertain if the atypical Mycobacteria are MAI.
A related apparatus is also disclosed for speciating and identifying MAI in a
specimen comprising a paraffin-wax coated slide, a tube having a sterile aqueous
solution contained therein, the tube adapted to hold the slide, and at least one
speciation assay means for performing an assay to determine the presence or
absence of MAI in the specimen after the specimen is introduced into the tube
holding the solution and the slide. An apparatus and method for determining the
sensitivity of MAI to different antibiotics and dosages thereof is also
provided. This Patent expired on October 24, 2009 for failure to timely pay
maintenance fees.
 
 U.S.
Patent No. 5,882,920, Apparatus for determining the presence or absence of a
paraffinophilic microorganism was granted in March 1999 with 4 claims. The
patent describes a method of determining the presence of a paraffinophilic
microorganism in a specimen taken from a patient. The method includes providing
a receptacle containing an aqueous solution and adjusting the solution to mimic
the in vivo clinical conditions of the patient. The method then further includes
inoculating the solution with the specimen and then placing in the receptacle a
paraffin coated slide to bait the paraffinophilic microorganism. The slide is
then analyzed after exposure to the specimen to determine the presence or
absence of the paraffinophilic microorganism. An associated apparatus is also
disclosed. This Patent expires on November 9, 2015.
 
 U.S.
Patent No. 5,854,014, Apparatus for testing paraffinophilic microorganisms for
antimicrobial sensitivity was granted in December 1998 with 2 claims. The patent
describes an apparatus for determining the antimicrobial agent sensitivity of a
paraffinophilic microorganism from a specimen obtained from a patient. The
apparatus includes a receptacle containing an aqueous solution, an amount of
antimicrobial agent to be tested and the specimen. The apparatus further
consists of a paraffin coated slide placed into the receptacle. This Patent
expired October 24, 2009 for failure to timely pay maintenance
fees.
 
 U.S.
Patent No. 5,846,760, Method for determining a presence or absence of a
nonparaffinophilic hydrophobic microorganism in a body specimen and an
associated kit was granted in December 1998 with 15 claims. The method of the
invention involves providing a first receptacle and a second receptacle. The
first receptacle contains a sterile aqueous broth and the second receptacle
contains an aqueous broth including a carbon source. The method then includes
placing into the first receptacle a first support surface having a paraffin wax
coating thereon and placing into the second receptacle a second support surface
having a hydrophobic material coating thereon. A body specimen, such as sputum,
is then introduced into each of the first and second receptacles. The presence
of a nonparaffinophilic hydrophobic microorganism in the body specimen is
determined by observing (i) a lack of microorganism growth on the paraffin
coated material of the first support surface and (ii) a presence of
microorganism growth on the hydrophobic material coating of the second support
surface. An associated kit is also disclosed. This Patent expires on November
13, 2017
 
 U.S.
Patent No. 5,776,722, Method of testing a body specimen taken from a patient for
the presence or absence of a microorganism and a further associated method and
associated apparatus was granted in July 1998 with 40 claims. The patent
describes a method of testing a body specimen taken from a patient for the
presence or absence of a microorganism. A transport/isolator assembly is
provided which includes a receptacle and a baiting assembly including a baiting
section having disposed thereon a coating material. A baiting liquid and the
body specimen are then introduced into the receptacle. The method further
comprises securing the baiting assembly to the receptacle so that at least a
portion of the coated section is introduced into the baiting liquid. The
transport/isolator assembly containing the baiting liquid and the body specimen
are then transported to a laboratory for subsequent observation of the coated
section for growth or lack thereof of the microorganism. A further method of
processing the body specimen and an associated isolator/transport assembly kit
as well as an associated isolator/transport assembly are also disclosed. This
Patent expires on September 25, 2017.
  21
 
 U.S.
Patent No. 5,569,592, Apparatus for testing MAI (Mycobacterium Avium
Intracellulare) for antimicrobial agent sensitivity was granted in October 1996
with 3 claims. The patent describes an apparatus for determining the sensitivity
of MAI to different antimicrobial agents and dosages thereof is provided. The
apparatus comprises a plurality of test tubes adapted to contain an amount of an
antimicrobial agent to be tested and MAI complex organisms to be assayed and a
separate paraffin coated slide adapted for placement in each of the test tubes.
The growth of the MAI complex organisms on the slide can be used to determine
the concentration of the antimicrobial agent necessary to resist MAI complex
organism growth on the slide. An associated method is also disclosed. This
Patent expires on October 29, 2013.
 
 U.S.
Patent No. 5,472,877, Apparatus for determining the presence or absence of MAI
(Mycobacterium Avium Intracellulare) was granted in December 1995 with 6 claims.
The patent describes a method of speciating and identifying MAI in a specimen
comprises placing a paraffin coated slide in a receptacle containing a sterile
aqueous solution inoculated with the specimen, analyzing the slide after
exposure to the specimen to determine the presence or absence of atypical
Mycobacteria, and after the analysis step, if atypical Mycobacteria are
determined to be present, performing at least one speciation assay to ascertain
if the atypical Mycobacteria are MAI. A related apparatus is also disclosed for
speciating and identifying MAI in a specimen comprising a paraffin-wax coated
slide, a tube having a sterile aqueous solution contained therein, the tube
adapted to hold the slide, and at least one speciation assay means for
performing an assay to determine the presence or absence of MAI in the specimen
after the specimen is introduced into the tube holding the solution and the
slide. An apparatus and method for determining the sensitivity of MAI to
different antibiotics and dosages thereof is also provided. This Patent expires
on December 5, 2012.
 
 U.S.
Patent No. 5,316,918, Method and apparatus for testing MAI (Mycobacterium Avium
Intracellulare) for antimicrobial agent sensitivity was granted in May 1994 with
7 claims. The patent describes an apparatus and method for determining the
sensitivity of MAI to different antimicrobial agents and dosages thereof is
provided. The apparatus comprises a plurality of test tubes adapted to contain
an amount of an antimicrobial agent to be tested and MAI complex organisms to be
assayed and a separate paraffin coated slide adapted for placement in each of
the test tubes. The growth of the MAI complex organisms on the slide can be used
to determine the concentration of the antimicrobial agent necessary to resist
MAI complex organism growth on the slide. An associated method is also
disclosed. This Patent expires on May 31, 2011.
 
 U.S.
Patent No. 5,153,119, Method for speciating and identifying MAI (Mycobacterium
Avium Intracellulare) was granted in October 1992 with 15 claims. The patent
describes a method of speciating and identifying MAI in a specimen comprises
placing a paraffin coated slide in a receptacle containing a sterile aqueous
solution inoculated with the specimen, analyzing the slide after exposure to the
specimen to determine the presence or absence of atypical Mycobacteria, and
after the analysis step, if atypical Mycobacteria are determined to be present,
performing at least one speciation assay to ascertain if the atypical
Mycobacteria are MAI. A related apparatus is also disclosed for speciating and
identifying MAI in a specimen comprising a paraffin-wax coated slide, a tube
having a sterile aqueous solution contained therein, the tube adapted to hold
the slide, and at least one speciation assay means for performing an assay to
determine the presence or absence of MAI in the specimen after the specimen is
introduced into the tube holding the solution and the slide. An apparatus and
method for determining the sensitivity of MAI to different antibiotics and
dosages thereof is also provided. This Patent expired on October 24,
2009.
  Our business is dependent upon our ability to protect our
proprietary technologies and processes. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to obtain and use
proprietary information. We will rely on patent and trade secret law and
nondisclosure and other contractual arrangements to protect such proprietary
information. We will file patent applications for our proprietary methods and
devices for patient treatments. Our efforts to protect our proprietary
technologies and processes are subject to significant risks, including that
others may independently develop equivalent proprietary information and
techniques, gain access to our proprietary information, our proprietary
information being improperly disclosed, or that we may ineffectively protect our
rights to unpatented trade secrets or other proprietary
information.
 
 Employees
 
 We employ
a total of 10 employees.
 
 22
 
 Report to Security
Holders
 
 We are
subject to the informational requirements of the Securities Exchange Act of
1934. Accordingly, we file annual, quarterly and other reports and information
with the Securities and Exchange Commission. You may read and copy these reports
in Washington, D.C. Our filings are also available to the public from commercial
document retrieval services and the Internet world wide website maintained by
the Securities and Exchange Commission at www.sec.gov.
  Item
1A.  Risk Factors
 
 As a
smaller reporting company, we are not required to provide risk
factors.
 
 Item
1B.  Unresolved Staff Comments
 
 None
 
 Item
2.  Properties
  As of
February 1, 2010, we lease approximately 3,235 square feet at 2776 University
Drive, Coral Springs, Florida.  Our offices are comprised of a
reception area, conference room, and 5 offices.  Our offices are
adequate for our current needs. Our lease term is for a period of 3 years with
renewable lease options to extend the lease term. We pay monthly rent of $8,287,
with the first two months of our second year rent being free.
  Item
3.  Legal Proceedings
  On August
18, 2006, ReceptoPharm was named as a defendant in Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06 (New York
Supreme Court, Queens County).  The original proceeding claimed that
ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to
own, the sum of $118,928 plus interest and counsel fees on a series promissory
notes that were allegedly executed in 2001 and 2002.  On August 23,
2007, the Queens County New York Supreme Court issued a decision denying
Plaintiffs motion for summary judgment in lieu of a complaint, concluding that
there were issues of fact concerning the enforceability of the promissory
notes.  On May 23, 2008, the Plaintiffs filed an amended complaint in
which they reasserted their original claims and asserted new claims seeking
damages of no less than $768,506 on their claims that in or about June 2004
ReceptoPharm breached its fiduciary duty to the Plaintiffs as shareholders of
ReceptoPharm by wrongfully canceling certain of their purported ReceptoPharm
share certificates.
  In
late 2009, Plaintiffs filed a motion seeking to further amend their
complaint alleging that ReceptoPharm violated Plaintiffs contractual and
statutory rights by cancelling additional share certificates and failing to
permit the Plaintiffs to exercise dissenting shareholder rights with respect to
those share certificates.
  The
Plaintiffs were seeking an additional 1,214,800 Receptopharm shares. The damages
associated with the Plaintiff’s claims could rise as the result of
increases in the Company’s share price as the Receptopharm shares may be
convertible into the Company’s common shares.
  ReceptoPharm believes
the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, breach
of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes.  In addition, Receptopharm has opposed the
Plaintiffs' recent motion to amend and the motion is currently pending
before the Court.  Discovery in this matter is ongoing. The
Company intends to vigorously contest this matter.
  Item 4.Removed and
Reserved
 
 23
  PART
II
 
 Item
5.  Market for Registrant’s Common Equity; Related Stockholder Matters
and Issuer Purchases of Equity Securities
  Market
Information
 
 Our
common stock is quoted on the over-the-counter bulletin board under the trading
symbol "NPHC." The following table sets forth the high and low bid prices for
each quarter within the last two fiscal years.
  2008 Fiscal Year
                  
                  
                  2009 Fiscal YearHigh Bid
                  
                  
                  Low Bid
                  
                  
                  High Bid
                  
                  
                  Low BidFirst
      Quarter
                  
                  $
                  0.05
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.01Second
      Quarter
                  
                  $
                  0.06
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.02Third
      Quarter
                  
                  $
                  0.05
                  
                  
                  $
                  0.03
                  
                  
                  $
                  0.99
                  
                  
                  $
                  0.02Fourth
      Quarter
                  
                  $
                  0.04
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.85
                  
                  
                  $
                  0.27
 
 The above
quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.
 
 Penny
Stock Considerations
 
 Our
shares of common stock are "penny stocks" as that term is generally defined in
the Securities Exchange Act of 1934 as equity securities with a price of less
than $5.00. Our shares are subject to rules that impose sales practice and
disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.
 
 Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or "accredited investor" must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with his or her spouse is considered an accredited
investor.
  In
addition, under the penny stock regulations the broker-dealer is required
to:
 ·
              Deliver,
      prior to any transaction involving a penny stock, a disclosure schedule
      prepared by the Securities and Exchange Commission relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise
      exempt;
 ·
              Disclose
      commission payable to the broker-dealer and its registered representatives
      and current bid and offer quotations for the
  securities;
 ·
              Send
      monthly statements disclosing recent price information pertaining to the
      penny stock held in a customer's account, the account's value and
      information regarding the limited market in penny stocks;
    and
 ·
              Make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser's written agreement
      to the transaction, prior to conducting any penny stock transaction in the
      customer's account.
  Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of shareholders
to sell their shares in the secondary market and have the effect of reducing the
level of trading activity in the secondary market. These additional sales
practice and disclosure requirements could impede the sale of our securities. In
addition, the liquidity for our securities may be adversely affected, with a
corresponding decrease in the price of our securities. Our shares are subject to
such penny stock rules and our shareholders will, in all likelihood, find it
difficult to sell their securities.
 
 Holders
 
 As of
March 31, 2010, based upon records obtained from our transfer agent, there were
315 holders of record of our common stock. Our transfer agent records does not
account for other holders of our common stock that are held in street name or by
broker dealers as custodian for individual holders of our stock. We have one
class of common stock outstanding.
  24
 
 Dividends
 
 We have
not declared any cash dividends on our common stock since our inception and do
not anticipate paying such dividends in the foreseeable future. We plan to
retain any future earnings for use in our business. Any decisions as to future
payment of dividends will depend on our earnings and financial position and such
other factors as our Board of Directors deems relevant. There are no
restrictions contained in our bylaws or otherwise pertaining to our issuing
dividends.
  Equity
Compensation Plan Information
 
 Securities
authorized per issuance under Equity Compensation Plans as of December 31,
2009.
 
 Equity Compensation Plan InformationNumber of securities
                          to be issued upon
                          exercise of outstanding
                          options, warrants and
                          rights
                        
                        
                        Weighted-average
                          exercise price of
                          outstanding options,
                          warrants and rights
                        
                        
                        Number of securities
                          remaining available
                          for future issuance
                          under equity
                          compensation plans
                          (excluding securities
                          reflected in column (a))Plan category
                        
                        (a)
                        
                        
                        (b)
                        
                        
                        (c)Equity
      compensation plans approved by security holders
                        
                        
                        0
                        
                        
                        
                        N/A
                        
                        
                        
                        N/AEquity
      compensation plans not approved by security holders
                        
                        
                        3,000,000
                        
                        
                        $
                        0.25
                        
                        
                        
                        10,755,000Total
                        
                        
                        3,000,000
                        
                        
                        $
                        0.25
                        
                        
                        
                        10,755,000
  The
figures contained in the above chart are composed of our 2003 and 2007 Employee
/Consultant Stock Compensation Plans and option agreements we have with a
corporate entity and our former Chairman of the Board/Executive Chairman, as
follows:
  2003
Plan
 On
December 3, 2003, our Board of Directors approved the Employee/Consultant Stock
Compensation Plan (the "2003 Plan").  The purpose of the 2003 Plan is to
further our growth by allowing us to compensate employees and consultants who
have provided bona fide services to us through the award of our common
stock.  The maximum number of shares of common stock that may be issued
under the 2003 Plan is 2,500,000. As of December 31, 2009, we had issued a total
of 2,495,000 shares under the 2003 Plan.
  2007
Plan
 On June
6, 2007, our Board of Directors approved the 2007 Employee/Consultant Stock
Compensation Plan (the "2007 Plan").  The purpose of the 2007 Plan is to
further our growth by allowing us to compensate employees and consultants who
have provided bona fide services to us through the award of our common
stock.  The maximum number of shares of common stock that may be issued
under the 2007 Plan is 25,000,000.  As of December 31, 2009, we had issued
a total of 14,250,000 shares under the 2007 Plan.
  Our Board
of Directors is responsible for the administration of the 2003 and 2007 Plans
and has full authority to grant awards under the Plans.  Awards may take
the form of stock grants, options or warrants to purchase common stock. 
The Board of Directors has the authority to determine: (a) the employees and
consultants that will receive awards under the Plan, (b) the number of shares,
options or warrants to be granted to each employee or consultant, (c) the
exercise price, term and vesting periods, if any, in connection with an option
grant, and (d) the purchase price and vesting period, if any, in connection with
the granting of a warrant to purchase shares of our common
stock.
  25
  Five Year Option to
Nanologix Inc.
 On
January 25, 2006, we and Nanologix entered into a definitive agreement pursuant
to which Nanologix agreed to assign its ownership of 11 patents to us which
protect Nanologix' infectious disease diagnostic test kit technology.  In
connection with this agreement, we also issued Nanologix a five-year option to
purchase 1,000,000 of the Company's common stock at an exercise price of $.20.
This option vested immediately on January 25, 2006, the date of the
grant.
  Five Year Option to Doherty
& Company, LLC
 On
June 1, 2005, we retained Doherty & Company, LLC (“Doherty &
Company”), to provide the services of Michael Doherty as our Executive Chairman
and Chairman of the Board. Concurrently, we also retained Doherty & Company
to act as our agent in connection with prospective private capital-raising
activities. On April 1, 2006, we and Mr. Doherty entered into a termination
agreement whereby Mr. Doherty agreed to resign his position as our Chairman of
Board and Executive Chairman. Upon the effectiveness of the termination
agreement on June 1, 2006, we issued a five-year option to Mr. Doherty to
purchase 2,000,000 shares of common stock at an exercise price of $.27 per
share. The option vested immediately on the date of grant.
  Recent
Sales of Unregistered Securities
 
 From
January 1 through August 31, 2009, we completed private placements of restricted
shares of our common stock, whereby we sold an aggregate of 10,575,000 shares at
a price per share of $0.025.  We received proceeds of $264,375 in
connection with the sale of these shares.  We also granted one (1)
warrant for each share sold which gives the investor the right to purchase one
(1) additional share until December 31, 2012 at an exercise price of $0.10 per
share.
 
 From
September 1 through December 31, 2009, we completed private placements of
restricted shares of our common stock, whereby we sold an aggregate of
34,948,750 shares at a price per share of $0.08. We received proceeds of
$2,795,900 in connection with the sale of these shares.
 
 We did
not repurchase any of our securities during our 2009 Fiscal Year nor have we
done so since our inception.
 
 Item
6.  Selected Financial Data
 
 As a
Smaller Reporting Company, we are not required to provide information required
by Item 6.
 
 Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operation
 
 Critical Accounting Policies and
Estimates
  Our
consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States
(“GAAP”) applied on a consistent basis.  The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
  We
regularly evaluate the accounting policies and estimates that we use to prepare
our consolidated financial statements.  In general, management’s
estimates are based on historical experience, information from third party
professionals, and various other assumptions that are believed to be reasonable
under the facts and circumstances. Actual results could differ from those
estimates made by management under different and/or future
circumstances.
  We
believe that our critical accounting policies and estimates include revenue
recognition, accounts receivable and allowance for doubtful accounts, inventory
obsolescence, accounting for long-lived assets and accounting for stock based
compensation.
  26
  Revenue
Recognition:  In general, the Company records revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured.  Provision for
sales returns will be estimated based on the Company's historical return
experience.  Revenue is presented net of returns.
  Accounts Receivable and Allowance
for Doubtful Accounts:Our accounts
receivable are stated at estimated net realizable value.  Accounts
receivable are comprised of balances due from customers net of estimated
allowances for uncollectible accounts.  In determining collectability,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances.  There was no allowance for doubtful
accounts at December 31, 2009 as all accounts receivable were collected
subsequent to year-end.
  Inventory
Obsolescence:  Inventories are valued at the lower of cost or
market value using the average cost method.  We periodically perform
an evaluation of inventory for excess and obsolete items.  At December
31, 2009, our inventory consisted entirely of raw materials that are utilized in
the manufacturing of finished goods.  These raw materials generally
have expiration dates in excess of 10 years.  We performed an
evaluation of our inventory and determined that at December 31, 2009, there were
no obsolete or excess items.
  Long-Lived Assets:  The carrying
value of long-lived assets is reviewed annually and on a regular basis for the
existence of facts and circumstances that may suggest impairment.  If
indicators of impairment are present, we determine whether the sum of the
estimated undiscounted future cash flows attributable to the long-lived asset in
question is less than its carrying amount.  If less, we measure the
amount of the impairment based on the amount that the carrying value of the
impaired asset exceeds the discounted cash flows expected to result from the use
and eventual disposal of the impaired assets.  As of December 31,
2009, we recorded an impairment charge of $150,000 related to a note receivable
from an unrelated corporation.  We do not believe there to be any
other impairments of long-lived assets as of December 31, 2009.  We
did not record any impairment charges during the year ended December 31,
2008.
  Stock Based
Compensation:We record stock based compensation in accordance
with FASB ASC 718, Stock Compensation.  FASB ASC 718 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.  FASB ASC 718 also establishes fair value as the
measurement objective for transactions in which an entity acquires goods or
services from non-employees in share-based payment transactions.
  Results
of Operations
  Comparison
of Years Ended December 31, 2008 and 2009
  Sales for
the year ended December 31, 2009 were $618,010 compared to $4,045 for the
comparable period in 2008.  Of the total sales in 2009, $583,955 was
related to sales of Cobroxin.  The remaining sales were generated from
the provision of clinical research services to independent third
parties.  These clinical research services were performed by our
wholly owned subsidiary, ReceptoPharm.  Sales for the comparable
period in 2008 were attributable to the sale of test kits by our wholly-owned
subsidiary, Designer Diagnostics.  We did not sell any test kits in
the year ended December 31, 2009.
  Cost of
sales for the year ended December 31, 2009 was $278,944.  Cost of
sales includes the direct costs associated with the manufacturing of
Cobroxin.  Our gross profit margin for the year ended December 31,
2009 was $339,066 or 54.9%.
  General
and administrative expenses increased $719,144 or 49.0% from $1,480,002 for the
year ended December 31, 2008 to $2,199,146 for the year ended December 31,
2009.  Our general and administrative expenses include stock based
compensation expense which increased $113,250 or 22.7% from $500,000 for the
year ended December 31, 2008 to $613,250 for the year ended December 31,
2009.  The remaining increase in general and administrative expenses
is attributable to an overall increase in consulting related expenses and
because our general and administrative expenses in 2008 only include
ReceptoPharm’s expenses from April 10 through December 31.
  27
  Research
and development expenses incurred by ReceptoPharm decreased $7,232 or 3.1% from
$229,790 for the year ended December 31, 2008 to $222,558 for the year ended
December 31, 2009.  Our research expenses are related to ongoing
research activities pertaining to ReceptoPharm’s leading drug compound,
RPI-78.  Also included in research and development expenses are
certain costs related to the commercialization of our Cobroxin
products.
  Interest
expense increased $11,448 or 20.0% from $57,555 for the year ended December 31,
2008 to $69,003 for the comparable period in 2009.  This increase was
attributable to an increased level of indebtedness related to loans made to us
by our Chief Executive Officer during the year.
  We
incurred a net loss of $2,301,641 for the year ended December 31, 2009 compared
to a net loss of $4,162,108 for the comparable period in 2008.  The
increase in net loss is primarily attributable to an overall increase in general
and administrative expenses, including stock based compensation as discussed
above.
  Liquidity
and Capital Resources
  Our
independent registered public accounting firm noted in their report on our
consolidated financial statements for the year ended December 31, 2009 that our
significant losses from operating 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 consolidated financial
statements for the year ended December 31, 2009, we have experienced significant
losses from operations totaling $4,162,108 and $2,301,641 for the years ended
December 31, 2008 and 2009, respectively and had an accumulated deficit of
$26,572,843 for the period from our inception to December 31,
2009.  We had working capital and stockholders’ deficits at December
31, 2009 of $1,165,622 and $1,144,450, respectively.
 
 Our
ability to continue as a going concern is contingent upon our ability to secure
additional financing, increase ownership equity, and attain profitable
operations.  In addition, our ability to continue as a going concern
must be considered in light of the problems, expenses and complications
frequently encountered in established markets and the competitive environment in
which we operate.
 
 Historically,
we have relied upon loans from our Chief Executive Officer Rik Deitsch, to fund
costs associated with our operations.  These loans are unsecured,
accrue interest at a rate of 4.0% per annum and are due on
demand.  During 2009, we borrowed  $546,530 from Mr. Deitsch
and repaid him $709,663 and at December 31, 2009, we owed Mr. Deitsch
$1,151,361.  Included in this amount is $211,119 of accrued
interest.
  During
the year ended December 31, 2009, we raised a total of $3,060,275 through
private placements of shares of our common stock.  Of the total,
$2,795,900 was raised through the sale of 34,948,750 shares at a price per share
of $0.08 and $264,375 was raised through the sale of 10,575,000 shares at a
price per share of $0.025.
  We expect
to utilize the proceeds from these private placements to manufacture Cobroxin,
conduct additional research and clinical trials for ReceptoPharm’s leading drug
candidate, RPI-78, and reduce our debt level.  We estimate that we
will require approximately $1,600,000 to fund our existing operations and the
operations of our subsidiaries ReceptoPharm and Designer Diagnostics over the
next twelve months.  These costs include: (i) compensation for ten
(10) full-time employees; (ii) compensation for two (2) 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.  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 sale of Cobroxin are insufficient to cover our
operating expenses we may need to raise additional equity capital, which could
result in substantial dilution to existing shareholders.  There can be
no assurance that we will be able to raise sufficient equity capital to fund our
working capital requirements on terms acceptable to us, or at all.  We
may also seek additional loans from our officers and directors; however, there
can be no assurance that we will be successful in securing such additional
loans.
  Uncertainties
and Trends
  Our
operations and possible revenues are dependent now and in the future upon the
following factors:
  28
  ·
              Whether
      we successfully develop and commercialize products from our research and
      development activities.
  ·
              If
      we fail to compete effectively in the intensely competitive biotechnology
      area, our operations and market position will be negatively
      impacted.
  ·
              If
      we fail to successfully execute our planned partnering and out-licensing
      of products or technologies, our future performance will be adversely
      affected.
  ·
              The
      recent economic downturn and related credit and financial market crisis
      may adversely affect our ability to obtain financing, conduct our
      operations and realize opportunities to successfully bring our
      technologies to market.
  ·
              Biotechnology
      industry related litigation is substantial and may continue to rise,
      leading to greater costs and unpredictable
  litigation.
  ·
              If
      we fail to comply with extensive legal/regulatory requirements affecting
      the healthcare industry, we will face increased costs, and possibly
      penalties and business
losses.
  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 that have a current or future effect on its
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital resources
that is material, other than those which may be disclosed in this Management’s
Discussion and Analysis of Financial Condition and the audited Consolidated
Financial Statements and related notes.
  Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk
  Not
applicable.  We have no investments in market risk sensitive
instruments or in any other type securities.
 
 Item
8.  Financial Statements and Supplementary Data
 
 The
information required by this item begins on page F-1 and is attached hereto and
incorporated herein by reference. The index to our annual financial statements
as of and for the years ended December 31, 2009 and 2008 can be found under Item
15.
  29
  Item
9.  Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
 
 None
 
 Item
9A.  Controls and Procedures
 
 Section
1.
 
 Evaluation
of Disclosure Controls and Procedures:
 
 As of
December 31, 2009, we carried out an evaluation under the supervision and the
participation of our Chief Executive Officer/Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of December 31, 2009,
as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934
(“Exchange Act”).  Based on  that  evaluation, our
management, including our Chief Executive Officer/Chief Financial Officer,
concluded that the design and operation of our disclosure controls and
procedures were effective as of December 31, 2009 and that as of the evaluation
date, such disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in the reports we file under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Commission and is accumulated
and communicated to our management, including our Chief Executive Officer/Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.  A control system cannot provide absolute assurance,
however, that the objectives of the controls system are met, and no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, with the company have been detected.
 
 Section
2.
 
 Management’s
Annual Report on Internal Control over Financial Reporting
 
 During
its evaluation of the effectiveness of internal control over financial reporting
as of December 31, 2009, our  management concluded that
its  material weaknesses in its internal controls over financial
reporting include matters pertaining to: (a) lack of separation of function in
the roles of a Chief Executive Officer and Chief Financial Officer; (b) lack of
qualified accounting personnel; and (c) need to enhance the supervision,
monitoring and reviewing of financial statement preparation
processes.
 
 We have
taken the following initial steps and will continue to take more steps to
strengthen our internal controls over financial reporting, to evaluate and to
remedy deficiencies and to test these internal controls on an ongoing
basis.
 1.
              As
      to our material weaknesses in (a) – (c) above, we are seeking to hire a
      Chief Financial Officer, or an employee who will perform the functions of
      a Chief Financial Officer, who will strengthen the accounting controls and
      procedures by implementing procedures that enhance recording, processing,
      summarizing and reporting within the time periods specified in the
      Commission’s rules and forms, simplifying certain accounting procedures,
      arrange for training of our accounting personnel that will be beneficial
      to strengthening our accounting controls, and expand our documentation of
      accounting transactions and related reviews.2.
              As
      to our material weaknesses in (b) above, we will increase our use of
      outside advisors to improve our quality of
  disclosure.
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is the process designed by and under the supervision of our Chief Executive
Officer/Chief Financial Officer, or the persons performing similar functions, to
provide reasonable assurance regarding the reliability of our financial
reporting and the preparation of our financial statements for external reporting
in accordance with accounting principles generally accepted in the United States
of America. Management has evaluated the effectiveness of our internal control
over financial reporting using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control
over Financial Reporting - Guidance for Smaller Public Companies. Under the
supervision and with the participation of our Chief Executive Officer/Chief
Financial Officer or the persons performing similar functions, our management
has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2009 and concluded that it is ineffective because of the
material weaknesses in our internal control over financial reporting described
above.
  30
 
 Management’s
report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
 
 Item
9B.  Other Information
 In
conjunction with Item 9A above (Evaluation of Internal Controls over Financial
Reporting), since March 2008 we have interviewed several qualified candidates
for the position of Chief Financial Officer; however, we have been unable to
come to acceptable terms with any such candidate to become our Chief Financial
Officer. We will continue our efforts to hire a qualified Chief Financial
Officer on acceptable terms.
 
 PART
III
 
 Item
10.  Directors and Executive Officers and Corporate
Governance
 
 Directors
and Executive Officers
 
 Our Board
of Directors elects our executive officers annually. Directors are elected to
hold office until the next annual meeting. A majority vote of the directors who
are in office is required to fill vacancies of our Board of Directors not caused
by removal. Each director, including a Director elected to fill a vacancy, will
hold office until the expiration of the term for which the Director was elected
and until a successor has been elected. Our directors and executive officers are
as follows:
 
 Listed
below are our executive officers and directors as of December 31,
2009
  Name
                
                Age
                
                Position with the
                  Company
                
                Director SinceRik
      J. Deitsch
                
                42
                
                Chairman,
      President, Chief Executive Officer, and Chief Financial
      Officer
                
                2002Stewart
      Lonky, M.D.
                
                63
                
                Director
      (1)
                
                2004Paul
      F. Reid
                
                46
                
                Director
                
                April
      2008Harold
      H. Rumph
                
                79
                
                Director
                
                April
      2008Garry
      R. Pottruck
                
                54
                
                Director
      (1)
                
                July
      2009
 
 (1)
              Dr.
      Lonky and Mr. Pottruck are members of our Audit Committee and
      Compensation Committee.
 
 Rik J. Deitsch has been our
President, Chief Executive Officer, Chief Financial Officer, and a Director
since November 7, 2002 and our Chairman of the Board from December 15, 2003
until June 1, 2005 and from April 1, 2006 to present. On August 27, 2009, Mr.
Deitsch was elected as a director of Xtreme Geen Products Inc. From February
1998 through November 2002, Mr. Deitsch served as the President of NDA
Consulting Inc., a biotechnology research group that provided consulting
services to the pharmaceutical industry. In October 1999, Mr. Deitsch founded
Wellness Industries, a private corporation that provides formulations, research
and education in the dietary supplement industry. Mr. Deitsch received a B.S. in
Chemistry and an M.S. in Biochemistry from Florida Atlantic University in June
1997 and December 1999, respectively. Throughout 1999 and 2000, he conducted
research for the Duke University Medical School Comprehensive Cancer Center. Mr.
Deitsch is an adjunct professor and teaches several courses for Florida Atlantic
University's College of Business and Continuing Education Department. Mr.
Deitsch has been the Chairman of Waiora's Scientific Advisory Board since April
2004. Waiora develops and markets natural, science-based dietary supplements and
personal care products that provide healthy aging solutions.
  31
 
 Dr. Stewart Lonky has been our
director since November 5, 2004. Dr. Lonky is a co-founder of the Tryon
Corporation, a medical test kit firm located in Torrance, California and has
served as its Chief Medical Officer since 1990. Trylon Corporation has developed
diagnostic products for the early diagnosis of cervical and oral cancer, and in
connection with that Dr. Lonky's responsibilities have included product
development, the direction of clinical research and interacting with regulatory
agencies, including the U.S. Food and Drug Administration (FDA). In these roles
he has been instrumental in successfully bringing a number of products to the
medical marketplace. He has continued to be engaged in both clinical and
biochemical research, and has published research articles in the peer-reviewed
literature in the areas of cervical cancer and cellular pathophysiology. Dr.
Lonky has been a practicing physician in the Los Angeles Area since 1982. He is
Board Certified in Internal Medicine, Pulmonary Medicine, and Critical Care
Medicine. Prior to entering practice, Dr. Lonky served as a full-time faculty
member at the University of California, San Diego in the Department of Medicine,
Pulmonary Division, where he was engaged in research in the biochemistry of lung
injury. He was a National Institutes of Health (NIH) Postdoctoral Fellow from
1974-77. He has published over twenty articles and abstracts in the
peer-reviewed literature during that time, and authored two book
chapters.
 
 Paul F. Reid, PhDbecame our
Director on April 10, 2008 when ReceptoPharm became our wholly owned subsidiary.
From June 2001 to present, Paul F. Reid, PhD has been the Chief Executive
Officer of ReceptoPharm, our wholly owned subsidiary as of April 10, 2008. From
August 1996 to April 2001, Dr. Reid was the Head of Scientific Affairs for
Biotherapeutics,, Inc., a biotechnology company located in Fort Lauderdale,
Florida. In 1987, Dr. Reid received a Bachelor of Arts Degree in Microbiology
from Trinity College in Dublin, Ireland. In 1993, Dr. Reid received a PhD Degree
in Neurobiochemtistry from the Imperial College in London, England.
 
 Harold H. Rumph became our
Director on April 10, 2008 when ReceptoPharm became our wholly owned subsidiary.
From May 2003 topresent, Harold H. Rumph
has been the President/Director of ReceptoPharm, Inc., a biotechnology company
located in Plantation, Florida. From September 1988 to April 2003, Mr. Rumph was
the President/Founder of Project Scheduling Services, Inc., a computerized
scheduling services company to the construction industry, located in Pompano
Beach, Florida. From 1962 to 1988, Mr. Rumph held managerial, marketing , and
other positions with IBM, RCA, Xerox , Harris Corporation and was a founder and
President of Biogenix, Inc., a biotechnology company located in Boca Raton,
Florida. From 1953 to 1962, Mr. Rumph served on active duty with various
responsibilities including Tactical Fighter Pilot and at Headquarters United
States Air Force Intelligence with the United States Air Force. In 1953, Mr.
Rumph received a Bachelor of Science Degree in Military Science from the United
States Naval Academy in Annapolis Maryland.
 
 Garry Pottruckbecame our
director and Chairman of our Audit and Compensation Committees after our
December 31, 2008 year end, on July 29, 2009. Since October 2005, he has been a
Principal in the accounting and consulting firm, Argy, Wiltse & Robinson, PC
(“Argy”), headquartered in McLean, Virginia. From July 1997 through October
2005, he was managing partner in the certified public accounting firm, Friedberg
& Pottruck, PA, located in Deerfield Beach, Florida until that firm was
acquired by Argy. Friedberg & Pottruck specialized in providing accounting,
tax and consulting services to physician practices. Mr. Pottruck held financial
executive positions with several companies, both public and private, from 1984
through 1994, including more than three years as Chief Accounting
Officer/Controller at Scopas Technology Company, Inc., a NASDAQ listed,
development stage biotechnology research and development organization. Prior to
1984, Mr. Pottruck worked for public accounting firms after graduating with a
B.S. Degree in Accounting from the C.W. Post School of Professional Accountancy
at Long Island University in 1979. He is currently a member of both the Florida
and American Institutes of Certified Public Accounting, and is licensed as a
Certified Public Accountant in both Missouri and Florida.
  32
 
 Legal
Proceedings
 
 On
September 4, 2009, our Director, Paul Reid, filed for personal bankruptcy under
Chapter 13 of the United States Bankruptcy Code in the United States Bankruptcy
Court for the Southern District of Florida.  The Court approved the
bankruptcy plan on January 13, 2010.
 
 Apart
from our Director, Paul Reid, our directors, executive officers and control
persons have not been involved in any of the following events during the past
five years:
 
 1. any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
 
 2. any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses);
 
 3. being
subject to any order, judgment, or decree, not subsequently reversed, suspended
or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type
of business, securities or banking activities; or
 
 4. being
found by a court of competent jurisdiction (in a civil action),the Commission or
the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.
 
 Section 16(a) Compliance of Officers
and Directors
 
 As of
April 14, 2010, based on our review of Forms 3, 4, 5, and Schedule 13D furnished
to us during the last fiscal year, all of our officers and directors filed the
required reports with the exception of the following: (a) Paul Reid filed
delinquent Forms 3 and 4 on April 5, 2010 and April 9, 2010, respectively; and
(b) former Director Stanley Cherelstein has failed to file Form 5.
 
 Corporate
Governance
 
 a.
Committees
 
 (i)
Audit Committee
 
 On
November 5, 2004, our Board of Directors established an Audit Committee. We do
not have an audit committee charter. Mr. Pottruck became the Chairman/Member of
the Audit Committee as of July 29, 2009. Dr. Lonky also serves on the Audit
Committee. Mr. Cherelstein, who resigned as our Director on July 29, 2009, was
previously the Chairman of the Audit Committee and our audit committee financial
expert. During our 2009 Fiscal Year, our Audit Committee met one time, on April
14 2010, in connection with our 2009 Fiscal Year audit, at which time the audit
committee reviewed the audited financial statements and related
notes.  The Audit Committee addresses any questions it has to our
Board members and officers, and our principal independent
accountants.
 
 (ii) Compensation
Committee
 
 On
November 5, 2004, our Board of Directors established a Compensation Committee.
We do not have a Compensation Committee Charter. Dr. Lonky serves on our
Compensation Committee and Mr. Pottruck became our Compensation Committee’s
Chairman as of July 29, 2009. Prior to his resignation on July 29, 2009, Mr.
Cherlestein was our Compensation Committee Chairman. During our 2009 Fiscal
year, our Compensation Committee met four times on October  27, 2009,
December 2, 2009, December 16, 2009, and December 18, 2009. Our Compensation
Committee reviews all salaries, expenses, stock plans, and other compensation
paid to our officers, directors, consultants, and others. Our Compensation
Committee has not adopted any specific processes or procedures for considering
executive and director compensation.
  33
  (iii)
Nominating Committee
 
 We do not
have a Nominating Committee or similar committee performing similar functions
nor a written Nominating Committee Charter. Our Board of Directors as a whole
decides such matters, including those that would be performed by a standing
nominating committee. We have not yet adopted a nominating committee because we
have not sufficiently developed revenue generating operations. We do not
currently have any specific or minimum criteria for the election of nominees to
our Board of Directors nor do we have any process or procedure for evaluating
such nominees.
 
 b.
Shareholder Communications
 
 Our Board
of Directors does not have any defined policy or procedure requirements for our
stockholders to send communications to our Board of Directors, including
submission of recommendations for nominating directors. We have not yet adopted
a process for our security holders to communicate with our Board of Directors
because we have not sufficiently developed our operations and corporate
governance structure. We have a toll-free number at (877) 895-5647 available on
our website for our shareholders to contact us.
 
 c.
Board of Director Meetings
 
 We had
four Board of Directors meetings during our 2009 Fiscal Year. Our corporate
actions that were subject to Board approval were accomplished by Board
resolutions. We request that all of our Directors attend our Board of Director
meetings; however, we have no formal policy regarding their
attendance.
 
 d.
Annual Shareholder Meetings
 
 We held
no annual shareholder meeting during 2009.
 
 We
request that all of our Directors attend our Annual Shareholder Meetings;
however, we have no formal policy regarding their attendance.
 
 e.
Code of Ethics
 
 We have a
code of ethics that applies to all of our employees including its principal
executive officer, principal financial officer and principal accounting officer.
A copy of this code is available without charge on our website at
www.nutrapharma.com. We intend to disclose any changes in or waivers from our
code of ethics by posting such information on our website or by filing a Form
8-K.
 
 Item
11.  Executive Compensation
 
 The
following table summarizes compensation information for the last two fiscal
years for (i) our Chief Executive Officer and (ii) the four most highly
compensated executive officers other than the Chief Executive Officer who were
serving as our executive officers at the end of the fiscal year (collectively,
the "Named Executive Officers").
 
 The
following executive compensation disclosure reflects all compensation awarded
to, earned by or paid to the executive officers below, for the fiscal years
ended December 31, 2009 and 2008.
 
 SUMMARY
COMPENSATION TABLE
 
 Name and
                                      principal
                                      Position
                                    
                                    Year
                                    
                                    Salary ($)
                                    
                                    
                                    Bonus ($)
                                    
                                    
                                    Stock
                                      Awards ($)
                                    
                                    
                                    Option
                                      Awards ($)
                                    
                                    
                                    Non- Equity
                                      Incentive
                                      Plan
                                      Compensation ($)
                                    
                                    
                                    Nonqualified
                                      Deferred
                                      Compensation
                                      Earnings ($)
                                    
                                    
                                    All Other
                                      Compensation
                                      ($)
                                    
                                    
                                    Total
                                      ($)Rik
      Deitsch
                                    
                                    2009
                                    
                                    
                                    130,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    130,000Chief
      Executive Officer, ChiefFinancial
      Officer, President and Chairman of the Board
                                    
                                    2008
                                    
                                    
                                    130,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    125,000
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    255,000
  34
  The
following director compensation disclosure reflects all compensation awarded to,
earned by or paid to the directors below for the fiscal year ended December 31,
2009.
 
 DIRECTOR
COMPENSATION
 
 Fees
                                                    Earned
                                                    or Paid
                                                    in
                                                  
                                                  Stock
                                                  
                                                  Option
                                                  
                                                  Non-EquityIncentive
                                                    Plan
                                                  
                                                  NonqualifiedDeferred
                                                    Compensation
                                                  
                                                  All OtherCash
                                                  
                                                  Awards
                                                  
                                                  Awards
                                                  
                                                  Compensation
                                                  
                                                  Earnings
                                                  
                                                  Compensation
                                                  
                                                  TotalName
                                                  
                                                  ($)
                                                  
                                                  ($)(1)
                                                  
                                                  ($)
                                                  
                                                  ($)
                                                  
                                                  ($)
                                                  
                                                  ($)
                                                  
                                                  ($)Rik
      DeitschStewart
      LonkyGarry
      Pottruck
                                                  
                                                  
                                                  
                                                  
                                                  75,000
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  75,000Paul
      F. ReidHarold
      H. Rumph
  (1)
              The
      common stock award to Director Pottruck was granted on July 29,
      2009.
  Director
Compensation
 
 There are
no standard arrangements to which directors are compensated for services
provided to us. Should we obtain adequate funding or sufficient revenues to
justify standard arrangements for director compensation, we will consider
whether to adopt such a compensation plan.
 
 Stock
Option Grants in Last Fiscal Year
 
 We did
not grant incentive and non-qualified stock options in 2009 to any executive
officer or director.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
 
 The
following tables sets forth, as of March 31, 2010, certain information with
respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Information relating to beneficial ownership of common
stock by our principal stockholders and management is based upon information
furnished by each person using "beneficial ownership" concepts under the rules
of the Securities and Exchange Commission. Under these rules, a person is deemed
to be a beneficial owner of a security if that person has or shares voting
power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any security of
which that person has a right to acquire beneficial ownership within 60
days.
  35
 
 Under the
Securities and Exchange Commission rules, more than one person may be deemed to
be a beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may not have any pecuniary
beneficial interest. We are unaware of any contract or arrangement that could
result in a change in control of our company.
 
 The
following table assumes based on our stock records, that there are 272,925,232
shares issued and outstanding as of March 31, 2010.
 
 Security
Ownership of Management and Beneficial Owners
 
 Name and Address of
                      Director or Executive Officer
                    
                    Shares of
                      Common Stock
                      Beneficially Owned
                    
                    
                    Percent of
                      Common
                      Stock
                      OutstandingRik
      J. Deitsch
                      Chief
      Executive Officer/President
                      2776
      University Drive
                      Coral
      Springs, Florida 33065
                    
                    
                    54,500,000
                    
                    
                    
                    20.0
                    %Dr.
      Stewart Lonky
                      Director
                      1158
      Chautaqua Boulevard
                      Pacific
      Palisades, California 90272
                    
                    
                    700,000
                    
                    
                    
                    0.3
                    %Paul
      F. Reid
                      Director
                      1537
      NW 65th
      Ave
                      Plantation,
      FL 33313
                    
                    
                    0
                    
                    
                    
                    0.0
                    %Harold
      Rumph
                      Director
                      1537
      NW 65th
      Ave
                      Plantation,
      FL 33313
                    
                    
                    4,200,000
                    
                    
                    
                    1.5
                    %Garry
      Pottruck
                      10768
      NW 18 Court
                      Coral
      Springs, Florida 33071
                    
                    
                    2,550,000
                    
                    
                    
                    0.9
                    %All
      executive officers and directors
                      as
      a group (5) persons
                    
                    
                    61,950,000
                    
                    
                    
                    22.7
                    %
 
 Item
13. Certain Relationships and Related Transactions, and Director
Independence
 
 Loans by our Chief Executive
Officer to Us
 The
balance owed to our President, Rik Deitsch, at December 31, 2007 was $1,944,414,
which includes accrued interest of $105,039.  This demand loan is
unsecured and bears interest at a rate of 4.0%.
  36
 
 On March
14, 2008, our Board of Directors approved an offer made by Mr. Deitsch to
discharge $1,200,000 of his outstanding loan to us in exchange for 48,000,000
shares of restricted common stock.  The price per share in this loan
conversion was the fair market value of the common shares on the date of the
exchange which was $0.025.
 
 During
the year ended December 31, 2008, we borrowed an additional $464,000 from Mr.
Deitsch.  The balance owed to him at December 31, 2008 was $1,255,448,
which includes accrued interest of $152,073.
 
 During
the year ended December 31, 2009, we borrowed an additional $546,530 from Mr.
Deitsch and repaid him $709,663, bringing the total amount owed to Mr. Deitsch
to $1,151,361 at December 31, 2009.  Included in the amount owed to
Mr. Deitsch is $211,119 of accrued interest.
 
 After
December 31, 2009, we repaid $100,000 of a loan due to
Mr.  Deitsch.  As a result of this repayment, as of March
31, 2010, we owe Mr. Deitsch $1,062,306.
 
 Debt owed to ReceptoPharm’s
President
 In
addition, at December 31, 2009, we were indebted to Paul Reid, the President of
our wholly-owned subsidiary, ReceptoPharm, in the amount of
$101,024.  This amount includes accrued interest of
$21,197.  This loan is due on demand and bears interest at a rate of
5% per annum.  The loan is secured by certain intellectual property of
ReceptoPharm.
 
 Director
Independence
 Our
common stock is quoted on the OTC Bulletin Board; that trading medium does not
have director independence requirements. Under Item 407(a) of Regulation
S-K,we have adopted the
definition of independence used by the American Stock Exchange, which may be
found in the American Stock Exchange Company guide at (s) 121(A)(2) (2007). This
definition states that our Board of Directors must affirmatively determine
whether any of our directors have a relationship that would interfere with the
exercise of independent judgment in carrying out their responsibilities of a
director. Based on this definitional standard, our Board of Directors has
determined that Directors Pottruck and Lonky are our independent
directors.
 
 Item
14. Principal Accountant Fees and Services
 
 Audit
Fees
 On
February 24, 2005, we engaged the firm of Stark Winter Schenkein & Co., as
our new principal independent accountant to audit our financial statements until
December 18, 2009, at which time we engaged Kingery and Crouse, P.A. During our
2008 fiscal year, we paid Stark Winter Schenkein & Co. audit fees of $22,000
and fees for the review of form 10-Q and the financial statements contained
therein of $10,500.  During  our 2009 fiscal year, we paid
Stark Winter Schenkein & Co. $11,000 for review of our Forms 10-Q and
financial statements contained therein.   During 2009 we also
paid Stark Winter Schenkein & Co., $14,000 in audit fees related to our
subsidiary ReceptoPharm, Inc. We estimate that we will pay Kingery and Crouse,
P.A. audit fees of $30,000  relative to our 2009 fiscal year
audit.
 
 Tax Fees
 No such
fees were paid to Stark Winter Schenkein & Co. or Kingery & Crouse, P.A.
in 2008 or 2009.
 
 All Other
Fees
 No such
fees were paid to Stark Winter Schenkein & Co. or Kingery and Crouse, P.A.
in 2008 or 2009.
  37
  PART
IV
 
 Item
15. Exhibits and Financial Statement Schedules
 
 (a)   The
following Financial Statements are filed as part of this report under Item
7.
 
 Report
      of Independent Registered Certified Public Accounting Firm
                  
                  
                  F-1Consolidated
      Balance Sheets
                  
                  
                  F-2Consolidated
      Statements of Operations
                  
                  
                  F-3Consolidated
      Statement of Changes in Stockholders' Deficit
                  
                  
                  F-4Consolidated
      Statements of Cash Flows
                  
                  
                  F-5Notes
      to Consolidated Financial Statements
                  
                  
                  F-6
 
 (b) The
following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the SEC:
  Exhibit
Number/Description
  3.1
                  
                  Certificate
      of Incorporation dated February 1, 2000 (incorporated by reference to the
      Company’s Registration Statement on Form SB-2/A, Registration No.
      33-44398, filed on April 6, 2001)3.2
                  
                  Certificate
      of Amendment to Articles of Incorporation dated July 5, 2000 (incorporated
      by reference to the Company’s Registration Statement on Form SB-2/A,
      Registration No. 33-44398, filed on April 6, 2001)3.3
                  
                  Certificate
      of Amendment to Articles of Incorporation dated October 31, 2001
      (incorporated by reference to the Company’s Registration Statement on Form
      SB-2/A, Registration No. 33-44398, filed on April 6,
  2001)
 
 38
  10.1
                    
                    Agreement
      and Plan of Merger dated April 9, 2008 by and among Nutra Pharma Corp., a
      California corporation (“Nutra Pharma”),
      NP Acquisition Corporation, a Nevada corporation wholly owned by Nutra
      Pharma (“Acquisition”),
      Receptopharm, Inc., a Nevada corporation (“Receptopharm”)
      and the stockholders of Receptopharm  (incorporated by
      reference from Form 8-K filed on April 14, 2008).10.18
                    
                    Patent
      Assignment Agreement dated January 24, 2006 between Nanologix, Inc. and
      Nutra Pharma Corp. (incorporated by reference from Form 10-K for
      period ending December 31, 2006)10.19
                    
                    International
      License Agreement between NanoLogix, Inc. and Nutra Pharma Corp.
      (incorporated by reference from Form 10-K for period ending December
      31, 2006)20.3
      License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp
      (incorporated by reference from Form 10-KSB for the period ending
      December 31, 2003)20.4
      Amendment to License Agreement between Bio-Therapeutics, Inc. and Nutra
      Pharma Corp (incorporated by reference from Form 10-KSB for the
      period ending December 31, 2003)14.1
                    
                    Code
      of Ethics (incorporated by reference from Report on Form 10-K/A filed
      on May 7, 2004).20.3
                    
                    License
      Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp
      (incorporated by reference from Form 10-KSB for the period ending December
      31, 2003)20.4
                    
                    Amendment
      to License Agreement between Bio-Therapeutics, Inc. and Nutra Pharma Corp
      (incorporated by reference from Form 10-KSB for the period ending December
      31, 2003)21.1
                    
                    Subsidiaries
      of the Registrant, Nutra Pharma Corp.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 2002.99.1
                    
                    Form
      8-K filed on April 14, 2008 under Item 1.01 regarding acquisition of
      ReceptoPharm, Inc. as Nutra Pharma Corp.'s wholly owned subsidiary and
      Exhibit 10.1 (April 10, 2008 Agreement and Plan of Merger) attached
      thereto (incorporated by reference to this Form 10-K for the period ending
      December 31,
2008).
  39
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 
 NUTRA PHARMA
      CORP./s/ Rik
      J. DeitschRik
      J. Deitsch, Chairman, President, Chief
                    Executive
      Officer, Principal  Financial
                    Officer,
      and Principal Accounting
Officer
  Dated:
April 15, 2010
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated.
 
 Signature
                                
                                Title
                                
                                Date/s/ Rik
      J. Deitsch
                                
                                Chairman
      of the Board,President,
                                  Chief
      Executive Officer,
                                  PrincipalFinancial
      Officer,
                                
                                April
      15, 2010Rik
      J. Deitsch
                                
                                Principal
      Accounting Officer/s/
      Garry R. Pottruck
                                
                                Director
                                
                                April
      15, 2010/s/
      Stewart Lonky
                                
                                Director
                                
                                April
      15, 2010Stewart
      Lonky/s/
      Paul F. Reid
                                
                                Director
                                
                                April
      15, 2010Paul
      Reid/s/
      Harold H. Rumph
                                
                                Director
                                
                                April
      15, 2010Harold
      H. Rumph
 
 40
  REPORT OF
INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
 
 Stockholders
and Board of Directors
 Nutra
Pharma Corp.
 
 We have
audited the accompanying consolidated balance sheets of Nutra Pharma Corp. as of
December 31, 2008 and 2009, and the related consolidated statements of
operations, stockholders’ deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting.  Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion the financial statements referred to above present fairly, in all
material respects, the financial position of Nutra Pharma Corp. as of December
31, 2008 and 2009, and results of its operations and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has incurred significant losses from
operations and has working capital and Stockholder deficits. These factors raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans in regard to this matter are also discussed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 /s/Kingery
& Crouse PA
 
 Kingery
& Crouse P.A.
 Certified
Public Accountants
 Tampa,
Florida
 April 15,
2010
  F-1
 NUTRA
PHARMA CORP.
 Consolidated
Balance Sheets
 As of
December 31,
 
 2008
                        
                        
                        2009ASSETSCurrent
      assets:Cash
                        
                        $
                        50,910
                        
                        
                        $
                        802,875Accounts
      receivable
                        
                        
                        -
                        
                        
                        
                        239,583Inventory
                        
                        
                        10,770
                        
                        
                        
                        165,786Prepaid
      expenses
                        
                        
                        27,468
                        
                        
                        
                        23,290Total
      current assets
                        
                        
                        89,148
                        
                        
                        
                        1,231,534Property
      and equipment, net
                        
                        
                        9,941
                        
                        
                        
                        12,369Other
      assets
                        
                        
                        8,133
                        
                        
                        
                        8,803TOTAL
      ASSETS
                        
                        $
                        107,222
                        
                        
                        $
                        1,252,706LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable
                        
                        $
                        156,399
                        
                        
                        $
                        104,223Accrued
      expenses
                        
                        
                        849,856
                        
                        
                        
                        960,548Due
      to officers
                        
                        
                        1,557,301
                        
                        
                        
                        1,252,385Other
      loans payable
                        
                        
                        100,000
                        
                        
                        
                        80,000Total
      current liabilities
                        
                        
                        2,663,556
                        
                        
                        
                        2,397,156Stockholders'
      deficit:Common
      stock, $0.001 par value, 2,000,000,000 shares authorized;211,276,482
      and 270,425,232 shares issued and outstanding,
respectively
                        
                        
                        211,277
                        
                        
                        
                        270,426Additional
      paid-in capital
                        
                        
                        21,503,591
                        
                        
                        
                        25,157,967Accumulated
      deficit
                        
                        
                        (24,271,202
                        )
                        
                        
                        (26,572,843
                        )Total
      stockholders' deficit
                        
                        
                        (2,556,334
                        )
                        
                        
                        (1,144,450
                        )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                        
                        $
                        107,222
                        
                        
                        $
                        1,252,706
 
 See the
accompanying notes to the financial statements.
  F-2
 
 NUTRA
PHARMA CORP.
 Consolidated
Statements of Operations
 Years
Ended December 31,
 
 2008
                        
                        
                        2009Sales
                        
                        $
                        4,045
                        
                        
                        $
                        618,010Cost
      of sales
                        
                        
                        1,057
                        
                        
                        
                        278,944Gross
      profit
                        
                        
                        2,988
                        
                        
                        
                        339,066Costs
      and expenses:General
      and administrative - including stock basedcompensation
      of $500,000 and $613,250
                        
                        
                        1,480,002
                        
                        
                        
                        2,199,146Research
      and development
                        
                        
                        229,790
                        
                        
                        
                        222,558Impairment
      of note receivable
                        
                        
                        -
                        
                        
                        
                        150,000Purchased
      research and development
                        
                        
                        2,397,749
                        
                        
                        
                        -Interest
      expense
                        
                        
                        57,555
                        
                        
                        
                        69,003Total
      costs and expenses
                        
                        
                        4,165,096
                        
                        
                        
                        2,640,707Net
      loss
                        
                        $
                        (4,162,108
                        )
                        
                        $
                        (2,301,641
                        )Per
      share information - basic and diluted:Loss
      per common share
                        
                        $
                        (0.03
                        )
                        
                        $
                        (0.01
                        )Weighted
      average common shares outstanding
                        
                        
                        164,732,760
                        
                        
                        
                        230,479,684
 
 See the
accompanying notes to the financial statements.
  F-3
 
 NUTRA
PHARMA CORP.
 Consolidated
Statements of Changes in Stockholders' Deficit
 For the
Years Ended December 31, 2008 and 2009
 
 AdditionalCommon Stock
                      
                      
                      Paid-in
                      
                      
                      AccumulatedShares
                      
                      
                      Par Value
                      
                      
                      Capital
                      
                      
                      Deficit
                      
                      
                      TotalBalance
      -January 1, 2008
                      
                      
                      81,895,682
                      
                      
                      $
                      81,896
                      
                      
                      $
                      18,074,472
                      
                      
                      $
                      (20,109,094
                      )
                      
                      $
                      (1,952,726
                      )Issuance
      of shares subscribed for at December 31, 2007
                      
                      
                      4,800,000
                      
                      
                      
                      4,800
                      
                      
                      
                      (4,800
                      )
                      
                      
                      -
                      
                      
                      
                      -Issuance
      of common stock for repayment of loan - $0.025 per share
                      
                      
                      48,000,000
                      
                      
                      
                      48,000
                      
                      
                      
                      1,152,000
                      
                      
                      
                      -
                      
                      
                      
                      1,200,000Issuance
      of common stock in exchange for services - $0.025 to $0.03 per
      share
                      
                      
                      19,500,000
                      
                      
                      
                      19,500
                      
                      
                      
                      480,500
                      
                      
                      
                      -
                      
                      
                      
                      500,000Common
      shares issued for cash -$0.025 per share
                      
                      
                      32,340,000
                      
                      
                      
                      32,340
                      
                      
                      
                      776,160
                      
                      
                      
                      -
                      
                      
                      
                      808,500Issuance
      of common stock in connection with acquisition of
    Receptopharm
                      
                      
                      30,000,000
                      
                      
                      
                      30,000
                      
                      
                      
                      1,020,000
                      
                      
                      
                      -
                      
                      
                      
                      1,050,000Reclass
      shares subscribed for but not yet issued - Receptopharm
                      
                      
                      (5,259,200
                      )
                      
                      
                      (5,259
                      )
                      
                      
                      5,259
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (4,162,108
                      )
                      
                      
                      (4,162,108
                      )Balance
      - December 31, 2008
                      
                      
                      211,276,482
                      
                      
                      
                      211,277
                      
                      
                      
                      21,503,591
                      
                      
                      
                      (24,271,202
                      )
                      
                      
                      (2,556,334
                      )Common
      shares issued for cash -$0.025 to $0.08 per share
                      
                      
                      45,523,750
                      
                      
                      
                      45,524
                      
                      
                      
                      3,014,751
                      
                      
                      
                      -
                      
                      
                      
                      3,060,275Exercise
      of warrants at $0.10
                      
                      
                      400,000
                      
                      
                      
                      400
                      
                      
                      
                      39,600
                      
                      
                      
                      -
                      
                      
                      
                      40,000Issuance
      of common stock in exchange for services - $0.02 to $0.54 per
      share
                      
                      
                      12,825,000
                      
                      
                      
                      12,825
                      
                      
                      
                      600,425
                      
                      
                      
                      -
                      
                      
                      
                      613,250Issuance
      of common stock in connection with acquisition of
    Receptopharm
                      
                      
                      400,000
                      
                      
                      
                      400
                      
                      
                      
                      (400
                      )
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (2,301,641
                      )
                      
                      
                      (2,301,641
                      )Balance
      - December 31, 2009
                      
                      
                      270,425,232
                      
                      
                      $
                      270,426
                      
                      
                      $
                      25,157,967
                      
                      
                      $
                      (26,572,843
                      )
                      
                      $
                      (1,144,450
                      )
 
 See the
accompanying notes to the financial statements.
  F-4
 
 NUTRA
PHARMA CORP.
 (A
Development Stage Company)
 Consolidated
Statements of Cash Flows
 Years
Edned December 31,
 
 2008
                          
                          
                          2009Cash
      flows from operating activities:Net
      loss
                          
                          $
                          (4,162,108
                          )
                          
                          $
                          (2,301,641
                          )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Depreciation
                          
                          
                          6,394
                          
                          
                          
                          5,818Stock-based
      compensation
                          
                          
                          500,000
                          
                          
                          
                          613,250Purchased
      research and development
                          
                          
                          2,397,749
                          
                          
                          
                          -Non
      cash interest expense
                          
                          
                          57,555
                          
                          
                          
                          59,046Changes
      in operating assets and liabilities:Decrease
      (increase) in accounts receivable
                          
                          
                          -
                          
                          
                          
                          (239,583
                          )Decrease
      (increase) in inventory
                          
                          
                          655
                          
                          
                          
                          (155,016
                          )Decrease
      (increase) in prepaid expenses
                          
                          
                          (17,518
                          )
                          
                          
                          4,178Decrease
      (increase) in other assets
                          
                          
                          -
                          
                          
                          
                          (670
                          )Increase
      (decrease) in accounts payable
                          
                          
                          (39,279
                          )
                          
                          
                          (52,176
                          )Increase
      (decrease) in accrued expenses
                          
                          
                          280,458
                          
                          
                          
                          110,692Net
      cash (used in) operating activities
                          
                          $
                          (976,094
                          )
                          
                          $
                          (1,956,102
                          )Cash
      flows from investing activities:Cash
      acquired in acquisition of Receptopharm
                          
                          
                          40,444
                          
                          
                          
                          -Acquisition
      of property and equipment
                          
                          
                          -
                          
                          
                          
                          (8,246
                          )Loan
      to Receptopharm
                          
                          
                          (300,000
                          )
                          
                          
                          -Net
      cash (used in) investing activities
                          
                          $
                          (259,556
                          )
                          
                          $
                          (8,246
                          )Cash
      flows from financing activities:Common
      stock issued for cash
                          
                          
                          808,500
                          
                          
                          
                          3,100,275Repayment
      of notes payable
                          
                          
                          -
                          
                          
                          
                          (20,000
                          )Repayment
      of stockholder loans
                          
                          
                          (108,750
                          )
                          
                          
                          (910,492
                          )Loans
      from stockholders
                          
                          
                          464,000
                          
                          
                          
                          546,530Net
      cash provided by financing activities
                          
                          $
                          1,163,750
                          
                          
                          $
                          2,716,313Net
      increase (decrease) in cash
                          
                          
                          (71,900
                          )
                          
                          
                          751,965Cash
      - beginning of period
                          
                          
                          122,810
                          
                          
                          
                          50,910Cash
      - end of period
                          
                          $
                          50,910
                          
                          
                          $
                          802,875Supplemental
      Cash Flow Information:Cash
      paid for interest
                          
                          $
                          -
                          
                          
                          $
                          -Cash
      paid for income taxes
                          
                          $
                          -
                          
                          
                          $
                          -Non-cash
      investing and financing activities:Settment
      of debt with common stock
                          
                          $
                          1,200,000
                          
                          
                          $
                          -Common
      shares issued in conjunction with the acquisitionof
      Receptopharm
                          
                          $
                          1,050,000
                          
                          
                          $
                          -
 
 See the
accompanying notes to the financial statements.
 F-5
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
  1.           BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Organization
  Nutra
Pharma Corp. ("Nutra Pharma" or "the Company") is a holding company that owns
intellectual property and operations in the biotechnology
industry.  Nutra Pharma incorporated under the laws of the state of
California on February 1, 2000, under the original name of
Exotic-Bird.com.  The Company was in the development stage through
September 30, 2009.
  Through
its wholly-owned subsidiaries ReceptoPharm, Inc. (“ReceptoPharm”)and Designer
Diagnostics Inc., the Company conducts drug discovery research and development
activities.  In October 2009, the Company launched its first consumer
product called Cobroxin, an over-the-counter pain reliever designed to treat
moderate to severe chronic pain.
  Basis
of Presentation
  The
Company's financial statements are presented on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business.
  The
Company has experienced significant losses from operations of $4,162,108 and
$2,301,641 for the years ended December 31, 2008 and 2009, and has an
accumulated deficit of $26,572,843 at December 31, 2009.  In addition,
the Company had working capital and stockholders’ deficits at December 31, 2009
of $1,165,622 and $1,144,450.
  The
Company's ability to continue as a going concern is contingent upon its ability
to secure additional financing, increase ownership equity and attain profitable
operations.  In addition, the Company's 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 the Company operates.
  The
Company is pursuing additional financing for its operations and seeking
additional investments.  In addition, the Company is seeking to expand
its revenue base.  Failure to secure such additional financing or to
raise additional equity capital and to establish a revenue base may result in
the Company depleting its available funds and not being able pay its
obligations.
  The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the possible inability of
the Company to continue as a going concern.
  Principles
of Consolidation
  The
consolidated financial statements presented herein include the accounts of Nutra
Pharma and its wholly-owned subsidiaries Designer Diagnostics Inc. and
ReceptoPharm. The accounts of ReceptoPharm have been consolidated from April 16,
2008, to December 31, 2009 (see Note 2).
  All
intercompany transactions and balances have been eliminated in
consolidation.
  Use
of Estimates
  The
accompanying 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 the recoverability of long-lived assets and the fair value of
stock-based compensation.  Actual results could differ from those
estimates.
  F-6
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 Revenue
Recognition
 
 In
general, the Company records revenue when persuasive evidence of an arrangement
exists, services have been rendered or product delivery has occurred, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. The following policies reflect specific criteria for the various
revenues streams of the Company:
 
 Revenue
is recognized at the time the product is delivered.  Provision for
sales returns will be estimated based on the Company's historical return
experience.  Revenue will be presented net of returns.
 
 Cash
and Cash Equivalents
 
 The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
 
 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.  In determining collectability,
historical trends are evaluated and specific customer issues are reviewed to
arrive at appropriate allowances.  There was no allowance at December
31, 2009 as substantially all accounts receivable were collected subsequent to
year end.
 
 Inventories
 
 Inventories
are valued at the lower of cost or market on an average cost basis and consist
primarily of raw materials.
 
 Fair
Value of Financial Instruments
 
 Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2008 and
2009.  The respective carrying value of certain on-balance-sheet
financial instruments, approximate their fair values.  These financial
instruments include cash, accounts receivable, accounts payable, accrued
expenses, loans payable and due to officers.  Fair values were assumed
to approximate carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand.
 
 As
of December 31, 2009 and 2008, and periodically throughout such years, balances
in various operating accounts exceeded federally insured limits.  The
Company has not experienced any losses in such accounts.  The Company
does not hold or issue financial instruments for trading purposes nor does it
hold or issue interest rate or leveraged derivative financial
instruments.
 
 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.
  F-7
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 Property,
plant, and equipment consists of the following at December 31,
 
 2008
                  
                  
                  2009Computer
      equipment
                  
                  $
                  7,114
                  
                  
                  $
                  11,950Automobiles
                  
                  
                  7,500
                  
                  
                  
                  -Furniture
      & fixtures
                  
                  
                  11,562
                  
                  
                  
                  11,562Lab
      equipment
                  
                  
                  11,272
                  
                  
                  
                  14,682Office
      equipment - other
                  
                  
                  2,630
                  
                  
                  
                  2,630Leasehold
      improvements
                  
                  
                  67,417
                  
                  
                  
                  67,417107,495
                  
                  
                  
                  108,241Less
      accumulated depreciation
                  
                  
                  (97,554
                  )
                  
                  
                  (95,872
                  )Net
      property, plant, and equipment
                  
                  $
                  9,941
                  
                  
                  $
                  12,369
 
 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, the Company measures 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 from the impaired
assets. We believe the carrying values of our long-lived assets were not
impaired as of December 31, 2008 and 2009.
 
 Research
and Development
 
 Research
and development is charged to operations as incurred.
 
 Segment
Information
 
 The
Company follows Financial Accounting Standards Board (FASB) ASC 280-10, Segment
Reporting.  Under ASC 280-10, certain information is disclosed based
on the way management organizes financial information for making operating
decisions and assessing performance.  The Company currently operates
in a single segment and will evaluate additional segment disclosure requirements
as it expands its operations.
 
 Income
Taxes
 
 The
Company computes income taxes in accordance with FASB ASC Topic 740, Income
Taxes.  Under ASC-740, deferred tax assets and liabilities are
computed based upon the difference between the financial statement and income
tax basis of assets and liabilities using the enacted marginal tax rate
applicable when the related asset or liability is expected to be realized or
settled.  Deferred income tax expenses or benefits are based on the
changes in the asset or liability each period.  Also, the effect on
deferred taxes of a change in tax rates is recognized in income in the period
that included the enactment date.  If available evidence suggests that
it is more likely than not that some portion or all of the deferred tax assets
will not be realized, a valuation allowance is required to reduce the deferred
tax assets to the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
  F-8
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
  Beginning
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FASB ASC 740-10).  The Interpretation
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of tax positions taken or expected to be
taken in a tax return. For those benefits to be recognized, a tax position must
be more-likely-than-not to be sustained upon examination by taxing authorities.
The amount recognized is measured as the largest amount of benefit that is
greater than 50 percent likely of being realized upon ultimate
settlement.
 
 Stock-Based
Compensation
 
 The
Company records stock based compensation in accordance with FASB ASC 718, Stock
Compensation.  FASB ASC 718 requires that the cost resulting from all
share-based transactions be recorded in the financial statements over the
respective service periods.  It establishes fair value as the
measurement objective in accounting for share-based payment arrangements and
requires all entities to apply a fair-value-based measurement in accounting for
share-based payment transactions with employees.  The Statement also
establishes fair value as the measurement objective for transactions in which an
entity acquires goods or services from non-employees in share-based payment
transactions.
 
 Net
Loss Per Share
 
 Net loss
per share is calculated in accordance with ASC Topic 260, Earnings per
Share.  Basic earnings (loss) per share are calculated by dividing net
income (loss) by the weighted average number of common shares outstanding for
the period. Diluted earnings (loss) per share are 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.
 
 Recent
Accounting Pronouncements
 
 The
following Accounting Standards Codification Updates have been issued, or will
become effective, after the end of the period covered by these financial
statements:
  Pronouncement
                        
                        Issued
                        
                        TitleASU
      No. 2009-13
                        
                        October
      2009
                        
                        Revenue
      Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a
      consensus of the FASB Emerging Issues Task ForceASU
      No. 2009-14
                        
                        October
      2009
                        
                        Software
      (Topic 985): Certain Revenue Arrangements That Include Software Elements -
      a consensus of the FASB Emerging Issues Task ForceASU
      No. 2009-15
                        
                        October
      2009
                        
                        Accounting
      for Own-Share Lending Arrangements in Contemplation of Convertible Debt
      Issuance or Other FinancingASU
      No. 2009-16
                        
                        December
      2009
                        
                        Transfers
      and Servicing (Topic 860): Accounting for Transfers and Financial
      Assets.ASU
      No. 2009-17
                        
                        December
      2009
                        
                        Consolidations
      (Topic 810): Improvements to Financial Reporting by Enterprises Involved
      with Variable Interest EntitiesASU
      No. 2010-01
                        
                        January
      2010
                        
                        Equity
      (Topic 505): Accounting for Distributions to Shareholders with Components
      of Stock and Cash - a consensus of the FASB Emerging Issues Task
      ForceASU
      No. 2010-02
                        
                        January
      2010
                        
                        Consolidation
      (Topic 810): Accounting and Reporting for Decreases in Ownership of a
      Subsidiary - a Scope
Clarification
  F-9
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 ASU
      No. 2010-03
                
                January
      2010
                
                Extractive
      Activities - Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and
      DisclosuresASU
      No. 2010-04
                
                January
      2010
                
                Accounting
      for Various Topics: Technical Corrections to SEC
  ParagraphsASU
      No. 2010-05
                
                January
      2010
                
                Compensation
      - Stock Compensation (Topic718): Escrowed Share Arrangements and the
      Presumption of CompensationASU
      No. 2010-06
                
                January
      2010
                
                Fair
      Value Measurements and Disclosures (Topic 820): Improving Disclosures
      about Fair Value MeasurementsASU
      No. 2010-07
                
                January
      2010
                
                Not-for-Profit
      Entities (Topic 958): Not-for-Profit Entities - Mergers and
      AcquisitionsASU
      No. 2010-08
                
                February
      2010
                
                Technical
      Corrections to Various TopicsASU
      No. 2010-09
                
                February
      2010
                
                Subsequent
      Events (Topic 855): Amendments to Certain Recognition and Disclosure
      RequirementsASU
      No. 2010-10
                
                February
      2010
                
                Consolidation
      (Topic 810): Amendments for Certain Investment FundsASU
      No. 2010-11
                
                March
      2010
                
                Derivatives
      and Hedging (Topic 815): Scope Exception Related to Embedded Credit
      Derivatives
 
 To the
extent appropriate, the guidance in the above Accounting Standards Codification
Updates is already reflected in our consolidated financial statements and
management does not anticipate that these accounting pronouncements will have
any future effect on our consolidated financial statements.
 
 At its
meeting on March 18, 2010, the FASB's Emerging Issues Task Force reached a
consensus on five Issues. If the consensuses are ratified by the FASB at its
meeting on March 31, 2010, the related Accounting Standards Codification Updates
will become authoritative accounting guidance. None of the consensuses address
issues that have a material effect on our consolidated financial
statements.
 
 2.  ACQUISITION
OF RECEPTOPHARM
 
 On
December 12, 2003, the Company entered into an acquisition agreement (the
“Agreement”), whereby it agreed to acquire up to a 49.5% interest in
ReceptoPharm,  a privately held biopharmaceutical company based in Ft.
Lauderdale, Florida.  ReceptoPharm is engaged in the research and
development of proprietary therapeutic proteins for the treatment of several
chronic viral, autoimmune and neuro-degenerative diseases.
 
 Pursuant
to the Agreement, the Company acquired its interest in ReceptoPharm’s common
equity for $2,000,000 in cash, which equates to a purchase price of $0.45 per
share.  ReceptoPharm intends to use such funds to further research and
development, which could significantly impact future results of
operations.
 
 At
December 31, 2005, the Company had funded a total of $1,860,000 to ReceptoPharm
under the Agreement, which equated to a 37% ownership interest in
ReceptoPharm.  In February 2006, the Company funded an additional
$140,000 to ReceptoPharm, thereby completing the $2,000,000
investment.  As of December 31, 2006, the Company owned 4,444,445
shares or 38% of the issued and outstanding common equity of
ReceptoPharm.  In addition to its ownership interest, as of December
31, 2006, the Company had loaned ReceptoPharm $825,000 for working capital
purposes.
  F-10
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 For
accounting purposes, the Company through March 31, 2007, had been treating its
capital investment in ReceptoPharm as a vehicle for research and
development.  Because the Company is solely providing financial
support to further the research and development of ReceptoPharm, such amounts
were being charged to expense as incurred by ReceptoPharm. ReceptoPharm had no
ability to fund these activities and was dependent on the Company to fund its
operations.  In these circumstances, ReceptoPharm was considered a
variable interest entity and had been consolidated. The creditors of
ReceptoPharm did not have recourse to the general credit of the
Company.
 
 Effective
in April 2007 the Company ceased advancing funds to ReceptoPharm and had no
further commitment to fund them.  As such, the Company deconsolidated
ReceptoPharm from its financial statements at June 30, 2007.  This
deconsolidation resulted in a gain of $1,081,095.  This gain resulted
from the Company reversing the net losses of ReceptoPharm included in its
consolidated financial statements and writing off the balance of its investment
in ($2,000,000) and advances to ($975,000) ReceptoPharm as discussed above as
they were deemed to be impaired at June 30, 2007.
 
 The gain
was computed as follows:
 
 Net
      losses included in the consolidated financial statements
                          
                          $
                          4,056,095Investment
      in and advances to ReceptoPharm
                          
                          
                          (2,975,000
                          )Gain
      on deconsolidation
                          
                          $
                          1,081,095
 
 On April
10, 2008, the Company completed a transaction pursuant to which it acquired the
remaining sixty-two percent (62%) of ReceptoPharm’s issued and outstanding
common shares in exchange for a maximum of 30,000,000 shares of the Company’s
common stock.  Prior to April 10, 2008, the Company owned 4,444,445 shares
or approximately 38% of ReceptoPharm’s common stock.  The exchange ratio in
this transaction was four (4) Nutra Pharma shares for each ReceptoPharm
share.  As a result of this transaction, the Company now owns 100% of
the issued and outstanding common stock of ReceptoPharm.
 
 The
Company accounted for this acquisition under the purchase method of
accounting.
 
 The
calculation of the total purchase cost is as follows:
 
 Total
      number of Nutra Pharma shares issued
                      
                      
                      30,000,000Market
      price of Nutra Pharma common stock on April 10, 2008
                      
                      $
                      0.035Value
      of shares issued
                      
                      $
                      1,050,000Loan
      to ReceptoPharm forgiven at closing
                      
                      
                      300,000Liabilities
      of ReceptoPharm assumed at closing
                      
                      
                      1,119,413Total
      purchase cost to be allocated
                      
                      $
                      2,469,413Allocation
      of purchase cost:Fair
      value of ReceptoPharm assets at closing
                      
                      $
                      71,664Purchase
      cost in excess of fair value of assets acquired
                      
                      
                      2,397,749Total
      purchase cost
                      
                      $
                      2,469,413
 
 The
purchase cost in excess of the fair value of net assets acquired was recorded as
purchased research and development.
 
 Had the
acquisition of Receptopharm taken place at January 1, 2008 the unaudited
consolidated results of operations would have been as follows:
  F-11
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 2008Revenue
                      
                      $
                      4,045Net
      loss
                      
                      $
                      4,400,389Net
      loss per share
                      
                      $
                      (0.03
                      )
 
 As of
December 31, 2009, the Company had issued a total of 25,140,800 shares of its
common stock in exchange for 6,285,200 shares of Receptopharm.
 
 3.  INVENTORIES
 
 Inventories
are valued at the lower of cost or market on an average cost
basis.  At December 31, 2009, inventory of $165,786 consisted entirely
of raw materials that are used in the production of the Company’s finished
goods.  We did not have inventory at December 31, 2008.
 
 4.  IMPAIRMENT
OF NOTES RECEIVABLE
 
 During
2009, the Company advanced $150,000 to an unrelated business pursuant to a
promissory note.  As of December 31, 2009, the note was fully
reserved, resulting in a $150,000 charge to operations.
 
 5.  ACCRUED
EXPENSES
 
 Accrued
expenses consist of the following:
 
 At
      December 31,
                    
                    2008
                    
                    
                    2009Accrued
      payroll
                    
                    $
                    583,500
                    
                    
                    $
                    656,690Accrued
      legal
                    
                    
                    196,057
                    
                    
                    
                    196,057Other
      accrued expenses
                    
                    
                    70,299
                    
                    
                    
                    107,801Total
                    
                    $
                    849,856
                    
                    
                    $
                    960,548
 
 6.  DUE
TO OFFICERS AND STOCKHOLDERS
 
 Officer
Loans
 
 The
balance owed to the Company’s President Rik Deitsch at December 31, 2007 was
$1,944,414 which includes accrued interest of $105,039.  This demand
loan is unsecured and bears interest at a rate of 4.0%.
 
 On March
14, 2008, the Company’s Board of Directors approved an offer made by Mr.
Deitsch, to discharge $1,200,000 of his outstanding loan to the Company in
exchange for 48,000,000 shares of restricted common stock.  The price
per share in this loan conversion was the fair market value of the common shares
on the date of the exchange which was $0.025.
 
 During
the year ended December 31, 2008, the Company borrowed an additional $464,000
from Mr. Deitsch.  The balance owed to him at December 31, 2008, was
$1,255,448 which includes accrued interest of $152,073.
 
 During
the year ended December 31, 2009, the Company borrowed an additional $546,530
from Mr. Deitsch and repaid him $709,663, bringing the total amount owed to Mr.
Deitsch to $1,151,361 at December 31, 2009.  Included in the amount
owed to Mr. Deitsch is $211,119 of accrued interest.
 
 In
addition, at December 31, 2009, the Company is indebted to Paul Reid, the
President of its wholly-owned subsidiary ReceptoPharm in the amount of
$101,024.  This amount includes accrued interest of
$21,197.  This loan is due on demand and bears interest at a rate of
5% per annum.  The loan is secured by certain intellectual property of
ReceptoPharm.
  F-12
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 Stockholder
Loan
 
 At
December 31, 2007, ReceptoPharm was indebted to a stockholder in the amount of
$245,801 which includes accrued interest of $5,801.  This demand loan
is unsecured and bears interest at a rate of 5.0% per annum.
 
 During
the year ended December 31, 2008, ReceptoPharm repaid $43,750 of this loan and
the balance at December 31, 2008 was $215,246 which includes accrued interest of
$18,996.
 
 During
the year ended December 31, 2009, ReceptoPharm paid off the entire balance of
the loan of $223,403.  This payoff included $27,153 of accrued
interest.
 
 7.  STOCKHOLDERS'
DEFICIT
 
 Private Placements of Common
Stock
 
 During
2008, the Company completed private placements of restricted shares of its
common stock, whereby it sold an aggregate of 32,340,000 shares at a price per
share of $0.025.  The Company received proceeds of $808,500 in
connection with the sale of these shares.  In addition, the Company
granted one (1) warrant for each share sold which gives the investor the right
to purchase one (1) additional share until December 31, 2012 at an exercise
price of $0.10 per share.
 
 From
January 1 through August 31, 2009, the Company completed private placements of
restricted shares of its common stock, whereby it sold an aggregate of
10,575,000 shares at a price per share of $0.025.  The Company
received proceeds of $264,375 in connection with the sale of these
shares.  The Company also granted one (1) warrant for each share sold
which gives the investor the right to purchase one (1) additional share until
December 31, 2012 at an exercise price of $0.10 per share.
 
 From
September 1 through December 31, 2009, the Company completed private placements
of restricted shares of its common stock, whereby it sold an aggregate of
34,948,750 shares at a price per share of $0.08. The Company received
proceeds of $2,795,900 in connection with the sale of these shares.
 
 Common Stock Issued for
Services
 
 During
the year ended December 31, 2008 the Company issued an aggregate of 19,500,000
shares of common stock in exchange for services.  The shares were
valued at their fair market value of $500,000 based on the trading price of the
Company’s common shares, which has been charged to operations.
 
 During
the year ended December 31, 2009, the Company issued an aggregate of 12,825,000
shares of its common stock in exchange for services rendered.  These
shares were valued at their fair market value of $613,250 based on the trading
price of the Company’s common shares, which was charged to
operations.
 
 Exercise of Common Stock
Warrants
 
 In
December 2009, the Company sold 400,000 restricted shares of its common stock to
an investor at a price per share of $0.10 and received proceeds of
$40,000.  These shares were sold pursuant to a warrant agreement
between the Company and the investor.
  F-13
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 8.  STOCK
OPTIONS AND WARRANTS
 
 Equity Compensation
Plans
 
 On
December 3, 2003, the Board of Directors of the Company approved the
Employee/Consultant Stock Compensation Plan (the "2003 Plan"). The purpose of
the 2003 Plan
is to further the growth of Nutra Pharma by allowing the Company to compensate
employees and consultants who have provided bona fide services to the Company,
through the award of common stock of the Company. The maximum number of shares
of common stock that may be issued under the 2003 Plan is
2,500,000.
 
 On June
6, 2007 the Board of Directors of the Company approved the 2007
Employee/Consultant Stock Compensation Plan (the "2007 Plan").  The
purpose of the 2007 Plan is to further the growth of Nutra Pharma by allowing
the Company to compensate employees and consultants who have provided bona fide
services to the Company, through the award of common stock of the
Company.  The maximum number of shares of common stock that may be
issued under the 2007 Plan is 25,000,000.
 
 The Board
of Directors is responsible for the administration of the 2003 and 2007 Plans
and has full authority to grant awards under the Plan.  Awards may
take the form of stock grants, options or warrants to purchase common
stock.  The Board of Directors has the authority to determine: (a) the
employees and consultants that will receive awards under the Plan, (b) the
number of shares, options or warrants to be granted to each employee or
consultant, (c) the exercise price, term and vesting periods, if any, in
connection with an option grant, and (d) the purchase price and vesting period,
if any, in connection with the granting of a warrant to purchase shares of
common stock of the Company.
 
 A summary
of stock options and warrants issued in conjunction with private placement of
common stock is as follows:
 
 Number
                                  of
      shares
                                
                                
                                Weighted
                                  average
                                  exercise
                                  priceBalance
      December 31, 2007
                                
                                
                                7,800,000
                                
                                
                                $
                                0.16Exercised
                                
                                
                                -
                                
                                
                                
                                -Issued
                                
                                
                                32,340,000
                                
                                
                                $
                                0.10Forfeited
                                
                                
                                -
                                
                                
                                
                                -Balance
      December 31, 2008
                                
                                
                                40,140,000
                                
                                
                                $
                                0.11Exercised
                                
                                
                                (400,000
                                )
                                
                                $
                                0.10Issued
                                
                                
                                10,575,000
                                
                                
                                $
                                0.10Forfeited
                                
                                
                                -
                                
                                
                                
                                -Balance
      December 31, 2009
                                
                                
                                50,315,000
                                
                                
                                $
                                0.11
 
 The
following table summarizes information about fixed-price stock options and
warrants:
 
 Exercise
                                          Price
                                        
                                        Weighted
                                          Average
                                          Number
                                          Outstanding
                                        
                                        Weighted
                                          Average
                                          Contractual
                                          Life
                                        
                                        Weighted
                                          Average
                                          Exercise
                                          Price$
                                        0.10
                                        
                                        
                                        47,315,000
                                        
                                        3.00
      years
                                        
                                        $
                                        0.10$
                                        0.20
                                        
                                        
                                        1,000,000
                                        
                                        1.08
      years
                                        
                                        $
                                        0.20$
                                        0.27
                                        
                                        
                                        2,000,000
                                        
                                        0.42
      years
                                        
                                        $
                                        0.2750,315,000
 
 All
options are vested and exercisable.
  F-14
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 As of
December 31, 2009, the aggregate intrinsic value of all stock options
outstanding and expected to vest was approximately $13,145,050 and the aggregate
intrinsic value of currently exercisable stock options was approximately
$13,145,050.  The Intrinsic value of each option share is the
difference between the fair market value of the Company’s common stock and the
exercise price of such option share to the extent it is
“in-the-money”.  Aggregate intrinsic value represents the value that
would have been received by the holders of in-the-money options had they
exercised their options on the last trading day of the year and sold the
underlying shares at the closing stock price on such day.  The
intrinsic value calculation is based on the $0.37 closing stock price of the
Company’s common stock on December 31, 2009.
  9.  INCOME
TAXES
 
 Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classifications of the assets and liabilities to which they
relate.  Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.  The Company had no significant deferred tax items arise
during any of the periods presented.
 
 The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes
for the years ended December 31, 2008 and 2009. The sources and tax effects of
the differences are as follows:
 
 Income
      tax provision at the federal statutory rate
                    
                    
                    34
                    %Effect
      of operating losses
                    
                    
                    (34
                    )%0
                    %
 
 As of
December 31, 2009, the Company has a net operating loss carry forward of
approximately $7,100,000. This loss will be available to offset future taxable
income. Assuming our net operating loss carryforwards are not disallowed because
of certain “change in control” provisions of the Internal Revenue Code, these
net operating loss carryforwards expire in various years through the year ending
December 31, 2029. The deferred tax asset of approximately $2,400,000
relating to the operating loss carry forward has been fully reserved at December
31, 2009. The increase in the valuation allowance related to the deferred tax
asset was approximately $600,000 during 2009. The principal difference between
the accumulated deficit for income tax purposes and for financial reporting
purposes results from stock based compensation of approximately $9,500,000,
non-cash finance charges of approximately $1,100,000, non-cash losses on
settlements of approximately $1,000,000, non-cash losses related to Nanologix of
approximately $1,700,000, losses of ReceptoPharm, Inc. of approximately
$3,000,000, goodwill impairment of $2,400,000 and the amortization of
intangibles of approximately $800,000.
 
 Since
inception, we have been subject to tax by both federal and state taxing
authorities. Until the respective statutes of limitations expire, we are subject
to income tax audits in the jurisdictions in which we operate. We are no longer
subject to U.S. federal tax examinations for fiscal years prior to 2005, and we
are not subject to audits prior to the 2005 fiscal year for the state
jurisdiction.
 
 10.  COMMITMENTS
AND CONTINGENCIES
 
 Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc.
 
 On August
18, 2006, ReceptoPharm, the Company’s wholly owned subsidiary as of April 2008,
was named as a defendant in Patricia Meding, et. al. v.
ReceptoPharm, Inc. f/k/a Receptogen, Inc., Index No.: 18247/06 (New York
Supreme Court, Queens County).  The original proceeding claimed that
ReceptoPharm owed the Plaintiffs, including Patricia Meding, a former
ReceptoPharm officer and shareholder and several corporations that she claims to
own, the sum of $118,928.15 plus interest and counsel fees on a series
promissory notes that were allegedly executed in 2001 and 2002.  On
August 23, 2007, the Queens County New York Supreme Court issued a decision
denying Plaintiffs motion for summary judgment in lieu of a complaint,
concluding that there were issues of fact concerning the enforceability of the
promissory notes.  On May 23, 2008, the Plaintiffs filed an amended
complaint in which they reasserted their original claims and asserted new claims
seeking damages of no less than $768,506 on their claims that in or about June
2004 ReceptoPharm breached its fiduciary duty to the Plaintiffs as shareholders
of ReceptoPharm by wrongfully canceling certain of their purported ReceptoPharm
share certificates.
  F-15
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 In
late 2009, Plaintiffs filed a motion seeking to further amend their
complaint alleging that ReceptoPharm violated Plaintiffs contractual and
statutory rights by cancelling additional share certificates and failing to
permit the Plaintiffs to exercise dissenting shareholder rights with respect to
those share certificates.
 
 The
Plaintiffs were seeking an additional 1,214,800 Receptopharm shares. The damages
associated with the Plaintiff’s claims could rise as the result of
increases in the Company’s share price as the Receptopharm shares may be
convertible into the Company’s common shares.
 
 ReceptoPharm believes
the suit is without merit and has filed an answer denying the material
allegations of the amended complaint and asserted a series of counterclaims
against the Plaintiffs alleging claims for declaratory judgment, fraud, breach
of fiduciary duty, conversion and unjust enrichment as a result of the
promissory notes.  In addition, Receptopharm has opposed the
Plaintiffs' recent motion to amend and the motion is currently pending
before the Court.  Discovery in this matter is ongoing. The
Company intends to vigorously contest this matter.
 
 Concentrations
 
 During
the fourth quarter of 2009 the Company made product sales of $583,955 to a
single customer which represented approximately 94% of total revenue for the
year ended December 31, 2008.  At December 31, 2009, $233,055 was due
from this customer.  This amount was subsequently paid-in full during
January and February 2010.
 
 Operating
Leases
 
 In
February 2010, the Company entered into an operating lease for the use of office
space.  The lease requires monthly payments of $8,287 during the first
year and expires in January 2013.  The Company incurred rent expense
of $54,000 and $72,000 during 2008 and 2009 related to the lease of the
ReceptoPharm office and lab.  This office lease expires in May
2010.  Future minimum payments under all lease agreements are as
follows:
 
 $121,157
in 2010
 $101,801
in 2011
 $104,373
in 2012
 $  
 8,716 in 2013
 
 11.  SUBSEQUENT
EVENTS
 
 Repayment of Officer
Loan
 
 Subsequent
to December 31, 2009, the Company repaid $100,000 of a loan due to its President
Rik Deitsch.  As a result of this repayment, as of March 31, 2010, the
Company owed Mr. Deitsch $1,062,306.
  F-16
  NUTRA
PHARMA CORP.
 Notes
to Consolidated Financial Statements
 December
31, 2008 and 2009
 
 Stock Based
Compensation
 
 On
February 26, 2010, the Company issued 2.5 million shares to a consultant for
services to be rendered during 2010.  Of this total, 2.0 million shares
were restricted and 500,000 shares were free-trading pursuant to the Company’s
S-8.  The shares were valued at $0.51 per share which was the fair market
value of the Company’s common stock on February 26, 2010.
  F-17