10-K: Nutra Pharma Reports 2023 Loss Amid SEC Settlement, Leadership Change

Nutra Pharma Corp. reported a net loss of $1.39 million in 2023, a significant decline from the prior year's net income, while settling an SEC lawsuit and undergoing a CEO transition.

Summary

• A net loss of $1,393,356 was incurred for the year ended December 31, 2023, a substantial decrease from net income of $8,176,871 in 2022.
• Total net sales increased to $594,880 in 2023 from $438,274 in 2022, driven by both unrelated customer sales (up 40.99% to $205,564) and related party sales to Avini Health (up 33.11% to $389,316).
• Gross profit margin improved to 67.42% in 2023 from 62.84% in 2022, primarily due to lower manufacturing costs associated with sales to a related party.
• Operating losses improved to $886,979 in 2023 from $1,907,404 in 2022, mainly due to decreased selling, general, and administrative expenses.
• The company faces substantial doubt about its ability to continue as a going concern due to recurring losses, significant indebtedness in default, and working capital and stockholders deficits.
• A lawsuit with the SEC was settled, requiring a payment of $680,235 in disgorgement, prejudgment interest, and civil penalties.
• Former CEO Rik J. Deitsch resigned in March 2024 and was replaced by Michael Flax, DDS, following the SEC settlement.
• Avini Health, a related party and major customer (65% of 2023 revenue), is expected to significantly reduce purchases in 2024 as it begins in-house manufacturing.
• Material weaknesses in internal control over financial reporting were identified, including a lack of qualified accounting personnel and inadequate segregation of duties.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, including a net loss, substantial accumulated deficit, and significant working capital deficit, raising substantial doubt about its going concern ability. While sales increased and operating losses narrowed, the reliance on related-party sales, which are expected to decline, and the ongoing need for external financing, coupled with legal penalties and internal control weaknesses, indicate a highly precarious situation. The positive R&D for MS is long-term and unfunded.

Positives

• Total net sales increased by 35.7% to $594,880 in 2023 compared to $438,274 in 2022.
• Gross profit margin improved to 67.42% in 2023 from 62.84% in 2022, reflecting lower manufacturing costs.
• Net operating losses decreased significantly to $886,979 in 2023 from $1,907,404 in 2022.
• Net cash used in operating activities improved to approximately $0.55 million in 2023 from $0.76 million in 2022.
• Orphan Drug Designation for RPI-78M for Pediatric Multiple Sclerosis may reduce clinical trial costs and shorten approval timelines.
• Successful settlement of the SEC lawsuit resolves significant legal uncertainty and provides clarity on financial obligations.
• Relocated operations to a rent-free facility in Boca Raton, sharing space and resources with Avini Health, which is expected to reduce operating costs.

Negatives

• Shifted from a net income of $8,176,871 in 2022 to a net loss of $1,393,356 in 2023, with the prior year's income largely due to a non-cash gain on derivatives.
• Accumulated deficit increased to $74,945,474 at December 31, 2023.
• Working capital deficit worsened to $13,857,577 at December 31, 2023.
• Significant amount of indebtedness is in default, raising concerns about repayment ability.
• Substantial doubt exists about the company's ability to continue as a going concern.
• Sales to Avini Health, which constituted 65% of total revenues in 2023, are expected to significantly decline in 2024 as Avini begins in-house manufacturing.
• Identified material weaknesses in internal control over financial reporting, indicating deficiencies in financial oversight.
• The legal settlement with the SEC requires a payment of $680,235, adding a substantial financial obligation.
• Rik J. Deitsch, former CEO, received a three-year officer-and-director bar and penny-stock bar as part of the SEC settlement.
• All planned human clinical studies for pain relievers (MS Neuropathic Pain Phase IV, Chronic Back Pain Phase I & IV) have been delayed due to lack of funding.
• International drug registration processes in Canada and other regions are delayed due to lack of funding and the COVID crisis.

Risks

• Ability to continue as a going concern is in doubt absent obtaining adequate new debt or equity financing and achieving sufficient sales levels.
• Limited revenue-producing history with significant losses and expected continued losses for the foreseeable future.
• Requires additional financing to sustain operations; without it, the company will be unable to continue operations.
• History of failed distributors has negatively affected revenues and may continue to do so if a successful distributor is not located.
• Inability to sell a sufficient volume of products will prevent the company from continuing in business.
• Growth strategy reflected in the business plan may be unachievable or may not result in profitability.
• Inability to manage growth effectively could prevent the company from becoming profitable.
• Inability to protect proprietary technology could harm the business, as competitors may design around patents or intellectual property litigation could be costly.
• Subject to substantial FDA regulations pertaining to Nyloxin and Pet Pain-Away, which may increase costs or adversely affect operations if compliance fails.
• Inability to provide scientific proof for product claims may adversely affect sales if the FDA or FTC deems data unacceptable.
• None of the ethical drug candidates have received FDA approval, requiring a complex and costly FDA regulation process that takes several years, if ever.
• Inability to secure sufficient cobra venom from available suppliers could negatively affect operating results due to distribution delays or failure to fulfill orders.
• Nyloxin and Pet Pain-Away products may be unable to compete against competitors in the highly competitive pain relief market, which includes multi-billion dollar manufacturers.
• Incurring costs from product liability claims that exceed policy limits could negatively affect operating results.
• Loss of any key personnel (CEO, Operations Manager, Chief Scientific Officer) could have a material adverse effect on operations and financial results.
• The market for common stock is limited, and its penny stock status adversely affects liquidity and market price.
• Sales of freely tradable shares could cause the market price of common stock to drop significantly.
• An investment in common stock may be diluted in the future as a result of the issuance of additional securities or the exercise of options or warrants.
• Purchasers will suffer substantial dilution due to the company's negative net tangible book value.
• Stock price may continue to be volatile due to factors beyond the company's control.
• Biotechnology industry-related litigation is substantial and may continue to rise, leading to greater costs and unpredictable outcomes.
• The decline in sales to Avini Health, a major customer, is expected to reduce revenues, requiring the development of new customer relationships or product lines to offset the reduction.
• Failure to comply with extensive legal/regulatory requirements affecting the healthcare industry will lead to increased costs, and possibly penalties and business losses.

Future Outlook

The company plans to continue efforts to produce, market, and distribute its Nyloxin, Pet Pain-Away, Equine Pain-Away, and Luxury Feet branded products domestically and internationally. It aims to initiate Phase I/II clinical studies for RPI-78M in Pediatric Multiple Sclerosis by early 2026, leveraging its Orphan Drug designation. However, the company acknowledges that its ability to fund these initiatives and sustain operations is highly dependent on generating sufficient revenues or securing additional financing, which is uncertain, especially with the anticipated significant decline in sales from its major related-party customer, Avini Health, starting in 2024.

Management Comments

• "Expanding our in-house manufacturing capabilities has put Nutra Pharma in a very good position as far as reduced product costs, higher margins, faster product upgrades and an increased ability to launch new and innovative products."
• "Our goal is to initiate these trials [Phase I/II clinical study in Pediatric MS] in 2026."
• "Our plan is to continue to increase sales of our products and attempt to secure adequate funding to bridge the commercialization of our Nyloxin and Pet Pain-Away products."

Industry Context

Nutra Pharma operates in highly competitive biopharmaceutical and pain relief markets, facing established multi-billion dollar companies with superior financial and technical resources. The global chronic pain intervention market is substantial, projected to exceed $117 billion by 2029, while the U.S. multiple sclerosis drugs market is expected to reach $17.15 billion by 2034. The company's focus on non-opioid pain relief and orphan drug development aligns with growing concerns about opioid use and the high costs of existing MS therapies, but it struggles with limited funding and market penetration compared to larger players.

Comparison to Industry Standards

• The company's RPI-78 drug product showed pain-reducing effects lasting four times as long as morphine without associated negative side effects, suggesting a potential advantage over opioid-based pain relievers like Dolantin.
• RPI-78 was calculated to be 150,000 times more potent than aspirin, indicating a high efficacy potential compared to common OTC pain relievers.
• The company's RPI-78M, if approved, could offer a novel approach to MS treatment, potentially reducing sclerosing lesions, which would be a first for any MS therapy, differentiating it from existing interferon-based drugs like Betaseron (Bayer), Avonex (Biogen), Plegridy (Biogen), Extavia (Novartis), and Rebif (EMD Serono), which have high costs (median annual price near $94,000) and side effects leading to high patient turnover.
• Unlike Prialt (Elan), which requires intrathecal administration, RPI-78 has demonstrated systemic injectability, offering a more practical application.
• The company's products, like Nyloxin, offer a non-narcotic, non-addictive alternative to opioid and NSAID-based pain relievers, addressing a significant public health concern regarding drugs like Ibuprofen ("Ranger Candy") and prescription opiates.

Management Changes

Corporate Governance

Legal Proceedings

• CSA 8411, LLC v. Nutra Pharma Corp., Case No. CACE 18-023150: Lawsuit filed October 12, 2018, to recover $100,000 under an amended promissory note. Settled on May 19, 2025, for $125,000, payable in an initial $35,000 and nine monthly payments of $10,000. A gain on settlement of $53,526 is expected upon full satisfaction.
• Securities and Exchange Commission v. Nutra Pharma Corporation, Erik Deitsch, and Sean Peter McManus, Case No. 2:18-cv-05459: Lawsuit filed September 28, 2018, alleging violations of federal securities laws, including unregistered offerings, false statements, and manipulative trading. Final judgment on August 28, 2024, ordered Nutra Pharma to pay $520,940 in disgorgement, $59,295 in prejudgment interest, and a $100,000 civil penalty, totaling $680,235. Former CEO Rik J. Deitsch received a three-year officer-and-director bar and penny-stock bar, and was ordered to pay $79,060. Sean McManus received a two-year penny-stock bar and was ordered to pay $11,626.

Related Party Transactions

• Net sales to Avini Health, a company owned by the former CEO Rik Deitsch, totaled $389,316 in 2023 (65% of total revenues) and $292,474 in 2022. These sales are expected to significantly decline in 2024 as Avini Health begins manufacturing its own products.
• The company relocated its operations to a Boca Raton facility leased by Avini Health in September 2023 and uses the facility rent-free, with Avini Health covering all lease and office-related expenses.
• The net balance due to former CEO Rik Deitsch and his controlled companies was $659,433 at December 31, 2023, up from $112,046 in 2022, accruing interest at 4%.
• Accrued payroll due to officers was $1,373,693 at December 31, 2023.
• Accrued interest to a director was $168,724 at December 31, 2023, from a $200,000 loan borrowed in 2010, which is in default.
• Bad debt expense related to receivables from companies owned by the former CEO was $105,465 in 2023 and $71,796 in 2022.
• These transactions were not conducted at arm's length and therefore may not reflect the terms that would have been agreed to with an unrelated third party.

Stakeholder Impact

• Shareholders face significant dilution risk from future capital raises, continued volatility in stock price (penny stock), no dividends expected, and substantial doubt about the company's ability to continue as a going concern. The SEC settlement and associated bars for former management may impact investor confidence.
• Employees (6 total) face operational uncertainty due to financial constraints, although the company aims to retain key personnel.
• Customers may experience product distribution delays if sales levels are insufficient or if the company fails to find competent distributors. The decline in Avini Health sales may impact product availability for their private label brands.
• Creditors face significant risk due to the company's substantial indebtedness in default and the added liability from the SEC settlement, raising concerns about repayment ability.

Next Steps

• Prepare for a pre-IND meeting with the FDA to gain approval for a Phase I/II clinical study protocol in Pediatric MS.
• Goal to initiate Phase I/II clinical studies in Pediatric MS in early 2026.
• Re-engage in the Canadian regulatory approval process for Nyloxin in 2026.
• Complete several human clinical studies aimed at comparing Nyloxin Extra Strength to prescription pain relievers, pending adequate financing.
• Reassess start and completion dates for pain relief studies upon generating sufficient revenues.
• Continue identifying biotechnology-related intellectual property and companies for potential arrangements or acquisitions.
• Work with experts to test nerve agent countermeasure products.
• Continue working with the Department of Defense and DTRA on potential funding for nerve agent countermeasure applications.
• Supplement accounting staff with additional experienced financial professionals, redefine responsibilities, and define additional controls, reporting processes, and procedures to address internal control weaknesses.
• Engage independent directors and a qualified independent audit committee to remedy internal control weaknesses.
• Seek a new Chief Financial Officer, pending funding.
• Develop new customer relationships or product lines to offset the expected decline in sales from Avini Health.

Key Dates

Recommendation

The company faces severe financial distress, evidenced by a net loss in 2023, a substantial accumulated deficit of over $74 million, and a working capital deficit exceeding $13 million. The explicit 'going concern' doubt, coupled with significant indebtedness in default and a cash balance of zero, indicates an unsustainable financial position. While sales increased, 65% of 2023 revenue came from a related party (Avini Health), which is expected to decline significantly in 2024 as Avini begins in-house manufacturing, removing a critical revenue stream. The SEC settlement, imposing a $680,235 penalty and barring the former CEO, highlights past governance issues and adds a substantial liability. Identified material weaknesses in internal controls further compound operational risks. Despite some R&D progress, the lack of funding for clinical trials and international expansion means these long-term prospects are highly uncertain. The stock's penny stock status and high volatility further deter investment. Given the precarious financial state, reliance on uncertain future financing, and significant operational and governance challenges, a strong sell recommendation is warranted.

Keywords

Biopharmaceutical, Pain Relief, Autoimmune Disorders, Viral Diseases, SEC Filing, 10-K, Nutra Pharma, Nyloxin, RPI-78M, Multiple Sclerosis, Orphan Drug, Going Concern, Financial Loss, SEC Settlement, Corporate Governance, Related Party Transactions, OTC Market, Drug Development, Cobra Venom, Contract Manufacturing