{"url_path":"/sec/cik-0001119643/10-k/2026/item-7","section_key":"item-7","section_title":"Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation**","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-05-20","source_url":"https://www.sec.gov/Archives/edgar/data/1119643/0001493152-26-024641-index.html","accession_number":"0001493152-26-024641","cik":"0001119643","ticker":null,"issuer_name":"NUTRA PHARMA CORP","edgar_url":"https://www.sec.gov/Archives/edgar/data/1119643/0001493152-26-024641-index.html","primary_entity_key":"0001119643","primary_entity_name":"NUTRA PHARMA CORP"},"word_count":3827,"has_tables":true,"body_markdown":"**Item\n7. Management’s Discussion and Analysis of Financial Condition and Results of Operation**\n\n \n\n**Critical\nAccounting Policies and Estimates**\n\n \n\nIn\npreparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America\n(U.S. GAAP), we have adopted various accounting policies. Our most significant accounting policies are disclosed in Note 1 to the consolidated\nfinancial statements.\n\n \n\nThe\npreparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that\naffect the amounts reported in the consolidated financial statements and accompanying notes. Our estimates and assumptions, including\nthose related to the ability to continue as a going concern, the recoverability of inventory and long-lived assets, the fair value of\nstock-based compensation, the fair value of debt, the fair value of derivative liabilities, recognition of loss contingencies and deferred\ntax valuation allowances are updated as appropriate, which in most cases is at least quarterly. We base our estimates on historical experience,\nor various assumptions that are believed to be reasonable under the circumstances and the results form the basis for making judgments\nabout the reported values of assets, liabilities, revenues and expenses. Actual results may materially differ from these estimates.\n\n \n\nWe\nbelieve that our critical accounting policies and estimates include our ability to continue as a going concern, revenue recognition,\naccounts receivable and allowance for doubtful accounts, inventory obsolescence, accounting for long–lived assets and accounting\nfor stock based compensation.\n\n \n\n*Ability\nto Continue as a Going Concern:*Our ability to continue as a going concern is contingent upon our ability to secure additional financing,\nincrease ownership equity, and attain profitable operations. In addition, our ability to continue as a going concern must be considered\nin light of the problems, expenses and complications frequently encountered in established markets and the competitive environment in\nwhich we operate.\n\n \n\n*Revenue\nRecognition:* The Company accounts for revenue from contracts with customers in accordance with Financial Accounting Standard Board\n(“FASB”) Accounting Standard Codification (“ASC”) Topic 606, *Revenue from Contracts with Customers* (“ASC\n606”). Under ASC Topic 606, revenue recognition has a five-step process: a) Determine whether a contract exists; b) Identify the\nperformance obligations; c) Determine the transaction price; d) Allocate the transaction price; and e) Recognize revenue when (or as)\nperformance obligations are satisfied.\n\n \n\nOur\nrevenues are primarily derived from customer orders for the purchase of our products. We recognize revenues as performance obligations\nare fulfilled upon shipment of products. We record revenues net of promotions and discounts. For certain product sales to a distributor,\nwe record revenue including a portion of the cash proceeds that is remitted back to the distributor.\n\n \n\n30\n\n \n\n \n\n*Accounts\nReceivable and Allowance for Credit Losses:*We grant credit without collateral to our customers based on our evaluation of a particular\ncustomer’s credit worthiness. Accounts receivable are due 30 days after the issuance of the invoice. In addition, the Company maintains\nan allowance for credit losses to reflect the current expected credit losses (“CECL”) over the contractual life of the receivables.\nAccounts receivable are written off after collection efforts have been deemed to be unsuccessful. Accounts written off as uncollectible\nare deducted from the allowance for doubtful accounts, while subsequent recoveries are netted against the provision for doubtful accounts\nexpense. We generally do not charge interest on accounts receivable. We use third party payment processors and are required to maintain\nreserve balances, which are included in accounts receivable.\n\n \n\nOur\naccounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers and\nthird party payment processors, net of estimated allowances for uncollectible accounts. In determining collectability, historical trends\nare evaluated and specific customer issues are reviewed to arrive at appropriate allowances.\n\n \n\n*Inventory\nObsolescence:* Inventories are valued at the lower of cost or net realizable value. We periodically perform an evaluation of inventory\nfor excess, impairments and obsolete items. At December 31, 2025, our inventory consisted entirely of raw materials and finished goods\nthat are utilized in the manufacturing of finished goods. These raw materials generally have expiration dates in excess of 10 years.\nCommencing on October 1, 2019, we classify inventory as short-term or long-term inventory based on timing of when it is expected to be\nconsumed.\n\n \n\n*Long-Lived\nAssets:* The carrying value of long-lived assets is reviewed annually and when events or changes in circumstances may suggest impairment\nhas occurred. If indicators of impairment are present, we determine whether the sum of the estimated undiscounted future cash flows attributable\nto 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\nthat the carrying value of the impaired asset exceeds the discounted cash flows expected to result from the use and eventual disposal\nof the impaired assets.\n\n \n\n*Derivative\nFinancial Instrument:*Management evaluates all of its financial instruments to determine if such instruments are derivatives or contain\nfeatures that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative\ninstrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported\nas charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing\nmodel to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments,\nincluding whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.\nDerivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement\nof the derivative instrument could be required within 12 months of the balance sheet date.\n\n \n\nWe\ndo not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.\n\n \n\n*Convertible\nDebt:*The Company adheres to ASU 2020-06, *Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives\nand Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)*. The update eliminates certain separation models, including\nthe beneficial conversion feature and cash conversion models, so convertible instruments issued after adoption are generally accounted\nfor as a single liability or equity instrument, unless a conversion feature requires separate derivative accounting under ASC 815. ASU\n2020-06 also amends diluted EPS guidance.\n\n \n\n*The\nFair Value Measurement Option:*We have elected the fair value measurement option for convertible debt with embedded derivatives that\nrequire bifurcation, and record the entire hybrid financing instrument at fair value under the guidance of ASC Topic 815, *Derivatives\nand Hedging*(“ASC Topic 815”). The Company reports interest expense, including accrued interest, related to this convertible\ndebt under the fair value option, within the change in fair value of convertible notes and derivatives in the accompanying consolidated\nstatements of operations.\n\n \n\n31\n\n \n\n \n\n*Derivative\nAccounting for Convertible Debt:* The Company evaluated the terms and conditions of the convertible debt under the guidance of ASC\n815, *Derivatives and Hedging*. The conversion terms of some of the convertible notes are variable based on certain factors, such\nas the future price of the Company’s common stock. The number of shares of common stock to be issued is based on the future price\nof the Company’s common stock. The number of shares of common stock issuable upon conversion of the debt is indeterminate. Due\nto the fact that the number of shares of common stock issuable could exceed the Company’s authorized share limit, the equity environment\nis tainted, and all additional convertible debt is included in the value of the derivative liabilities. Pursuant to ASC 815-15, *Embedded\nDerivatives*, the fair value of the convertible debt and shares to be issued were recorded as derivative liabilities on the issuance\ndate and revalued at each reporting period.\n\n \n\n*Share-Based\nCompensation:*We record share-based compensation in accordance with FASB ASC 718, *Stock Compensation*. FASB ASC 718 requires\nthat the cost resulting from all share-based transactions are recorded in the financial statements over the respective service periods.\nIt establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to\napply a fair-value-based measurement in accounting for share-based payment transactions with employees. FASB ASC 718 also establishes\nfair value as the measurement objective for transactions in which an entity acquires goods or services from non-employees in share-based\npayment transactions.\n\n \n\n**Accomplishments\nduring 2025 & Subsequent Accomplishments**\n\n \n\nIn\nOctober of 2025, we expanded our online efforts to include marketing and social media consultants to expand sales of Nyloxin and Pet\nPain-Away. This has led to a bigger footprint on Amazon as well as the placement of Pet Pain-Away on Chewy, the largest online pet site.\n\n \n\nThroughout\n2025, we have worked with our auditors and consultants to bring the Company’s financial reporting up to date. That allowed us to\nfile seven reports in 2025 (The annual report for 2022, all reports for 2023 as well as the first two quarters of 2024. To date, we have\nfiled an additional five reports in 2026 (3rd quarter and annual report for 2024 as well as the first three quarters of 2025).\n\n \n\n**Results\nof Operations**\n\n \n\n**Status\nof Operations**\n\n \n\nIn\nNovember 2014, we announced the recertification of our laboratory facility as the first step in re-engaging our drug development activities.\nIn September 2015, we received Orphan designation from the FDA for our lead drug candidate, RPI-78M for the treatment of Pediatric Multiple\nSclerosis. This will allow us to shorten the timeline on clinical studies and may allow an eventual *Fast Track*through the approval\nprocess. We are currently working with our consultants to prepare a pre-IND meeting with the FDA in order to gain approval of a protocol\nfor a Phase I/II clinical study in Pediatric MS. Our goal is to begin the study in late 2026.\n\n \n\nWe\nestimate that we will require approximately $1,500,000 to fund our existing operations over the next twelve months. These costs include:\n(i) compensation for seven (7) full-time employees; (ii) compensation for various consultants who we deem critical to our business; (iii)\nproduct liability insurance; and (iv) outside legal and accounting services. These costs reflected in (i) – (iv) do not include\nresearch and development costs or other costs associated with clinical studies.\n\n \n\nWe\nbegan generating revenues from the sale of Cobroxin in the fourth quarter of 2009 and from the sale of Nyloxin and Nyloxin Extra Strength\nin January of 2011. We began sales of Pet Pain-Away in December 2014. We began selling private label versions of our OTC products in\n2021. While sales have increased year over year, they have been limited and inconsistent. Our ability to meet our future operating expenses\nis highly dependent on the amount of such future revenues. If future revenues from the sale of our private label products, Nyloxin and\nPet Pain-Away are insufficient to cover our operating expenses we may need to raise additional equity capital, which could result in\nsubstantial dilution to existing shareholders. There can be no assurance that we will be able to raise sufficient equity capital to fund\nour working capital requirements on terms acceptable to us, or at all. We may also seek additional loans from our officers and directors;\nhowever, there can be no assurance that we will be successful in securing such additional loans.\n\n \n\n32\n\n \n\n \n\n**Comparison\nof Years Ended December 31, 2025 and 2024**\n\n \n\nNet\nsales to unrelated customers were $257,612 for the year ended December 31, 2025, compared to $246,309 for the year ended December 31,\n2024, representing an increase of $11,303, or approximately 4.59%. The increase was primarily driven by growth in private label customers\nand higher order volumes during 2025.\n\n \n\nNet\nsales to a related party were $127,695 for the year ended December 31, 2025, compared to $145,841 for the year ended December 31, 2024,\nrepresenting a decrease of $18,146, or approximately 12.44%. The decrease was primarily attributable to reduced sales volume and pricing\nduring the current year compared to the prior-year period.\n\n \n\nCost\nof sales for the year ended December 31, 2025 is $183,679 compared to $84,827 for the year ended December 31, 2024. Our cost of sales\nincludes the direct costs associated with manufacturing, shipping, handling costs, and inventory quality control personnel salaries.\nOur gross profit margin for the year ended December 31, 2025 is $196,628 or 51.03% compared to $247,323 or 63.07% for the year ended\nDecember 31, 2024. This gross margin includes reserves of $5,000 in the current year and $60,000 in the prior-year quarter for undelivered\nvenom and slow-moving inventory. Excluding the reserve, gross margin for the current year would be 52.36% compared to 78.37% for the\nprior-year period, with the variance primarily attributable to the addition of inventory quality control personnel costs, higher manufacturing\ncosts related to private label product sales to unrelated parties, as well as pricing changes in related party sales. \n\n \n\nOperating\nexpenses increased by $533,222, or 47.37%, from $1,125,744 for the year ended December 31, 2024 to $1,658,966 for the year ended\nDecember 31, 2025. The increase was primarily attributable to a $52,800 increase in the allowance for credit losses recorded during\n2025, higher consulting fees related to general business advisory services, increased payroll and compensation-related expenses\nassociated with expanded operational activities, and professional fees incurred in connection with the Company’s resumption of\nSEC filing activities, partially offset by a decrease in legal fees following the settlement of the SEC lawsuit. Consulting fees\nincreased by approximately $154,000, payroll increased by approximately $75,000, and professional fees increased by approximately\n$367,000, partially offset by a decrease in legal fees of approximately $130,000, among other changes.\n\n \n\nOther\nincome was $58,750 and $103,450 for the years ended December 31, 2025 and 2024, respectively. Amounts attributable to the amortization\nof debt discounts on convertible notes receivable were $3,750 and $3,450 for the years ended December 31, 2025 and 2024, respectively.\n$50,000 and $100,000 of other income was recognized under a short-term research and development services contract during the years ended\nDecember 31, 2025 and 2024, respectively. The remaining $5,000 relates to a one-time related-party reimbursement for shared equipment\nusage recognized in the second quarter of 2025.\n\n \n\nInterest\nexpense, including related party interest expense, increased $116,492 or 36.00%, from $323,568 for the year ended December 31, 2024 to\n$440,060 for the year ended December 31, 2025. This increase was primarily due to an increase in amortization of loan discounts in the\nyear ended December 31, 2025 compared to the year ended December 31, 2024.\n\n \n\nWe\ncarry certain of our debentures at fair value. Due to the fact that the number of shares of common stock issuable could exceed the Company’s\nauthorized share limit, the equity environment is tainted, and all additional convertible debt is included in the value of the derivative\nliabilities. For the years ended December 31, 2025 and 2024, the liability related to these hybrid instruments fluctuated, resulting\nin a loss of $257,270 and $220,902, respectively. Interest expense on these debentures is included in the change in fair value of convertible\nnotes and derivatives in the accompanying consolidated statements of operations.\n\n \n\nGain\non settlement of debts, accrued expense and vendor payable increased $19,748 or 58.46%, from a gain of $33,778 for the year ended December\n31, 2024 to a gain of $53,526 for the year ended December 31, 2025. The higher gain in 2025 was primarily attributable to a debt settlement\nexecuted during the second quarter. In contrast, the gain recognized in the 2024 period primarily resulted from settlements through the\nissuance of common stock in the first quarter of 2024, with the amount of gain influenced by fluctuations in the Company’s stock\nprice, as well as a gain on settlement of vendor payable recorded during the fourth quarter of 2024.\n\n \n\nAs\na result of the foregoing, our net loss increased by $761,729 or 59.25%, from net loss of $1,285,663 for the year ended December 31,\n2024 to a net loss of $2,047,392 for the year ended December 31, 2025.\n\n \n\nFor\nthe year ended December 31, 2025, net cash used in operating activities was approximately $1.16 million, compared to approximately $0.42\nmillion for the year ended December 31, 2024, representing an increase in cash used of approximately $0.74 million year over year.\n\n \n\nThe\nincrease in cash used in operating activities was primarily attributable to less favorable changes in working capital during 2025\ncompared to the prior year, partially offset by higher non-cash adjustments. In 2025, working capital changes resulted in a net cash\noutflow of approximately $0.21 million, compared to a net cash inflow of approximately $0.39 million in 2024, reflecting a\nyear-over-year unfavorable variance of approximately $0.18 million, largely attributable to higher consulting and professional fees.\nIn 2025, non-cash adjustments totaled approximately $0.67 million, compared to approximately $0.47 million in 2024. The increase was\nprimarily driven by $0.05 million of change in allowance for credit loss, $0.29 million of amortization of loan discounts, $0.26\nmillion related to the change in fair value of convertible notes and derivatives, and $0.09 million of amortization of operating\nlease right-of-use assets. Additional non-cash items included $0.03 million of stock-based compensation and $0.01 million of\ndepreciation, partially offset by a $0.05 million gain on settlement of debt and accrued expenses. Collectively, these factors led\nto higher cash used in operating activities in 2025 compared to 2024.\n\n \n\n33\n\n \n\n \n\nFor\nthe year ended December 31, 2025, net cash used in investing activities was approximately $0.05 million, primarily consisting of $0.03\nmillion of purchases of property and equipment and $0.03 million of advances on convertible notes receivable. Unlike the prior year,\nthere were no repayments on convertible notes receivable in 2025.\n\n \n\nFor\nthe year ended December 31, 2025, net cash provided by financing activities was approximately $1.19 million. Financing inflows were primarily\ndriven by $1.05 million of proceeds from convertible notes, $0.55 million of advances from the Company’s former CEO and an entity\nmajority controlled by him, and $0.11 million from other notes payable, partially offset by $0.29 million of repayments of other notes\npayable, $0.20 million of repayments of officer loans, and $0.04 million of repayments of convertible notes. Overall, financing activity\nin 2025 reflects a significant increase in capital raising through convertible debt compared to the prior year, which was the primary\nsource of liquidity during 2025. \n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nDuring\nDecember 31, 2025 and 2024, respectively, we had negative cash from operations of approximately $1.16 million and $0.42 million. Our\nlack of cash, significant losses and working capital deficits and stockholders’ deficits raise substantial doubt about our ability\nto continue as a going concern. For the years ended December 31, 2025 and 2024, we have experienced net loss of $2,047,392 and a net\nloss of $1,285,663, respectively, and had an accumulated deficit of $78,278,529 for the period from our inception to December 31, 2025.\nIn addition, we had working capital and stockholders’ deficits at December 31, 2025 of $16,813,637 and $16,825,306, respectively.\n\n \n\nOur\nability to continue as a going concern is contingent upon our ability to secure additional financing, increase ownership equity and attain\nprofitable operations. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses\nand complications frequently encountered in established markets and the competitive environment in which we operate.\n\n \n\nAs\nof December 31, 2025, we had $12,181 in cash and owed approximately $5.10 million in vendor payables and accrued expenses. We currently\ndo not have sufficient cash to sustain our operations for the next 12 months and will require additional financing or an increase in\nsales in order to execute our operating plan and continue as a going concern. Our plan is to continue to increase sales of our products\nand attempt to secure adequate funding to bridge the commercialization of our Nyloxin and Pet Pain-Away products. We cannot predict whether\nadditional financing will be in the form of equity, debt, or another form and we may be unable to obtain the necessary additional capital\non a timely basis, on acceptable terms, or at all. In the event that these financing sources do not materialize, or that we are unsuccessful\nin increasing our revenues and profits, we may be unable to implement our current plans for expansion, repay our obligations as they\nbecome due or continue as a going concern, any of which circumstances would have a material adverse effect on our business prospects,\nfinancial condition and results of operations.\n\n \n\nCurrent\noperations are primarily being funded through a combination of product sales, promissory notes and convertible notes. During the year\nended December 31, 2025, the Company raised $1,051,805 from the issuance of convertible notes and $112,650 from promissory notes. \n\n \n\nHistorically,\nwe have relied upon loans from our former Chief Executive Officer, Rik J Deitsch, to fund costs associated with our operations. As of\nDecember 31, 2025, the outstanding balance was $1,339,794, consisting entirely of amounts due to companies majority-owned and controlled\nby this officer, and is non-interest bearing. During the year ended December 31, 2025, the Company repaid an aggregate of $199,637 and\nreceived advances totaling $552,504. \n\n \n\n34\n\n \n\n \n\n**Uncertainties\nand Trends**\n\n \n\nOur\noperations and possible revenues are dependent now and in the future upon the following factors:\n\n \n\n \n●\nWhether\nwe successfully develop and commercialize products from our research and development activities.\n\n \n●\nIf\nwe fail to compete effectively in the intensely competitive biotechnology area, our operations and market position will be negatively\nimpacted.\n\n \n●\nIf\nwe fail to successfully execute our planned partnering and out-licensing of products or technologies, our future performance will\nbe adversely affected.\n\n \n●\nThe\nrecent economic downturn and related credit and financial market crisis may adversely affect our ability to obtain financing, conduct\nour operations and realize opportunities to successfully bring our technologies to market.\n\n \n●\nBiotechnology\nindustry related litigation is substantial and may continue to rise, leading to greater costs and unpredictable litigation.\n\n \n●\nIf\nwe fail to comply with extensive legal/regulatory requirements affecting the healthcare industry, we will face increased costs, and\npossibly penalties and business losses.\n\n \n\n**Off-Balance\nSheet Arrangements**\n\n \n\nWe\nhave not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under whom we\nhave:\n\n \n\n \n●\nAn\nobligation under a guarantee contract.\n\n \n●\nA\nretained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit,\nliquidity or market risk support to such entity for such assets.\n\n \n●\nAny\nobligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument.\n\n \n●\nAny\nobligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us\nand material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing,\nhedging or research and development services with us.\n\n \n\nWe\ndo not have any off-balance sheet arrangements or commitments that have a current or future effect on its financial condition, changes\nin financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material,\nother than those which may be disclosed in this Management’s Discussion and Analysis of Financial Condition and the audited Consolidated\nFinancial Statements and related notes.\n\n \n\n35"}