Notes
to the Condensed Consolidated Financial Statements
September
30, 2016
(Unaudited)
1.
Organization and Description of Business
Immune
Therapeutics, Inc. (the “Company”) was initially incorporated in Florida on December 2, 1993 as Resort Clubs International,
Inc. (“Resort Clubs”). It was formed to manage and market golf course properties in resort markets throughout the
United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on May 27, 1998 and began trading
in November 1999 through the filing of a 15C-211. On November 10, 2004, Galliano merged with Resort Clubs. Resort Clubs was the
surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”).
On
April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, we executed a share exchange
agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. On September 4, 2014, a majority of our
shareholders approved an amendment to our Amended and Restated Articles of Incorporation, as amended, to change our name to Immune
Therapeutics, Inc. We filed our name change amendment with the Secretary of State of Florida on October 27, 2014 changing our
name to Immune Therapeutics, Inc.
The
Company currently operates out of Orlando, Florida. In July 2012, the Company’s focus turned to acquiring patents that would
protect and advance the development of new uses of opioid-related immune- therapies, such as low dose naltrexone (“LDN”)
and Methionine [Met5]-enkephalin (“MENK”). Today, the Company is focused on the development and commercialization
of therapeutic treatments for cancer, HIV/AIDS, malaria, and opportunistic infections arising from their treatment, and commercializing
affordable, non-toxic therapies in Africa, to be followed by Asia and South America, and autoimmune diseases and immune disorders
by combating these severe and fatal diseases through the stimulation and/or regulation of the body’s immune system. The
Company’s therapies are believed to stimulate and/or regulate the immune system in such a way that they provide the potential
to treat a variety of diseases. We believe our therapies may be able to correct abnormalities or deficiencies in the immune system
in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer; all of which can lead to disease progression
and life-threatening situations when the immune system is not functioning optimally.
In
October 2012, the Company formed TNI BioTech International, Ltd., a BVI company in Tortola, British Virgin Islands, which was
set up to allow the Company to market and sell LDN in those countries outside the U.S. in which we have been able to obtain approval
to sell the Company’s products.
In
August 2013, the Company formed its United Kingdom subsidiary, TNI BioTech, LTD (the “UK Subsidiary”). The UK Subsidiary
received approval to be considered a micro, small or medium-sized enterprise (“SME”) with the European Medicines Agency
(“EMA”) on August 21, 2013. The designation provides the UK Subsidiary with significant discounts when holding meetings
or submitting filings to the EMA. On September 19, 2013, the UK Subsidiary submitted a pre-submission package to the EMA regarding
Crohn’s Disease. The EMA granted the UK Subsidiary a meeting that took place on September 27, 2013. The UK Subsidiary is
eligible to benefit from the provisions for administrative and financial assistance for SMEs set out in Regulation (EC) No 2049/2005.
The Company will apply to obtain EMA benefits once funding becomes available.
In
December 2013, the Company formed a new subsidiary, Cytocom Inc. (“Cytocom”). Cytocom is a clinical-stage pharmaceutical
company focused on the development of the first affordable non-toxic immunodulator for the treatment of inflammatory diseases,
immune-related disorders, and cancer, and is responsible for the development of the Company’s patented therapies under the
auspices of the FDA and EMA. In December 2014, the Company finalized the distribution of common stock of Cytocom to its shareholders.
As part of the transaction, the Company retained exclusive rights to all international patents, in-country approvals, formulations,
trademarks, manufacturing, marketing, sales, and distributions rights in emerging nations, including Africa, Central America,
South America, Russia, India, China, Far East, and The Commonwealth of Independent States (former Soviet Union). The Company will
continue to have access to existing clinical data as well as any new data generated by Cytocom during drug development. On December
8, 2014, the number of Cytocom shares of common stock that were issued to our shareholders totaled 113,242,522 shares. In connection
with the transaction, Cytocom issued 140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% equity
interest in Cytocom on that date. In April 2016, the Board of Directors and a majority of shareholders of Cytocom approved a reverse
stock split of Cytocom’s outstanding common stock with one new share of stock for each twenty old shares of common stock.
Cytocom effectuated and finalized the reverse split in June 2016. At September 30, 2016, the Company’s equity interest had
been further reduced to 17%, by subsequent issuances of Cytocom common stock to shareholders in settlement of notes payable.
In
March 2014, the Company incorporated Airmed Biopharma Limited, an Irish corporation with an address in Dublin, Ireland, and Airmed
Holdings Limited, an Irish company domiciled in Bermuda. The Irish companies were set up to benefit from incentives granted by
the Irish government for the establishment of pharmaceutical companies (many of the world’s leading pharmaceutical companies
have located in Ireland), and so that the Company could take advantage of Ireland’s status as a member of the European Union
and the European Economic Area. An Irish limited liability company enjoys a low corporate income tax rate of 12.5%, one of the
lowest in the world. The Irish-domiciled company hopes to qualify for tax incentives for Irish holding/headquartered companies
and to benefit from the network of double tax treaties that reduce withholding taxes. TNI BioTech International, Ltd. will manage
our international distribution, using product that is manufactured in Ireland and elsewhere.
Immune
Therapeutics is commercializing affordable non-toxic immunotherapies focused on the activation and rebalancing of the body’s
immune system. Stimulating the body’s immune system remains one of the most promising approaches in the treatment of cancers,
HIV, autoimmune diseases, inflammatory conditions and other opportunistic infections, and for treating chronic, often life-threatening,
diseases in Emerging Nations through the mobilization of the body’s immune system using existing clinical data.
As
of this date, neither we nor our collaboration partners are permitted to market our drug candidates in the United States until
we receive approval of a New Drug Application from the FDA. Neither we nor our collaboration partners have submitted an application
for or received marketing approval for any of our drug candidates. Obtaining approval of an NDA can be a lengthy, expensive and
uncertain process.
Going
Concern
The
Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private
equity financings. Management expects operating losses and negative cash flows to continue at more significant levels in the future.
As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval,
and commercialization of its product candidate and the achievement of a level of revenues adequate to support the Company’s
cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to
raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings,
and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s
operating plan, existing working capital at December 31, 2015 was not sufficient to meet the cash requirements to fund planned
operations through December 31, 2016 without additional sources of cash. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis
of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course
of business.
The
Company experienced a net loss from operations of $(14,627,993) and used cash and cash equivalents from operations in the amount
of $2,333,377 during the nine months ended September 30, 2016, resulting in stockholders deficit of $(7,464,769) at September
30, 2016.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion
of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present
fairly the financial position and results of operations for the periods presented have been made. The results for interim periods
are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be
read in conjunction with the financial statements of the Company for the year ended December 31, 2015 (including the notes thereto)
set forth in Form 10-K/A.
The
Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups
Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue for the year ended December 31,
2015. We are electing to use the extended transition period for complying with new or revised accounting standards under Section
102(b)(1) of the JOBS Act.
Use
of Estimates
The
preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from such estimates.
Cash,
Cash Equivalents, and Short-Term Investments
The
Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be
cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months
or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government
and U.S. government agency obligations. Cash equivalents are reported at fair value.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The
Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions
holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets. The cash accounts are insured by
the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2016, the Company has no uninsured cash balances.
Segment
and Geographic Information
Operating
segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the
chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
The Company views its operations and manages its business in one operating segment and does not segment the business for internal
reporting or decision making.
Fair
Value of Financial Instruments
In
accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 825, “
Financial Instruments”
, the Company calculates the fair value of its assets and liabilities which
qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements
when the fair value is different than the carrying value of those financial instruments. Cash and cash equivalents, accounts receivable
and accounts payable are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments.
The carrying value of notes payable also approximates fair value since they bear market rates of interest and other terms. None
of these instruments are held for trading purposes.
Fair
Value Measurements
The
ASC Topic 820,
Fair Value Measurements,
defines fair value, establishes a framework for measuring fair value in accordance
with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general,
fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not
available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.
Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include
amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable
parameters. Any such valuation adjustments are applied consistently over time.
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the
estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against
expense as incurred. Depreciation expense for the quarters ended September 30, 2016 and September 30, 2015 was $299 and $638,
respectively.
Intangible
Assets
Costs
incurred to acquire and/or develop the Company’s product licenses and patents are capitalized and amortized by straight-line
methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated
fair market value. At the end of 2015, the Company determined that the unamortized carrying amount recorded for the acquisition
of licenses and patents related to LDN were impaired, and recorded an impairment loss of $5,226,352. In 2014, the Company determined
that the carrying amount recoded for the acquisition of licenses and patents related to MENK were impaired, and recorded an impairment
loss of $9,908,477.
During
the quarters ended September 30, 2016 and September 30, 2015, the Company did not capitalize any costs to acquire and/or develop
the Company’s product licenses and patents. (See Note 10). Amortization expense for the quarters ended September 30, 2016
and September 30, 2015 was $0 and $444,175, respectively.
Impairment
of Long-Lived Assets
The
Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable as prescribed by ASC Topic 360-10-05, “
Property, Plant and Equipment
.” If
the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted
net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount
and its estimated fair value. No impairment losses were recognized for the quarters ended September 30, 2016 and September 30,
2015.
Research
and Development Costs
Research
and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies,
clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain
research and development activities on the Company’s behalf and third-party service fees, including clinical research organizations
and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation
of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information
provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements,
which may differ from the pattern of costs incurred, and are reflected in the financial statements as operating expenses.
Income
Taxes
The
Company follows FASB ASC Topic 740,
“Income Taxes,”
which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax
assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will
not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled.
The
standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded
in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only
if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based
on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic
740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods
and requires increased disclosures. At the date of adoption, and as of December 31, 2015 and September 30, 2016, the Company does
not have a liability for unrecognized tax uncertainties.
The
Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. At the end of the
quarters ended September 30, 2016 and September 30, 2015, the Company had not accrued any interest or penalties related to uncertain
tax positions.
Stock-Based
Compensation and Issuance of Stock for Non-Cash Consideration
The
Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including
employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration
received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by
consultants and others and has been valued at the fair market value of the Company’s common stock at the date of the agreement.
The
Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services
follows the provisions of ASC Topic 505-50, “
Equity-Based Payments to Non-Employees
.” The measurement date
for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
Non-controlling
Interest
In
accordance with ASC 810,
Consolidation
, the Company consolidates Cytocom, Inc. The non-controlling interests in Cytocom
represent the interests of outside shareholders in the equity and results of operations of Cytocom.
Net
Loss per Share
Basic
net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of
common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated
by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using
the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase
warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate
basic and diluted shares outstanding due to the Company’s net loss position.
A
calculation of basic and diluted net loss per share follows:
|
|
For
the three months ended
September 30,
|
|
|
For
the six months ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,943,942
|
)
|
|
$
|
(4,025,309
|
)
|
|
$
|
(14,627,993
|
)
|
|
$
|
(9,499,641
|
)
|
Net
loss attributed to Common stockholders
|
|
$
|
(3,936,501
|
)
|
|
$
|
(3,859,550
|
)
|
|
$
|
(14,466,503
|
)
|
|
$
|
(9,070,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted net loss per share
|
|
|
226,843,113
|
|
|
|
156,814,094
|
|
|
|
208,399,547
|
|
|
|
147,365,571
|
|
Basic
and diluted net loss per share attributed to common stockholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.06
|
)
|
The
Company’s potential dilutive securities which include stock, stock warrants and convertible debt have been excluded from
the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average
Common stock outstanding used to calculate both basic and diluted net loss per share is the same.
The
following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares
outstanding as the effect of including such securities would be antidilutive:
|
|
As
of September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Warrants
to purchase Common stock
|
|
|
32,623,908
|
|
|
|
9,355,250
|
|
|
|
|
32,623,908
|
|
|
|
9,355,250
|
|
Recent
Accounting Standards
During
the quarter ended September 30, 2016, there were several new accounting pronouncements issued by the Financial Accounting Standards
Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the
adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated
financial statements.
The
Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups
Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as
of December 31, 2015, our last fiscal year. We are electing to use the extended transition period for complying with new or revised
accounting standards under Section 102(b)(1) of the JOBS Act.
3.
Property and Equipment
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
Property
and equipment:
|
|
|
|
|
|
|
|
|
Computer
equipment
|
|
$
|
8,013
|
|
|
$
|
8,013
|
|
|
|
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(7,611
|
)
|
|
|
(6,331
|
)
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
402
|
|
|
$
|
1,682
|
|
The
Company utilizes the straight-line method for depreciation, using three to five-year depreciable asset lives. Depreciation expense
was not material for all periods presented.
4.
Accrued Liabilities
Accrued
expenses and other liabilities consist of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
(in
thousands)
|
|
Accrued
payroll to officers and others
|
|
$
|
934
|
|
|
$
|
758
|
|
Accrued
interest and penalties - notes payable
|
|
|
1,319
|
|
|
|
237
|
|
Accrued
legal settlements
|
|
|
143
|
|
|
|
282
|
|
Other
accrued liabilities
|
|
|
1
|
|
|
|
4
|
|
Total
accrued expenses and other liabilities
|
|
$
|
2,397
|
|
|
$
|
1,281
|
|
5.
Notes Payable
Notes
payable consist of the following:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
Promissory
note issued July 29, 2014 to Ira Gaines. The note matures on January 27, 2015 and earns interest at a rate of 18% per annum.
The Company was unable to repay the note at maturity and the note is in default, although no demand for repayment has been
made by the lender.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued between November 26, 2014 and September 30, 2015, to raise up to $2,000,000 in debt. Lenders earn interest at
a rate of 10% per annum, plus a pro-rata share of two percent of the Company’s gross receipts for sales of IRT-103-LDN
in perpetuity. Notes will be repaid in 36 monthly installments of principal and interest commencing no later than October
15, 2015. Principal of $425,500 and accrued interest of $37,427 were converted to 5,309,092 shares of common stock in the
nine months ended September 30, 2016, Notes aggregating $286,000 were in default at September 30, 2016, as the Company was
unable to pay installments on those notes on their due dates. No demands for repayment have been made by the lenders.
|
|
|
286,000
|
|
|
|
711,500
|
|
|
|
|
|
|
|
|
|
|
Promissory
note issued October 17, 2014 to Roger Bozarth. The note matures on October 17, 2015 and earns interest at a rate of 2% per
annum. The lender converted this note and $2,139 in accrued interest to 114,237 shares of common stock in January 2016.
|
|
|
-
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued between May 1, 2015 and September 30, 2016, and maturing between June 14, 2015 and June 30, 2017. Lenders on
loans aggregating $535,994 earn interest at rates between 10% and 18% per annum. On loans aggregating $198,500, interest is
payable in a fixed amount not tied to a specific interest rate. Notes aggregating $198,500 were in default at September 30,
2016, as the Company was unable to repay those notes on their due dates. No demands for repayment have been made by the lenders.
|
|
|
734,494
|
|
|
|
669,933
|
|
|
|
|
|
|
|
|
|
|
Promissory
note issued January 26, 2015 to Robert J. Dailey. The note is senior to, and has priority in right of payment over, all indebtedness
of the Company. The note earns interest at a rate of 2% per annum and was due on July 30, 2015. Principal of $200,000 and
accrued interest of $4,778 was converted to 3,722,015 shares of common stock in the nine months ending September 30, 2016.
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued by Cytocom Inc. between April 29, 2015 and December 31, 2015. Lenders earn interest at rates between 5% and 10%
per annum. These notes mature on September 30, 2016. $375,000 of principal and $12,036 in accrued interest was converted to
4,837,960 shares of common stock in the nine months ending September 30, 2016. The Company was unable to repay the remaining
notes at maturity and the notes are in default, although no demand for repayment has been made by the lenders.
|
|
|
425,000
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued in December 2015. Lenders earn interest at a rate of 10% per month. Notes are repayable on March 9, 2016. . $30,000
of principal and $49,000 of interest and penalties were converted to 987,500 shares of common stock in the nine months ended
September 30, 2016. The Company was unable to repay the remaining note at maturity and the note is in default The Company
is obligated to pay late-payment penalties totaling $5,000 per day on the remaining obligation.
|
|
|
100,000
|
|
|
|
130,000
|
|
Promissory
note issued November 24, 2015 as settlement of amounts owing to a law firm. The Lender earns interest at the rate of 10% per
annum. The note and $10,036 in interest was converted to 1,235,536 shares of common stock in July 2016.
|
|
|
-
|
|
|
|
175,268
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued between May 5, 2016 and June 2, 2016 that mature between October 1, 2016 and January 31, 2017, and include stock
conversion features, warrants and original issue debt discounts. Notes aggregating $305,000 were in default at November 14,
2016. No demand for repayment has been made by the lenders.
|
|
|
555,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued to an officer of the Company effective November 3, 2015 and maturing November 3, 2016 for settlement of accrued
payroll, bearing interest at 10% per annum and including a stock conversion feature.
|
|
|
112,737
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
note issued in July 2016. The note is repayable on October 5, 2016. The note earns interest at 6% per month. The Company was
unable to repay the note at maturity and the note is in default.
|
|
|
50,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
note dated April 2016, issued to JM Financial (“JMJ”), pursuant to which JMJ loaned the Company $525,000 and was
issued the promissory note, 500,000 shares of common stock, and a warrant exercisable for 3,515,621 additional common shares
at a rate of $0.14 per share. The note matures on January 6, 2017. The note was repaid on November 4, 2016.
|
|
|
656,250
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
note issued in July 2016 with an original issuance discount of $30,000. Net proceeds were $150,000. The note is repayable
on April 7, 2017.
|
|
|
180,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued in August 2016 for $149,854 as a settlement of amounts owed to a law firm. The notes accrue interest at 5% per
annum and are payable in 18 equal monthly installments of $8,641.88.
|
|
|
146,912
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes issued between July 1, 2016 and September 30, 2016. Lenders earn interest at 12% per annum. The notes mature between
January 1, 2017 and March 31, 2017.
|
|
|
495,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less:
Original issue discounts on notes payable and warrants issued with notes.
|
|
|
(267,695
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,573,698
|
|
|
|
2,793,701
|
|
|
|
|
|
|
|
|
|
|
Less:
Current Portion
|
|
$
|
(3,573,698
|
)
|
|
$
|
(2,793,701
|
)
|
|
|
|
|
|
|
|
|
|
Long-Term
debt, less current portion
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of September 30, 2016, the Company had accrued $278,089 in unpaid interest and $1,041,502 in unpaid default penalties, compared
to $217,717 and 18,954, respectively, as of December 31, 2015. During the three months ended September 30, 2016, 225,000 shares
with a fair value of $42,750 were issued by the Company for interest expense under promissory notes.
6.
Capital Structure—Common Stock and Common Stock Purchase Warrants
Each
holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares
of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional
issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized
or whether issued for money, for consideration other than money, or by way of dividend.
As
of September 30, 2016 and 2015, the Company was authorized to issue 500,000,000 common shares at a par value of $0.0001 per share.
As
of September 30, 2016, the Company had 235,831,298 shares of common stock outstanding, and 174,850,047 outstanding as of December
31, 2015.
Stock
Warrants
In
the quarter ended September 30, 2016, the Company issued 2,000,000 warrants.
There
were no modifications of the terms of any warrants issued by the Company in the quarter ended September 30, 2015.
Following
is a summary of outstanding stock warrants at September 30, 2016 and activity during the nine months then ended:
|
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
Weighted
Average Price
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
as of December 31, 2015
|
|
|
9,131,500
|
|
|
$
|
0.07-15.00
|
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
in 2016
|
|
|
25,654,908
|
|
|
$
|
0.14-2.00
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(162,500
|
)
|
|
$
|
5.00
|
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(0
|
)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
as of September 30, 2016
|
|
|
34,623,908
|
|
|
$
|
0.07-15.00
|
|
|
$
|
0..50
|
|
Summary
of outstanding warrants as of September 30, 2016:
Expiration
Date
|
|
Number
of
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 2017
|
|
|
350,000
|
|
|
$
|
1.50-9.00
|
|
|
|
1.25
|
|
First
Quarter 2018
|
|
|
127,500
|
|
|
$
|
15.00
|
|
|
|
1.50
|
|
Second
Quarter 2018
|
|
|
33,334
|
|
|
$
|
15.00
|
|
|
|
1.75
|
|
Third
Quarter 2018
|
|
|
250,000
|
|
|
$
|
1.50
|
|
|
|
2.00
|
|
Fourth
Quarter 2018
|
|
|
6,089,166
|
|
|
$
|
1.00-1.50
|
|
|
|
2.25
|
|
First
Quarter 2019
|
|
|
4,024,000
|
|
|
$
|
0.50-2.00
|
|
|
|
2.50
|
|
Second
Quarter 2019
|
|
|
135,000
|
|
|
$
|
0.07–0.23
|
|
|
|
2.75
|
|
Third
Quarter 2019
|
|
|
260,000
|
|
|
$
|
0.50-1.50
|
|
|
|
3.00
|
|
Fourth
Quarter 2019
|
|
|
400,000
|
|
|
$
|
0.14
|
|
|
|
3.25
|
|
Second
Quarter 2020
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
|
3.75
|
|
Fourth
Quarter 2020
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
|
4.00
|
|
First
Quarter 2021
|
|
|
12,650,000
|
|
|
$
|
0.20
|
|
|
|
4.25
|
|
Second
Quarter 2021
|
|
|
6,004,908
|
|
|
$
|
0.10-0.20
|
|
|
|
4.50
|
|
Third
Quarter 2021
|
|
|
3,000,000
|
|
|
$
|
0.20
|
|
|
|
4.75
|
|
7.
Stock Compensation
Shares
Issued for Services
During
the nine months ended September 30, 2016 and 2015, the Company issued 29,283,910 and 16,922,504 shares of common stock respectively
for consulting fees. The Company valued these shares at $5,420,760 and $1,029,375 respectively, based upon the fair value of the
common stock at the dates of the agreements. The consulting fees are amortized over the contract periods, which are typically
between 12 and 24 months. The amortization of prepaid services totaled $2,315,190 and $3,895,018 for the nine months ended September
30, 2016 and 2015. In the nine months ended September 30, 2016, the company also issued and expensed $2,088,759 of stock for services.
8.
Income Taxes
-
Results of Operations
There
was no income tax expense reflected in the results of operations for the quarters ended September 30, 2016 and 2015 because the
Company incurred a net loss in both quarters.
The
Company has recognized no tax benefit for the losses generated for the periods through December 31, 2015. ASC Topic 740 requires
that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not
be realized. The Company’s ability to realize the benefit of its deferred tax asset will depend on the generation of future
taxable income. Because the Company has yet to recognize revenue, we believe that the full valuation allowance should be provided.
The
Company’s effective tax rate for fiscal years 2015 and 2013 was 0%. The Company’s tax rate can be affected by recurring
items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions. It may also be affected
by discrete items that may occur in any given year, but are not consistent from year to year.
As
of December 31, 2015, the Company has estimated federal and state income tax net operating loss (“NOL”) carry-forwards
of approximately $66,500,000, which will expire in 2032-2035.
9.
Licenses and Supply Agreements
Patent
and Subsidiary Acquisition
The
Company has not entered into any new licenses or supply agreements during quarter ending September 30, 2016. All prior licenses,
supply agreements, and patents remain unchanged from the prior quarter.
10.
Commitments and Contingencies
Except
as described below,
t
he Company has not created any new commitments or contingency obligations during quarter ending September
30, 2016. All other prior commitments and contingent obligations remain unchanged from the prior quarter.
Distribution
of Lodonal
TM
in Nigeria
Through
its wholly-owned subsidiary, TNI BioTech International, Ltd., in December 2015 the Company completed a 90-day bridging trial for
the treatment of patients with HIV/AIDS. The trial consisted of a total of 150 patients of both genders between the ages of 18-60,
each of whom was infected HIV/AIDS. The primary objective of this bridging trial was to confirm that Lodonal
TM
has
a beneficial effect on the immune system of immune deficient patients and that it is safe. The trial separated patients into a
Control (placebo) Group and a Treatment Group (which was administered Lodonal
TM
). The efficacy of increasing CD4 count
[cell/mm3] between Day-1 and Day-90 by at least 25% was set as the criteria for demonstrating beneficial effect on the immune
system. Safety was demonstrated through quality of life assessment and vitals both of which were not adversely affected. Treatment
Group patients were given a daily dose of 4.5-mg/kg of Lodonal.
In
April 2016, the Company announced that Nigeria’s National Agency for Food and Drug Administration and Control (“NAFDAC”)
had approved its Lodonal
TM
as an over the counter, non-toxic adjunct therapy in the treatment of HIV/AIDS and immune
system regulator. NAFDAC is the Nigerian agency under the Federal Ministry of Health that is responsible for regulating and controlling
the manufacture, import/export, distribution, sale and use of food and drugs. The NAFDAC approval clears the way for the Company
and its distribution partners to complete the registration of Lodonal
TM
for sale in Nigeria. The Company is currently
completing the registration process to allow it to import the drug into Nigeria.
Other
Distribution Agreements
Contract
Manufacturing Agreements
On
May 16, 2016, the Company entered into an agreement with Complete Pharmacy and Medical Solutions, LLC (“CPMS”) to
compound, package and distribute the LDN tablets, capsules and/or creams in the United States. The initial term of the agreement
is three years, with the option to renew for an additional year. The agreement may be terminated by (i) mutual agreement, (ii)
in the event of a breach, provided however that if the Company terminates the agreement, the Company will be required to reimburse
CPMS for all unused packaging materials for the LDN, which unused packaging materials CPMS will provide to IMUN. If CPMS does
not receive and ship at least 1,000 orders (prescriptions) during the term of the agreement, the Company will be required to reimburse
CPMS for 100% of the “ramp up costs” (defined as all costs and expenses of labor and materials related to the testing,
and required FDA and other governmental documentation/approvals of test data) of providing and producing the LDN, even where the
Company cancels/terminates the agreement, which provision shall survive the cancellation/termination of the agreement.
On October 25, 2016, the Company and Acromax
Dominicana, SA ("Acromax") entered into a contract for manufacturing of LDN tablets, capsules and/or creams ("Agreement").
Subject to the terms and conditions of the Agreement, Acromax will obtain all necessary licenses and permits to carry out the
manufacturing and packaging of LDN in exchange for a fixed fee per tablet plus an additional fee for packaging, shipping and customs
clearance. The Agreement has an initial term of five years unless terminated by either party in accordance with the terms.
Operating
Leases
At
September 30, 2016, the Company was a party to an agreement to lease office space in Orlando, Florida. Rent expense for the quarters
ended September 30, 2016 and 2015 was $4,009 and $4,988, respectively.
Legal
Proceedings
None.
11.
Subsequent Events
In
October 2016, the Company and its wholly owned subsidiary, TNI BioTech International, Ltd., and GB Pharma Holdings, LLC (“GBPH”),
entered into an exclusive agency agreement (“Agency Agreement”) that replaced the agency agreement originally entered
into in June 2014 between GBPH and Airmed Biopharma Limited. Subject to the terms and conditions of the Agency Agreement, the
Company appointed GBPH as its exclusive agent to (i) assist the Company in obtaining governmental approvals for the sale of LDN
and MENK (“Products”) in countries specified in the agreement, (ii) facilitate the registration of the Products in
those countries, (iii) identify and present to the Company distributors for the Products in those countries, and (iv) subject
to GBPH meeting certain requirements, enter into distribution agreements with the specified organizations to distribute the Products
in the countries. The Company has agreed pay GBPH a commission of 12.5% of funds received by the Company from such sales. The
Agency Agreement has an initial term of five years, and will automatically renew for additional one year terms unless terminated
by either party in accordance with its terms. If the Company sells or disposes of all or substantially all of its assets, whether
by purchase, merger or otherwise, the Company shall have the right to terminate the Agency Agreement immediately, whereupon the
Company will be obligated to pay Agent a royalty in perpetuity in an amount equal to one percent of funds actually received by
the Company from the sale of the Products in the specified countries, after the deduction of certain costs of sale.
In
October 2016, the Company amended a promissory note dated July 6, 2015, and settled a portion of the principal owed under the
note and accrued and unpaid interest to the date of the amendment. In accordance with the amendment, the Company repaid $50,000
of the $100,000 principal owed, issued 2,000,000 shares of the Company’s common stock to the note holder in full satisfaction
of the accrued and unpaid interest to the date of the amendment, and caused Cytocom to issue 250,000 shares of its common stock
in return for the note holder’s agreement to reduce the annual interest rate on the note from 18% to 10% and to extend the
maturity date of the note from September 6, 2016 to December 31, 2016.
In
October 2016, the company borrowed an additional $165,000.
In
October 2016, the Company issued 1,300,000 shares of common stock for consulting services.
In
October 2016, the company issued 300,000 shares of common stock for lending fees.
On
or around October 25, 2016, the Company issued a promissory note in the principal amount of $25,000.00 to Noreen Griffin in consideration
for past payroll due Ms. Griffin. Ms. Griffin sold the note to a minority shareholder for $25,000.00 on October 25, 2016. This
note was subsequently converted to 500,000 shares of common stock.
On
November 1, 2016, the Company issued promissory notes for $750,000, paying interest at 2% per month, and maturing on November
1, 2017. $656,250 of the proceeds were used to pay off the JMJ Financial note, with the remainder to be used for general obligations.
As
of November 14, 2016, the Company had outstanding 241,128,131 shares of common stock.