Notes
to the Condensed Consolidated Financial Statements
September
30, 2018
(Unaudited)
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”). 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 subsidiary, Cytocom Inc. (“Cytocom”), to focus on conducting LDN and MENK clinical
trials in the United States. In December 2014, the Company finalized the distribution of common stock of Cytocom to its shareholders.
As part of the transaction (“Original Agreement”), the Company transferred to Cytocom certain of its rights, title
and interest in or relating to intellectual property (i) patents, patent applications, and all divisional, continuations and continuations-in-part
thereof, together with all reissues, reexaminations, renewals and extensions thereof and all rights to obtain such divisionals,
continuations and continuations-in-part, reissues, reexaminations, renewals and extensions, and all utility models and statutory
invention registrations and any other such analogous rights, (ii) trademarks, service marks, Internet domain names, trade dress,
trade styles, logos, trade names, services names, brand names, corporate names, assumed business names and general intangibles
and other source identifiers of a like nature, together with the goodwill associated with any of the foregoing, and all registrations
and applications for registrations thereof, together with all renewals and extensions thereof and all rights to obtain such renewals
and extensions, (iii) copyrights, mask work rights, database and design rights, moral rights and rights in Internet websites,
whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications
in connection therewith, together with all renewals, continuations, reversions and extensions thereof and all rights to obtain
such renewals, continuations, reversions and extensions, and (iv) confidential and proprietary information, including, trade secrets
and know-how. Cytocom licensed back to the Company a perpetual, non-exclusive, royalty-free right and license to use the assigned
intellectual property for veterinary indications and for the marketing rights to emerging markets, access to all clinical data,
use of the formulation for LDN and MENK.
The
Original Agreement also granted the Company rights to market Lodonal™ and Met-Enkephalin (“MENK”) in “Emerging
Markets,” which included all countries excluding Canada, Italy, Japan, France, Germany, United Kingdom, European Community
and the United States. Pursuant to the Original Agreement, the Company was required to pay Cytocom a 5% royalty on all sales all
ongoing drug development and fees due in connection with the underlying patents until such time as Cytocom was funded.
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 above-mentioned transaction to transfer intellectual property to Cytocom, Cytocom issued an additional
140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% stake 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.
On
May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with
Cytocom. The Restated Agreement restates the licensing arrangement between the Company and Cytocom as provided by the Original
Agreement. The Restated Agreement grants the Company distribution and marketing rights for Lodonal™ and MENK for humans
in Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and MENK for
animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no longer
has any ongoing obligations to pay for costs in connection with the assets of Cytocom.
On
June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement. Pursuant to the Stock
Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the
issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis. The Restated Agreement was a condition
of the Stock Agreement.
At
September 30, 2018, the Company’s equity interest in Cytocom stood at 15.95% of Cytocom’s common stock issued and
outstanding on that date. The Company’s policies with respect to accounting for its equity interest in Cytocom is described
in Note 2 to the “Notes to the Condensed Consolidated Financial Statements” below (“Summary of Significant Accounting
Policies: Non-Controlling Interest in Consolidated Subsidiaries”).
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.
Today,
the Company is a clinical late-stage T-Cell Activation biopharmaceutical company focused on the development immunotherapies for
the treatment of autoimmune and inflammatory conditions, cancer, HIV/AIDS and animal diseases on a global basis.
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 experienced a net loss from operations of $650,443, and used cash and cash equivalents for operations in the amount of
$924,944 during the quarter ended September 30, 2018, resulting in stockholder’s deficit of $380,266,762 at that
date.
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 the sale of products, additional private or public
debt or equity offerings, and it may also seek additional capital through arrangements with strategic partners or from other sources.
Based on the Company’s operating plan, existing working capital at September 30, 2018 was not sufficient to meet the cash
requirements to fund planned operations for the next 12 months without additional sources of cash. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern. The accompanying consolidated 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.
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, 2017 (including the notes thereto)
set forth in Form 10-K.
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,
2017. 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.
Non-Controlling
Interest in Consolidated Subsidiaries
Prior
to May 1, 2018, the Company consolidated Cytocom. On May 1, 2018, the Company entered into an amended and restated licensing agreement
(the “Restated Agreement”) with Cytocom, Inc., in accordance with which the Company no longer has any ongoing obligations
to pay for costs in connection with the assets of Cytocom. On June 4, 2018, the Company and Cytocom entered into a Stock Purchase
Agreement (the “Stock Agreement”). Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000
of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated
on a fully diluted basis on June 4, 2018. At September 30, 2018, the Company’s equity interest in Cytocom stood at 15.95%
of Cytocom’s common stock issued and outstanding. Accordingly, the Company deconsolidated Cytocom as of May 1, 2018, and
accounts for its retained interest in Cytocom under the equity method of accounting, with the Company’s share of Cytocom’s
earnings recorded in “loss from equity method investment” in the consolidated statements of operations. The condensed
consolidated financial statements as of September 30, 2018 exclude the assets, liabilities and operating results of Cytocom after
May 1, 2018.
Revenue
Recognition
We
recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped.
For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single
set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. It is effective
for annual and interim reporting periods beginning after December 15, 2017. We believe the new standard will not have a material
impact on our consolidated financial position and consolidated results of operations, as we do not expect to change the manner
or timing of recognizing revenue on a majority of our revenue transactions once we commence revenue-generating activities.
Leases
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over
12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset
initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases
on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating
lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing
lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest
expense (for interest on the lease liability). This standard will be effective for our interim and annual periods beginning January
1, 2019, and must be applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of
the earliest comparative period presented in the financial statements. Early adoption is permitted. We are currently evaluating
the timing of adoption and the potential impact of this standard on our financial position, but we do not expect it to have a
material impact on our results of operations.
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, 2018, the Company had no cash balances in excess of
insured limits.
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 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 approximate 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 Measurement,
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.
Inventory
Inventories
comprise finished product, raw materials and materials used for packaging. Inventories are stated at the lower of cost or market
with cost based on the first-in, first-out (FIFO) method. Inventory that can be used in either the production of clinical or commercial
products is expensed as research and development costs when identified for use in a clinical trials or clinical manufacturing
campaigns. Inventory used in marketing activities is charged to selling, general and administrative expense.
Fixed
Assets
Fixed
assets 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 three months ended September 30, 2018 and September 30, 2017 was $217 and $269 respectively.
Impairment
of Long-Lived Assets
The
Company evaluates long-lived assets for impairment whenever events or change 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.
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 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 September 30, 2018 and 2017, 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. As of September 30,
2018, and 2017, the Company has not accrued any interest or penalties related to uncertain tax positions.
In
February 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2018-02,
Reclassification
of Certain Tax Effects from Accumulated Other Comprehensive Income
, which amends ASC Topic 220, Income Statement - Reporting
Comprehensive Income. This ASU allows for tax effects in accumulated other comprehensive income resulting from the Tax Cuts and
Jobs Act to be reclassified as retained earnings. This ASU is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect this guidance may
have on its financial position, results of operations, comprehensive income, cash flows and disclosures.
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 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.
Net
Loss per Share of Common Stock
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 net loss per share follows:
|
|
For the three months ended
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Profit/(Loss)
|
|
$
|
(2,602,412
|
)
|
|
$
|
(1,382,268
|
)
|
|
$
|
(7,681,961
|
)
|
|
$
|
(3,671,484
|
)
|
Weighted-average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
407,253,837
|
|
|
|
341,109,212
|
|
|
|
396,863,363
|
|
|
|
301,844,205
|
|
Profit/(Loss) per share outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
The
Company’s potential dilutive securities which include warrants (as described in Note 8 to the Financial Statements –
“Capital Structure – Common Stock and Common Stock Purchase Warrants”), have been excluded from the computation
of diluted net loss per share as the effect would be to reduce the net loss per share.
Recent
Accounting Standards
During
the quarter ended September 30, 2018, 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.
3.
Fixed Assets
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Fixed Assets:
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
12,997
|
|
|
$
|
11,243
|
|
Less accumulated depreciation
|
|
|
(9,798
|
)
|
|
|
(8,714
|
)
|
Fixed assets, net
|
|
$
|
3,199
|
|
|
$
|
2,529
|
|
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.
Investments: Deconsolidation of Cytocom
In
accordance with the May 1, 2018 “Restated Agreement” with Cytocom, the Company no longer has any ongoing obligations
to pay for costs in connection with the assets of Cytocom. Accordingly, effective May 1, 2018, the Company deconsolidated Cytocom.
However, the Company exercises influence through its retained equity interest and through representation on Cytocom’s board
of directors. As a result, the Company uses the equity method to account for its retained interest in Cytocom
On
May 1, 2018, the Company recorded an equity method investment in Cytocom of $1,189, the par value of Cytocom common stock multiplied
by the number of shares owned by the Company, due to the negative equity associated with Cytocom’s underlying financial
position. As a result of the continuing losses in Cytocom, the balance of this investment is currently $0.
At
September 30, 2018, Cytocom had no significant assets or income. Cytocom notes payable on that date aggregated $1,193,500.
5.
Accrued Liabilities
Accrued
expenses and other liabilities consist of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Accrued payroll to officers and others
|
|
|
2,212,393
|
|
|
|
1,539,777
|
|
Accrued interest and penalties - notes payable
|
|
|
738,878
|
|
|
|
703,141
|
|
Estimated legal settlements
|
|
|
136,057
|
|
|
|
136,057
|
|
Other accrued liabilities
|
|
|
23,095
|
|
|
|
393
|
|
Estimated loss on note conversions
|
|
|
-
|
|
|
|
110,036
|
|
Derivative Liability
|
|
|
1,448,784
|
|
|
|
1,669,532
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other liabilities
|
|
$
|
4,559,207
|
|
|
$
|
4,158,936
|
|
6.
Notes Payable
Notes
payable consist of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Promissory note issued July 29, 2014 to Ira Gaines. In 2016, the maturity date on the note was extended to December 1, 2017. As of September 30, 2018, the note is in default. The note earns interest at a rate of 18% per annum.
|
|
$
|
100,000
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between November 26, 2014 and December 31, 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. These notes were in default at September 30, 2018, as the Company was unable to pay installments on their due dates.
|
|
|
286,000
|
|
|
|
286,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between May 1, 2015 and December 31, 2016, and maturing between June 14, 2015 and December 1, 2017. Lenders on loans aggregating $375,994 earn interest at rates between 2% and 18% per annum. On loans aggregating $100,000, interest is payable in a fixed amount not tied to a specific interest rate. Notes aggregating $475,994 were in default at September 30, 2018, as the Company was unable to repay those notes on their due dates. $130,000 of the notes were deconsolidated on May 1, 2018 and $100,000 of the notes along with $150,000 of interest were extinguished in July 2018.
|
|
|
475,994
|
|
|
|
705,994
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued by Cytocom between April 29, 2015 and December 31, 2015. Lenders earn interest at rates between 5% and 10% per annum. These notes mature on December 31, 2016. At September 30, 2018, the notes were in default. These notes were deconsolidated on May 1, 2018.
|
|
|
-
|
|
|
|
425,000
|
|
|
|
|
|
|
|
|
|
|
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. The Company was unable to repay the note at maturity and at September 30, 2018 the note was in default.
|
|
|
97,737
|
|
|
|
97,737
|
|
Promissory note issued in July 2016. The note was repayable on October 5, 2016 but was extended to December 31, 2016. The note earns interest at 6% per month. The Company was unable to repay the note at maturity and at September 30, 2018 the note was in default.
This note was extinguished on July 1, 2018.
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note for $180,000 was issued in July 2016 with an original issue discount of $30,000. The note is repayable on April 7, 2017. The Company was unable to repay the note at maturity and at September 30, 2018 the note was in default. Under the terms of the note, the principal amount was increased in 2017 to $243,000, and interest accrued at 25% per annum. $161,976 of principal and $20,025 of accrued interest were converted into 7,447,448 shares, of which 5,500,000 shares were issued at the end of 2017. The Company has accrued a $243,199 derivative liability for the $81,024 principal balance attributable to the conversion feature contained in this note. The note was settled in the quarter ended March 31, 2018.
|
|
|
-
|
|
|
|
81,024
|
|
|
|
|
|
|
|
|
|
|
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 $8,642. The note was in default on September 30, 2018. The balance due was reclassified as accounts payable.
|
|
|
-
|
|
|
|
17,284
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between July 1, 2016 and December 31, 2016. Lenders earn interest at 2% per annum. The notes mature on December 31, 2017, and at September 30, 2018 the notes were in default.
|
|
|
206,000
|
|
|
|
206,000
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $1,354,000 issued in the fourth quarter of 2016. The notes accrue interest at 2% per annum and mature between November 1, 2017 and December 31, 2017. As of September 30, 2018 the notes were in default.
|
|
|
1,354,000
|
|
|
|
1,354,000
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $500,000 issued in the first quarter of 2017. The notes accrue interest at 2% per annum and mature between January 12, 2018 and March 31, 2018. At September 30, 2018, the notes were in default.
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued January 25, 2017. The lenders earn interest at 7% per month. The note matures on July 5, 2017 and at September 30, 2018 the note was in default.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $300,000 issued in the second quarter of 2017. The notes accrue interest at 2% per annum and mature between April 3, 2018 and May 31, 2018. At September 30, 2018, the notes were in default.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $191,800 issued in the third quarter of 2017. The notes accrue interest at 2% per annum and mature between June 16, 2018 and December 31, 2018. At September 30, 2018, $50,000 of the notes were in default.
|
|
|
191,800
|
|
|
|
191,800
|
|
|
|
|
|
|
|
|
|
|
Promissory note for $425,000 was issued in October 2017 with an original issue discount of $70,000. The note is in default, giving the holder an option to convert the note to stock. In 2018, The defaults also resulted in certain penalties, as a result of which the principal amount of the note outstanding at September 30, 2018 had increased to $500,792. $115,000 of accrued interest owed on the note has been converted to stock. The Company has accrued a $1,448,784 derivative liability for the remaining conversion right.
|
|
|
500,792
|
|
|
|
425,000
|
|
Notes aggregating $105,500 issued in the fourth quarter of 2017. The notes accrue interest at 2% per annum and mature on December 31, 2018.
|
|
|
105,500
|
|
|
|
105,500
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $47,975 issued in the first quarter of 2018. The notes accrue interest at 2% per annum and mature between May 2018 and January 2019. At September 30, 2018, $10,000 of the notes were in default.
|
|
|
47,975
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $125,000 issued in the first quarter of 2018. The notes accrue interest between 2% and 12% per annum and mature between April 2018 and June 2018. These notes include warrants between 5,000,000 and 20,000,000 shares with an exercise price of $0.005. At September 30, 2018, the notes were in default.
|
|
|
125,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $65,000 issued in the second quarter of 2018. The notes accrue interest of 2% per annum and mature between July 2018 and October 2018. These notes include warrants between 1,000,000 and 5,000,000 shares with an exercise price of $0.005. At September 30, 2018, the notes were in default.
|
|
|
65,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Notes aggregating $193,000 issued in the third quarter of 2018. The notes accrue interest at 2% per annum and mature between November 2018 and January 2019. These notes include warrants between 600,000 and 5,000,000 shares with an exercise price of $0.005.
|
|
|
193,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
In July 2017, a note for $250,000 was issued. The note earns interest at 5% per annum and matures on November 1, 2018.
|
|
|
250,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Less: Original issue discounts on notes payable and warrants issued with notes.
|
|
|
(53,500
|
)
|
|
|
(75,277
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,795,298
|
|
|
$
|
4,820,062
|
|
As
of September 30, 2018, the Company had accrued $738,878 in unpaid interest and default penalties. During the quarter ended September
30, 2018, 9,333,143 shares with a fair value of $111,091 were issued by the Company for settlement of promissory notes totaling
$60,000.
As
of September 30, 2017, the Company had accrued $594,875 in unpaid interest and default penalties. During the quarter ended September
30, 2017, 4,694,017 shares with a fair value of $138,843 were issued or reserved for issuance by the Company for settlement of
promissory notes.
7.
Derivative Liabilities
During
the quarter ended September 30, 2018, no notes payable were issued as convertible debt or became convertible and qualified as
a derivative liability under FASB ASC 815. In the quarter, notes payable with a derivative liability of $60,000 were converted,
and the derivative liability on other notes payable was revalued from $623,045 to $1,448,784.
As
of September 30, 2018, and December 31, 2017, the aggregate fair value of the outstanding derivative liability was $1,448,784
and $1,669,532 respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing
model using the following key assumptions during the quarter ended September 30, 2018:
|
|
Three months
ended
September 30,
2018
|
|
Volatility
|
|
|
248
|
%
|
Risk-free interest rate
|
|
|
1.81
|
%
|
Expected dividends
|
|
|
-
|
%
|
Expected term
|
|
|
1 year
|
|
The
Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following
three levels of inputs may be used to measure fair value:
Level
1
|
Quoted
prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement
date.
|
|
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are
not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
|
|
|
Level
3
|
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The
Company uses Level 3 inputs to estimate the fair value of its derivative liabilities.
The
following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of September 30, 2018:
|
|
Fair Value Measurements as of
September 30, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
None
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Total assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,448,784
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,448,784
|
|
The
following table sets forth a reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the
fair value hierarchy:
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Beginning balance
|
|
$
|
1,669,532
|
|
Settlement of liability
|
|
|
(243,199
|
)
|
Partial settlement of liability
|
|
|
(96,091
|
)
|
Change in fair value
|
|
|
(118,542
|
)
|
Ending balance
|
|
$
|
1,448,784
|
|
8.
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, 2018 and 2017, the Company was authorized to issue 500,000,000 common shares at a par value of $0.0001 per share.
As
of September 30, 2018, the Company had 415,661,456 shares of common stock outstanding, and 386,782,473 outstanding as of December
31, 2017.
Stock
Warrants
In
the quarter ended September 30, 2018, there were 80,550,000 new warrants issued by the Company.
There
were no modifications of the terms of any warrants issued by the Company in the quarters ended September 30, 2018 and 2017.
Following
is a summary of outstanding stock warrants at September 30, 2018 and activity during the three months then ended:
|
|
Number of
Shares
|
|
|
Exercise Price
|
|
|
Weighted
Average
Price
|
|
Warrants as of December 31, 2017
|
|
|
84,287,402
|
|
|
$
|
0.01-15.00
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued in 2018
|
|
|
141,620,636
|
|
|
$
|
0.005-0.20
|
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired and forfeited
|
|
|
410,834
|
|
|
$
|
1.50-15.00
|
|
|
$
|
6.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants as of September 30, 2018
|
|
|
225,497,204
|
|
|
$
|
0.01-15.00
|
|
|
$
|
0.14
|
|
Summary
of outstanding warrants as of September 30, 2018:
Expiration Date
|
|
Number of
Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter 2018
|
|
|
6,089,166
|
|
|
$
|
1.00-1.50
|
|
|
|
.25
|
|
First Quarter 2019
|
|
|
4,024,000
|
|
|
$
|
0.50-2.00
|
|
|
|
.50
|
|
Second Quarter 2019
|
|
|
135,000
|
|
|
$
|
0.07-0.23
|
|
|
|
.75
|
|
Third Quarter 2019
|
|
|
260,000
|
|
|
$
|
0.50-1.50
|
|
|
|
1.00
|
|
Fourth Quarter 2019
|
|
|
22,690,908
|
|
|
$
|
0.05-3.74
|
|
|
|
1.25
|
|
Second Quarter 2020
|
|
|
300,000
|
|
|
$
|
0.50
|
|
|
|
1.75
|
|
Fourth Quarter 2020
|
|
|
1,000,000
|
|
|
$
|
0.20
|
|
|
|
2.25
|
|
First Quarter 2021
|
|
|
12,600,000
|
|
|
$
|
0.20
|
|
|
|
2.50
|
|
Second Quarter 2021
|
|
|
5,812,252
|
|
|
$
|
0.01-0.20
|
|
|
|
2.75
|
|
Third Quarter 2021
|
|
|
5,116,667
|
|
|
$
|
0.03-0.20
|
|
|
|
3.00
|
|
Fourth Quarter 2021
|
|
|
300,000
|
|
|
$
|
0.10
|
|
|
|
3.25
|
|
Second Quarter 2022
|
|
|
1,750,000
|
|
|
$
|
0.15
|
|
|
|
3.75
|
|
Third Quarter 2022
|
|
|
2,650,000
|
|
|
$
|
0.05-0.10
|
|
|
|
4.00
|
|
Fourth Quarter 2022
|
|
|
9,811,422
|
|
|
$
|
0.08-0.29
|
|
|
|
4.25
|
|
First Quarter 2023
|
|
|
700,000
|
|
|
$
|
0.01-0.03
|
|
|
|
4.50
|
|
Second Quarter 2023
|
|
|
15,000,000
|
|
|
$
|
0.01-0.20
|
|
|
|
4.75
|
|
Third Quarter 2023
|
|
|
76,100,000
|
|
|
$
|
0.01-0.10
|
|
|
|
5.00
|
|
First Quarter 2024
|
|
|
30,000,000
|
|
|
$
|
0.01
|
|
|
|
5.50
|
|
Third Quarter 2028
|
|
|
3,000,000
|
|
|
$
|
0.07
|
|
|
|
10.00
|
|
Second Quarter 2032
|
|
|
21,807,789
|
|
|
$
|
0.01-0.07
|
|
|
|
13.75
|
|
|
|
|
225,497,204
|
|
|
$
|
0.01-15.00
|
|
|
|
|
|
9.
Stock Compensation
Shares
Issued for Services
During
the quarters ended September 30, 2018 and 2017, the Company issued 7,500,000 and 1,700,000 shares of common stock respectively
for consulting fees. The Company valued these shares at $190,000 and $61,000 respectively, based upon the fair market 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 $0 and $446,002 for the quarters ended September 30, 2018
and 2017.
10.
Income Taxes - Results of Operations
There
was no income tax expense reflected in the results of operations for the quarters ended September 30, 2018 and 2017 because the
Company incurred a net loss in both quarters.
On
December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which
enacts a wide range of changes to the U.S. corporate income tax system. The impact of U.S. Tax Reform primarily represents the
Company’s estimates of revaluing the Company’s U.S. deferred tax assets and liabilities based on the rates at which
they are expected to be recognized in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced
from 35% to 21%, effective for the 2018 tax year. Based on the Company’s historical financial performance, at December 31,
2017, the net deferred tax asset position was re-measured at the lower corporate rate of 21% and a tax expense was recognized
to adjust net deferred tax assets to the reduced value.
Deferred
tax assets:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
21,319,000
|
|
|
$
|
18,102,000
|
|
Stock based compensation
|
|
|
39,568,000
|
|
|
|
39,054,000
|
|
Amortization, depreciation, and impairment
|
|
|
4,179,300
|
|
|
|
4,178,000
|
|
Capitalization of start-up costs for tax purposes
|
|
|
1,145,000
|
|
|
|
1,145,000
|
|
Loss on debt conversion of debt
|
|
|
569,000
|
|
|
|
569,000
|
|
Total deferred tax assets
|
|
|
66,780,300
|
|
|
|
63,048,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(66,780,300
|
)
|
|
|
(63,048,000
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has recognized no tax benefit for the losses generated for the periods through September 30, 2018. 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.
Our
effective tax rate for fiscal years 2018 and 2017 was 0%. Our 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.
At
December 31, 2017, we had estimated federal and state income tax net operating loss (“NOL”) carry-forwards of approximately
$86,000,000, which will expire in 2032-2037.
|
|
2018
|
|
|
2017
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
Benefits for income tax at federal statutory rate
|
|
$
|
212,000
|
|
|
|
21
|
%
|
|
$
|
874,000
|
|
|
|
34
|
%
|
Permanent differences
|
|
|
173,000
|
|
|
|
17
|
%
|
|
|
137,000
|
|
|
|
-
|
|
Change in estimates
|
|
|
(385,000
|
)
|
|
|
-
|
|
|
|
(1,011,000
|
)
|
|
|
-
|
|
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
11.
Licenses and Supply Agreements
Patent
and Subsidiary Acquisition
The
Company entered into a share exchange agreement on April 24, 2012 to acquire all of the outstanding shares of TNI BioTech IP,
Inc. (“TNI IP”), a biotechnology firm incorporated in Florida and formed to acquire patents related to the treatment
of cancer and HIV/AIDS and autoimmune diseases, using Met-enkephalin (“MENK”) and Naltrexone (“LDN”).
The goal of TNI IP’s management was to enable mankind and civilization to combat fatal diseases by activating and mobilizing
the body’s own immune system using TNI IP’s patented use of MENK. The first patents acquired by TNI IP were acquired
from Dr. Nicholas P. Plotnikoff and Professor Fengping Shan in 2012. TNI IP was acquired in exchange for 20,250,000 shares of
the Company’s common stock, of which 8,000,000 shares were issued to Dr. Plotnikoff for the acquisition of patents and the
remaining 12,250,000 shares were issued to the founders of TNI IP in exchange for all of their right, title and interest in their
TNI IP shares. The goodwill arising on the acquisition of TNI BioTech IP, Inc. was valued at $98,000,000 and license agreements
arising from the acquisition of TNI IP were valued at $16,006,000. All of these balances were subsequently impaired during prior
periods.
In
connection with the share exchange, we entered into a Sale of Technology Agreement with Dr. Nicholas P. Plotnikoff on March 4,
2012, wherein Dr. Plotnikoff agreed to transfer and assign all of his rights, title and interest in: European Patent United Kingdom,
Germany, France, Ireland EP 1401471 BI Methods for inducing sustained immune response; Russian Patent Russian Federation patent
number 2313364; The Patent Office of the People’s Republic of China, Application No.: 200810165784.8 China Patent CN1015113407
A The Patent Office of the People’s Republic of China ISSN: 1006-2858 CN 21-1349/R; Patent Agencies Government of India
Patent, Application number 1627/KOLNP/2003 number 220265 an Enkephalin Peptide Composition; and the US Patent Pending, US Patent
Application 10/146.999 e. The Company received all the production formulations and technology designs from Dr. Plotnikoff necessary
for the manufacturing, formulation, production and protocols of the MENK treatment of cancer and HIV/AIDS. As consideration for
entering into the Sale of Technology Agreement, Dr. Plotnikoff received 8,000,000 shares of common stock, a royalty of a single-digit
percentage on all sales of MENK and was granted the position of Non-Executive Chairman of the Board of Directors.
At
the time of the acquisition, the valuation of goodwill and other intangible assets were determined using the fair market price
for the Company’s common stock, which were exchanged for shares of TNI IP. In the fourth quarter of 2012, the Company performed
an annual valuation to determine whether any goodwill or intangible assets that had been acquired by the Company were impaired.
The result of this valuation was that material impairments were identified. In 2014, the Company recognized an impairment of the
goodwill arising on the acquisition of TNI IP of $98,000,000.
Patent
License Agreements
In
December 2014, the Company transferred to Cytocom certain of its rights, title and interest in or relating to intellectual property
(i) patents, patent applications, and all divisional, continuations and continuations-in-part thereof, together with all reissues,
reexaminations, renewals and extensions thereof and all rights to obtain such divisionals, continuations and continuations-in-part,
reissues, reexaminations, renewals and extensions, and all utility models and statutory invention registrations and any other
such analogous rights, (ii) trademarks, service marks, Internet domain names, trade dress, trade styles, logos, trade names, services
names, brand names, corporate names, assumed business names and general intangibles and other source identifiers of a like nature,
together with the goodwill associated with any of the foregoing, and all registrations and applications for registrations thereof,
together with all renewals and extensions thereof and all rights to obtain such renewals and extensions, (iii) copyrights, mask
work rights, database and design rights, moral rights and rights in Internet websites, whether registered or unregistered and
whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, together
with all renewals, continuations, reversions and extensions thereof and all rights to obtain such renewals, continuations, reversions
and extensions, and (iv) confidential and proprietary information, including, trade secrets and know-how. Cytocom licensed back
to the Company a perpetual, non-exclusive, royalty-free right and license to use the assigned intellectual property for veterinary
indications and for the marketing rights to emerging markets, access to all clinical data, use of the formulation for LDN and
MENK.
The
Original Agreement also granted the Company rights to market Lodonal™ and Met-Enkephalin (“MENK”) in “Emerging
Markets,” which included all countries excluding Canada, Italy, Japan, France, Germany, United Kingdom, European Community
and the United States. Pursuant to the Original Agreement, the Company was required to pay Cytocom a 5% royalty on all sales all
ongoing drug development and fees due in connection with the underlying patents until such time as Cytocom was funded.
On
May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with
Cytocom. The Restated Agreement restates the licensing arrangement between the Company and Cytocom as provided by the Original
Agreement. The Restated Agreement grants the Company distribution and marketing rights for Lodonal™ and MENK for humans
in Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and MENK for
animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no longer
has any ongoing obligations to pay for the cost in connection with the assets of Cytocom.
12.
Commitments and Contingencies
Malawi
Treatment Facilities
On
July 14, 2012, GB Oncology and Imaging Group LTD (“GBOIG”) in partnership with the Company signed a letter of intent
agreement to collaborate with the Government of Malawi to assist in expanding the treatment of cancer, HIV/AIDS and other infectious
diseases.
In
December of 2014, the Government of Malawi completed an oncology clinic at the Queen Elizabeth Central Hospital in Blantyre, Malawi
for the treatment of cancer and infectious diseases. In 2015, the Company submitted protocols seeking permission from the Pharmacy,
Medicines and Poisons Board of Malawi (“PMPB”) to conduct a trial involving Lodonal™ in Malawi:
a.
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The
first protocol, submitted jointly with The Jack Brewer Foundation (“JBF Worldwide”), received PMPB approval on
November 11, 2015. The protocol covers a 12-month trial for a “Single Visit Approach to Cervical Cancer Prevention.”
The approach is designed to deliver a preventive and simple procedure that can be performed in a clinical setting without
the use of a laboratory and to allow for immediate treatment of any precancerous lesions utilizing Wallach LL100 Cryosurgical
systems. The protocol provides for 50% of the patient group to be put on Lodonal™ to determine if the drug lowers the
number of opportunistic infections during the year, and if it can be shown that LDN increases CD4, CE8, NK and T cell count,
which would show that the incidence rates of opportunistic infection could decrease with Lodonal™ and that Lodonal™
could be used as a prophylaxis to prevent substantial HIV-related morbidity in Malawi. The PMPB approved the trial in late
2016, recruitment began in late 2016 and the trial is now ongoing. The trial has had problems with recruitment and continues
today.
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b.
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The
second protocol, which has not yet been approved, covers a trial using Lodonal™ for the treatment of cancer. The Company
has put this trial on hold as it may not be necessary with the approval in Nigeria in addition to the pending approval in
Kenya and Senegal for Lodonal™ for the treatment of cancer.
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Distribution
Agreements in Nigeria
In
October 2013, the Company announced the signing of a Distribution Agreement with AHAR Pharma, a Nigerian company, to market Lodonal™,
in Nigeria for the treatment of autoimmune diseases and cancer. AHAR intends to distribute Lodonal™ through a local distributor
network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The first deliveries under the
agreement took place in February 2018. Under the original agreement, the Company is obligated to provide delivery of an initial
supply of between 1 million and 1.5 million doses of Lodonal™ product to cover AHAR Pharma’s first-year purchase commitment.
Due to the fact that AHAR Pharma failed to meet its contractual purchase obligations, the Company formally issued notice of default
under the agreement.
On
April 18, 2018, AHAR Pharma transferred its rights under the Distribution Agreement to Fidson Healthcare Plc (“Fidson”),
and Fidson signed an exclusive distribution agreement with the Company to distribute Lodonal™. In October 2018, the Company
shipped 250,000 pills to Fidson to support the product launch in the coming months.
Agreements
with Hubei Qianjiang Pharmaceutical Company
On
October 18, 2012, the Company and Hubei Qianjiang Pharmaceutical Co., Ltd. (“Qianjiang Pharmaceutical”), signed a
Venture Cooperation Agreement on New Drug Methionine Enkephalin (the “Venture Agreement”) pursuant to which Qianjiang
Pharmaceutical acquired an exclusive license for the production of MENK in China. The Venture Agreement requires that Qianjiang
Pharmaceutical conduct drug research and pilot testing for MENK, organize pre-clinical studies, and apply for clinical trials
for MENK with the Chinese State Food and Drug Administration. The Venture Agreement was amended on February 24, 2013 to expand
the clinical trials from pancreatic to both pancreatic and liver cancer and amended on March 6, 2014 to require Qianjiang Pharmaceutical
to commence studies and clinical trials in China and place funds in the co-administration account.
On
August 6, 2014, the Company entered into a Supplementary Agreement on New Drug Methionine – Enkephalin Cooperation (the
“Amendment”) with Qianjiang Pharmaceutical, amending the Venture Agreement, as amended. The Company and Qianjiang
Pharmaceutical executed the Amendment to accelerate clinical trials in both the United States and China, and agreed to immediately
initiate three month Good Laboratory Practice (“GLP”) Toxicology Studies (rat and dog) within 30 days of signing the
Amendment. The Amendment requires that the GLP Toxicology Studies Trials are conducted in China in accordance with international
standards and standards acceptable to the FDA.
In
February 2013, the Company signed a Strategic Framework Agreement for Cooperation with Qianjiang Pharmaceutical. Under the agreement,
the parties will work together to further the development of new products and conduct research and development on the Company’s
licensed patented technology. Specifically, the parties aim to co-invest to develop and market products focusing on HIV, cancer
and related autoimmune system therapies, develop co-ventured manufacturing facilities in China, and develop co-ventured distribution
of the developed products in China and Africa. The agreement does not have a definitive term, as each new agreement resulting
from the cooperation will set forth the material terms, including, but not limited to, fees, duration and termination therein.
In
December of 2016 Qianjiang Pharmaceutical delivered various documents under the agreements related to its studies of Exploratory
Toxicology (nGLP) and Definitive Toxicology (GLP). In addition to the pharmacology and toxicology studies, Qianjiang Pharmaceutical
and China Peptide completed the formulation and CMC necessary to scale up manufacturing of MENK.
There
has been no progress under the agreements in the past 12 months, since a change of ownership of Qianjiang Pharmaceutical in 2017.
The Company continues to hold discussions with new management about the future of the 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”), which is based in the Dominican Republic, 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, 2018, the Company was a party to an agreement to lease office space in Orlando, Florida. Rental expense for the
three months ended September 30, 2018 and 2017 was $2,238 and $12,632 respectively.
Legal
Proceedings
None.
13.
Subsequent Events
The
Company issued 18,661,118 shares of common stock between September 30, 2018 and November 14, 2018. 12,411,118 shares were for
debt conversions and 6,250,000 were for consulting fees.
As
of November 14, 2018, the Company had outstanding 434,322,060 shares of common stock.
Between
September 30, 2018 and November 14, 2018 the company raised $15,500 in debt and equity financing.
On
August 7, 2018, the Company announced that Dr. Roscoe Moore Jr., DVM, MPH, Ph.D., DSc joined the Company as Chairman of the Board,
and will also maintain a position on the Company’s Scientific Advisory Board.
On
September 6, 2018, the Company announced that Mr. Jack Brewer, MBA, joined the Company as a member of the Board of Directors.