Notes
to the Condensed Consolidated Financial Statements
March
31, 2020
(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”).
On November 10, 2004, Galliano International Ltd. 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, it executed a share exchange
agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. In October 2014, the name was changed to
Immune Therapeutics, Inc.
The
Company initially focused on 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”)
to stimulate and/or regulate the immune system to treat a variety of diseases. The Company believed that the 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
December 2013, the Company formed a subsidiary, Cytocom Inc. (“Cytocom”),
to focus on conducting LDN and MENK clinical trials in the United States. In a series of licensing agreements between the Company
and Cytocom entered into between 2014 and 2020, in return for an up-front payment, the transfer of certain Company notes payable
and other liabilities to Cytocom, and the payment of royalties by Cytocom on future sales, the Company transferred rights to Cytocom
to develop and sell LDN and MENK for treatment in humans in the United States and certain other developed economies. The Company
retained the right to develop and sell the licensed products in Emerging Markets.
Under
a May 2018 amendment to the licensing agreements, the royalty due from Cytocom was set at 1% of sales and the Company no longer
had any ongoing obligations to pay for costs in connection with the assets of Cytocom. As a consequence of this amendment, the
Company no longer consolidated the financial statements of Cytocom with its own statements. Under a December 2018 amendment, Cytocom
became obligated to maintain Immune’s
ownership at not less than 15.5% of Cytocom. At March 31, 2020, the Company’s
equity interest in Cytocom stood at 14.5% of Cytocom’s
issued and outstanding common stock.
On
February 27, 2020, the Company entered into a license agreement (the “License Agreement”) with Forte
Biotechnology International Corp. (“Forte”), which granted Forte an exclusive license to develop and
commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all indications
world-wide. Forte is managed by Noreen Griffin, a former Chief Executive Officer of the Company.
At present, the Company is a late development-stage biopharmaceutical
company focused on the licensing, development and commercialization of innovative prescription medications for humans in Africa,
Central and South America, the Caribbean and China. The Company is not permitted to market its licensed products in the United
States.
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 March 31, 2020 was not sufficient to meet the cash requirements to fund planned operations
through 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 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 attributable to common shareholders of $792,873 during the three months ended March 31,
2020, resulting in stockholders’ deficit of $385,399,942 at that date.
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, 2019 (including the notes thereto)
set forth in Form 10- K.
We
have identified the policies below as critical to our business operations and the understanding of its results of operations.
The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Company’s
Board of Directors. The impact and any associated risks related to these policies on our business operations are discussed throughout
this section where such policies affect our reported and expected financial results.
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,
2019. 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.
Shares
Issued and Outstanding
On
October 25, 2019, the Company closed voting by written consent as detailed in its Proxy Statement on form 14A, filed September
5, 2019 pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (“Proxy Statement”). The Proxy
Statement disclosed actions for which the Company was soliciting written consent, including consent to effect a reverse stock
split of the Company’s issued and outstanding, but not authorized, common stock (the “Reverse Split”) at a ratio
of 1,000-to-1. The Company’s shareholders approved the Reverse Split. The implementation of the shareholder approval is
subject to approval by the Financial Industry Regulatory Authority (“FINRA”). In connection with our application
to FINRA, on February 6, 2020, we filed Articles of Amendment to our Articles of Incorporation to effect the reverse stock split
of our issued and outstanding, but not authorized, common stock at a ratio of 1 to 1,000. On March 12, 2020 we corrected a typographical
error to reflect the proper ratio of 1 to 1,000 by the filing of Articles of Amendment to our Articles of Incorporation. Although
we filed the Articles of Amendment at FINRA's instruction, on June 9, 2020, we were advised by FINRA that our 1 for 1,000 reverse
stock split would not be processed. By not processing the reverse stock split, quotations for our common stock do not reflect
the 1 for 1,000 reverse stock split, which occurred on February 6, 2020. The financial statements accompanying this Form 10-Q
are presented on the basis of the implementation of the reverse stock split.
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 condensed consolidated balance sheets. The cash
accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At March 31, 2020, the Company has 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, cash equivalents 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.
Derivative
Financial Instruments
FASB
ASC 820, Fair Value Measurements requires bifurcation of certain embedded derivative instruments in certain debt or equity
instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s
note payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.
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 quarters ended March 31, 2020 and March 31, 2019 was $159 and $387, 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 March 31, 2020 and 2019, 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 March 31, 2020,
and 2019, the Company has 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 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
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 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.
The
Company’s potential dilutive securities, which include stock and 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. 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:
|
|
At
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Common
Stock Purchase Warrants
|
|
|
13,387,936
|
|
|
|
10,466,126
|
|
Convertible
Debt
|
|
|
137,585
|
|
|
|
112,943
|
|
Recent
Accounting Standards
During
the quarter ended March 31, 2020, 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.
Accrued Liabilities
Accrued
expenses and other liabilities consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
Accrued payroll
|
|
$
|
3,850,950
|
|
|
$
|
3,610,810
|
|
Accrued interest and penalties – notes payable
|
|
|
996,351
|
|
|
|
899,904
|
|
Estimated legal settlements
|
|
|
136,057
|
|
|
|
136,057
|
|
Other accrued liabilities
|
|
|
50,000
|
|
|
|
48,217
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other liabilities
|
|
$
|
5,033,358
|
|
|
$
|
4,694,988
|
|
4.
Notes payable
Notes
payable consist of the following:
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
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 March 31, 2020, 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 $675,994 earn interest at rates between 2% and 10% per annum. One loan, in the amount of $100,000, interest was payable in a fixed amount not tied to a specific interest rate. However, this note was extinguished and reassigned to a related party in 2019. The Company was unable to repay the remaining notes at maturity and at March 31, 2020 these notes were in default.
|
|
|
625,994
|
|
|
|
625,994
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2020 the note was in default.
|
|
|
97,737
|
|
|
|
97,737
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2020 the notes were in default.
|
|
|
206,000
|
|
|
|
206,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $1,350,000 issued in the fourth quarter 2016. The notes accrue interest at 2% per annum and mature between November 1, 2017 and December 31, 2017. As March 31, 2020, the notes were in default.
|
|
|
1,354,000
|
|
|
|
1,354,000
|
|
|
|
|
|
|
|
|
|
|
Promissory 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 September 30, 2018. At March 31, 2020, the notes were in default.
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Promissory 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 March 31, 2020, the notes were in default.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Promissory 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 March 31, 2020, the notes were in default.
|
|
|
191,800
|
|
|
|
191,800
|
|
|
|
|
|
|
|
|
|
|
Promissory note for $425,000 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 using the lowest value of the Company’s
common stock 25 days prior to the conversion. In 2018, the defaults also resulted in certain penalties, as a result of which
the principal amount of the note outstanding at March 31, 2020 had increased to $454,032. $49,943 of accrued interest owed
on the note has been converted to stock. The Company has accrued a $1,109,509 derivative liability for the remaining
conversion right.
|
|
|
454,032
|
|
|
|
454,032
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $105,500 issued in the fourth quarter of 2017. The notes accrue interest at 2% per annum. At March 31, 2020, the notes were in default.
|
|
|
105,500
|
|
|
|
105,500
|
|
|
|
|
|
|
|
|
|
|
Promissory 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 March 31, 2020, the notes were in default.
|
|
|
47,975
|
|
|
|
47,975
|
|
Promissory 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 and 20,000 shares with an exercise price of $0.5. At March 31, 2020 the notes were in default
|
|
|
125,000
|
|
|
|
125,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $65,000 issued in the second quarter of 2018. The notes accrue interest between 2% per annum and mature between July 2018 and October 2018. These notes include warrants between 1,000 and 5,000 shares with an exercise price of $5. At March 31, 2020 the notes were in default
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $198,000 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 and 5,000 shares with an exercise price of $5. At March 31, 2020, the notes were in default.
|
|
|
198,000
|
|
|
|
198,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $533,855 issued in the fourth quarter of 2018. The notes accrue interest from 2% to 3.5% per annum and mature between February 2019 and December 2019. These notes include warrants between 200 and 39,500 shares with an exercise price of $5 to $40. At March 31, 2020, the note was in default.
|
|
|
533,855
|
|
|
|
533,855
|
|
|
|
|
|
|
|
|
|
|
Promissory note for $23,000 issued in the first quarter of 2019. The note accrues interest at 2% per annum and matures during July 2019. The note includes warrants for 4,600 shares with an exercise price of $5. At March 31, 2020, the note was in default.
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note for $231,478 issued in the first quarter of 2019. The note accrues interest at 6% per annum and matured in February 2020. At March 31, 2020, the notes were in default.
|
|
|
231,478
|
|
|
|
231,478
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $50,000 issued in the second quarter of 2019. The notes accrue interest at 2% per annum and mature between July and September 2019. These notes include warrants for 10,000 shares with an exercise price of $5. At March 31, 2020, the notes were in default.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note in the amount of $150,000 issued on October 1, 2019 for the settlement of
outstanding debt in the same amount. The note accrues interest at 15% per annum, with $1,875 due in monthly interest payments.
and matures on April 30, 2021.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,545,371
|
|
|
$
|
5,545,371
|
|
As
of March 31, 2020, the Company had accrued $996,351 in unpaid interest and default penalties. During the quarter ended
March 31, 2020, no shares were issued by the Company in settlement of promissory notes.
As
of March 31, 2019, the Company had accrued $877,570 in unpaid interest and default penalties. During the quarter ended March 31,
2019, 18,255,225 shares with a fair value of $78,500 were issued by the Company for settlement of promissory notes totaling $27,710.
5.
Derivative Liabilities
As
of March 31, 2020, and December 31, 2019 the aggregate fair value of the outstanding derivative liabilities was $1,109,509
and $798,126, respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option
pricing model using the following key assumption during the quarter March 31, 2020:
|
|
Three months ended
March 31, 2020
|
|
Volatility
|
|
|
167.89
|
%
|
Risk-free interest rate
|
|
|
0.17
|
%
|
Expected dividends
|
|
|
-
|
%
|
Expected term
|
|
|
1 year
|
|
The
Company determines the fair 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 sheet as of March 31, 2020:
|
|
Fair Value Measurements as of March 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option derivative liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,109,509
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,109,509
|
|
The
following table set forth a reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the
fair value hierarchy:
|
|
Conversion option derivative liability
|
|
Beginning balance
|
|
$
|
798,126
|
|
Change in fair value
|
|
|
311,383
|
|
Ending balance
|
|
$
|
1,109,509
|
|
6.
Capital Structure – Common Stock and 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.
Stock
Warrants
In
the three months ended March 31, 2020, no new warrants were issued by the Company.
There
were no modifications of the terms of any warrants issued by the Company in the quarters ended March 31, 2020 and 2019.
Following
is a summary of outstanding stock warrants at, and activity during the three months ended, March 31, 2020:
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Weighted Average Price
|
|
Warrants as of December 31, 2019
|
|
|
13,388,936
|
|
|
$
|
0.05-500
|
|
|
$
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued in 2020
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired and forfeited
|
|
|
(1,000
|
)
|
|
$
|
100
|
|
|
$
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants as of March 31, 2020
|
|
|
13,387,936
|
|
|
$
|
0.05-500
|
|
|
$
|
2.40
|
|
Summary
of outstanding warrants as of March 31, 2020:
Expiration Date
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Remaining Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter 2020
|
|
|
300
|
|
|
$
|
500
|
|
|
|
0.25
|
|
Fourth Quarter 2020
|
|
|
1,000
|
|
|
$
|
200
|
|
|
|
0.75
|
|
First Quarter 2021
|
|
|
12,600
|
|
|
$
|
200
|
|
|
|
1.00
|
|
Second Quarter 2021
|
|
|
5,812
|
|
|
$
|
14-200
|
|
|
|
1.25
|
|
Third Quarter 2021
|
|
|
5,167
|
|
|
$
|
30-200
|
|
|
|
1.50
|
|
Fourth Quarter 2021
|
|
|
300
|
|
|
$
|
100
|
|
|
|
1.75
|
|
First Quarter 2022
|
|
|
150
|
|
|
$
|
200
|
|
|
|
2.00
|
|
Second Quarter 2022
|
|
|
1,750
|
|
|
$
|
150
|
|
|
|
2.25
|
|
Third Quarter 2022
|
|
|
1,650
|
|
|
$
|
50-100
|
|
|
|
2.50
|
|
Fourth Quarter 2022
|
|
|
9,811
|
|
|
$
|
80-290
|
|
|
|
2.75
|
|
First Quarter 2023
|
|
|
9,000
|
|
|
$
|
5-40
|
|
|
|
3.00
|
|
Second Quarter 2023
|
|
|
213,000
|
|
|
$
|
0.05-200
|
|
|
|
3.25
|
|
Third Quarter 2023
|
|
|
7,026,500
|
|
|
$
|
0.05-100
|
|
|
|
3.50
|
|
Fourth Quarter 2023
|
|
|
6,024,300
|
|
|
$
|
0.05-20
|
|
|
|
3.75
|
|
First Quarter 2024
|
|
|
36,600
|
|
|
$
|
5
|
|
|
|
4.00
|
|
Second Quarter 2024
|
|
|
8,000
|
|
|
$
|
5
|
|
|
|
4.25
|
|
Third Quarter 2028
|
|
|
3,000
|
|
|
$
|
70
|
|
|
|
8.50
|
|
Second Quarter 2032
|
|
|
28,995
|
|
|
$
|
10-70
|
|
|
|
12.25
|
|
|
|
|
13,387,936
|
|
|
$
|
0.05-500
|
|
|
|
|
|
7.
Stock Compensation
Shares
Issued for Services
During
the quarters ended March 31, 2020 and 2019, the Company issued 0 and 3,000,000 shares of common stock respectively for consulting
fees. The Company valued these shares at $0 and $120,000 respectively, based upon the fair value of the common stock at the dates
of the agreements.
8.
Income Taxes – Results of Operations
There
was no income tax expense reflected in the results of operations for the years ended March 31, 2020 and 2019 because the Company
incurred a net loss in both years.
For
U.S. federal purposes the corporate statutory income tax rate was 21%, for 2019 and 2020 tax years.
The
Company has recognized no tax benefit for the losses generated for the periods through March 31, 2020. 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 2020 and 2019 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.
9.
Licenses and Supply Agreements
Patent
and Subsidiary Acquisition
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. The royalty due to Cytocom was reduced from 5% to 1% of sales and the Company no longer had
any ongoing obligations to pay for the cost in connection with the assets of Cytocom.
On
May 13, 2020, the Company and Cytocom entered into Amendment to The Second Amendment to The License Agreement (“Third Amendment”)
to their Second Amendment to The License Agreement that is effective December 31, 2018. The Third Amendment made changes to the
lists of liabilities that were assigned by the Company to Cytocom on the effective date. Simultaneously with the Third Amendment,
the companies signed a PRC Amendment to The Second Amendment to The License Agreement, in which they confirmed that the term “the
Republic of China” in the Second Amendment means the People’s Republic of China and not The Republic of China, also
known as Taiwan.
On
February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte
Biotechnology International Corp. (“Forte”). Under the License Agreement, the Company granted Forte an exclusive license
to develop and commercialize pharmaceutical products consisting of Lodonal and MENK for use in veterinary applications for all
indications world-wide. As consideration for the license, Forte agreed to make certain license, milestone and royalty payments
to the Company. Forte is managed by Noreen Griffin, a former Chief Executive Officer of the Company.
10.
Commitments and Contingencies
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. 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™. Discussions between the
Company and Fidson in the first quarter of 2020 did not result in any orders or shipments under this agreement.
Contract
Manufacturing Agreements
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
March 31, 2020, the Company was a party to an agreement to lease office space in Winter Park, Florida. Rental expense for the
three months ended March 31, 2020 and 2019 was $177 and $5,282 respectively.
11.
Subsequent Events
On
May 4, 2020, the Company issued a Convertible Promissory Note (the “Note”) to Geneva Roth Remark Holdings,
Inc. (“Geneva Roth”) in the principal amount of $53,000. The Note matures on May 6, 2021, and bears interest at the
rate of 12% per annum. Any amount of the Note not repaid at maturity will bear interest at the rate of 22% per annum.
Geneva
Roth will have the right, at any time during the period beginning 180 days following the date of the Note and ending the later
of the maturity date or the date of payment of the default amount, to convert all or any part of the outstanding and unpaid amount
of the Note into shares of the Company’s common stock. The conversion price will be equal to 61% multiplied by the lowest
trading price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion
date. The Company has agreed to reserve from its authorized and unissued common stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of common stock upon the full conversion of the Note. The Company is also required
at all times to have authorized and reserved six times the number of shares that would be issuable upon full conversion of the
Note (initially 47,391,952 shares).
On
June 15, 2020, the Company issued a Convertible Promissory Note (the “Note”) to Geneva Roth Remark Holdings,
Inc. (“Geneva Roth”) in the principal amount of $38,000. The Note matures on June 15, 2021, and bears
interest at the rate of 12% per annum. Any amount of the Note not repaid at maturity, will bear interest at the rate of 22% per
annum.
Geneva
Roth will have the right, at any time during the period beginning 180 days following the date of the Note and ending the later
of the maturity date or the date of payment of the default amount, to convert all or any part of the outstanding and unpaid amount
of the Note into shares of the Company’s common stock. The conversion price will be equal to 61% multiplied by the lowest
trading price for the common stock during the 20 trading day period ending on the latest complete trading day prior to the conversion
date. The Company has agreed to reserve from its authorized and unissued common stock a sufficient number of shares, free from
preemptive rights, to provide for the issuance of common stock upon the full conversion of the Note. The Company is also required
at all times to have authorized and reserved six times the number of shares that would be issuable upon full conversion of the
Note (initially 30,636,925 shares).