Notes
to the Condensed Consolidated Financial Statements
March
31, 2020
(Unaudited)
1.
Company Overview
Immune
Therapeutics Inc. (the “Company” or “IMUN”) is a Florida Public corporation trading on the OTC-Pink market. The
Company is a drug development and commercialization company. We identify, evaluate, and seek to acquire technologies in the medical device
and drug development sectors with the intent to further develop them and move them to commercialization. Such commercialization efforts
include sale, licensing and go to market strategies. During 2020 as described herein, the Company executed two such licenses; one to
Cytocom, Inc. (“Cytocom”) and one to Forte Animal Health, Inc. (“Forte”).
The Company’s
strategy has been limited due to lack of capital. Management is seeking to secure new investment capital with which to continue to pursue
the Company’s strategy. There is no guaranty that the Company will be successful in securing additional capital.
Going
Concern
As
of March 31, 2021, the Company had $11,658 in cash on hand, negative working capital of $10,743,883 and a stockholders’
deficit of $10,743,883. For the three months ended March 31, 2021, the Company reported a net income attributable to common
shareholders of $790,407. Included in the net income for the three months ended March 31, 2021 is a non-cash gain of $1,178,230
related to write off of derivative liabilities associated with the conversion and elimination of conversion features
for notes. During the three months ended March 31, 2020, the Company reported a net loss attributable to common shareholders of $792,873.
Historically
the Company has relied on the funding of operations through private equity financings and 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 current or future product candidates as
they become available 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.
Working
capital at March 31, 2021 is not sufficient to meet the cash requirements
to fund planned operations through the next twelve 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.
Management
recognizes that the Company cannot move forward without adequate capital resources. The transactions anticipated with Cytocom and Forte
will result in the assignment of certain debt and other liabilities of the Company but will not provide immediate cash inflows
to the Company.
Management
is currently pursuing a strategy to re-capitalize the Company and position it for future growth. Key steps in the process include:
|
●
|
Improve
the condition of the Company’s financial position and balance sheet:
|
|
|
○
|
Complete
the licensing transactions described herein.
|
|
|
○
|
Seek
additional capital to continue to maintain operations and compliance with OTC reporting requirements.
|
|
|
○
|
Seek
funding from current noteholders with exercisable warrants to convert such warrants as a means of raising capital and reducing outstanding
debt.
|
|
●
|
Identify
and seek to acquire late-stage assets for future commercialization.
|
|
●
|
Build
out an appropriate operational infrastructure, generate new opportunities and grow shareholder value.
|
If
the Company is unable to secure new working capital, other alternatives strategies will be required.
There
can be no guaranties that the Company will be successful in:
|
●
|
Executing
its restructuring plan
|
|
●
|
Securing
adequate capital to continue operations.
|
|
●
|
Identifying
and acquiring assets for future development.
|
Company
History
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 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.
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.
Due
to its inability to move forward on the proposed plan the Company has been forced to pursue alternatives to the original restructuring
strategy. To realize the potential value of its technology positions, the Board directed management to pursue sublicensing options
to Forte and Cytocom as further described in Note 7.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
condensed 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, 2020 (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.
Shares
Issued and Outstanding
The
Company’s shareholders approved a 1,000:1 reverse stock split in October 2019. The action was filed with the State of Florida during
the first quarter of 2020 at which time all current and historical financial reporting was restated to reflect the impact of the reverse
split on per share and warrant grant disclosures. On May 6, 2021, the Company received approval from the Financial Information Reporting
Authority (“FINRA”).
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, 2021, 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.
Research
and Development Costs
Research
and development costs are charged to expense as incurred and are typically comprised of expenses associated with advancing the commercialization
of our technologies. Expenses recognized in the quarter ended March 31, 2021 consisted of amounts paid to consultants for patent
related activities.
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, 2021 and 2020, 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, 2021, and
2020, 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 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. Generally, 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 718, “Compensation-Stock Compensation.” 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.
The
Company did not grant any stock-based compensation awards during the three months ended March 31, 2021 and 2020.
Net
Income (Loss) per Share
The
Company’s potentially dilutive securities, common stock warrants, have been included in the computation of diluted net income
per share for the three-month period ended March 31, 2021. Net income per share for the three-month period ended March 31,
2021 was calculated by dividing the net income by the weighted-average number of common share outstanding for the period determined using
the treasury-stock method and the if-converted method.
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.
For the three-month period ended March 31, 2020, the potentially dilutive securities were excluded from the computation of diluted loss
per share as the effect would be to reduce the net loss per common share. Therefore, the weighted-average common stock outstanding used
to calculate both basic and diluted net loss per share is the same for the three-month period ended March 31, 2020.
A
reconciliation of the weighted average shares outstanding used in basic and diluted earnings per share computation is as follows:
|
|
Net
Income
(Numerator)
|
|
|
Weighted
Average
Common Shares
(Denominator)
|
|
|
Per
Share Amount
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available
to common stockholders
|
|
$
|
790,407
|
|
|
|
478,305
|
|
|
$
|
1.65
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of warrants convertible
into common stock
|
|
|
|
|
|
|
20,012,083
|
|
|
|
|
|
Potential shares purchasable
using proceeds of warrants
|
|
|
|
|
|
|
(3,925,915
|
)
|
|
|
|
|
Effect
of convertible debt
|
|
|
|
|
|
|
30,422
|
|
|
|
|
|
Income
available to common stockholders
|
|
$
|
790,407
|
|
|
|
16,594,895
|
|
|
$
|
0.05
|
|
Recent
Accounting Standards
The
Company has reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the first quarter 2021.
Applicable pronouncements will be adopted by the Company in accordance with the accounting guidance and definition. 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.
Notes payable
As
of March 31, 2021 and December 31, 2020, the Company had $1,677,275 and $1,639,275, respectively, in notes payable to shareholders of
record.
During
the first quarter of 2021, the Company issued 5,402 common shares, at a price of $10.40 per share, upon the conversion of $53,000 in
promissory notes and $3,480 in accrued interest. The Company did not issue any in new promissory notes during the three months ended
March 31, 2021.
The
Company issued $53,000 in new promissory notes during the three months ended March 31, 2020. The noteholder
converted
the principal and all accrued interest in the amount of $3,180 in October 2020. The Company issued 6,893 shares of common stock at an
average price per share of $8.15 in connection with this conversion.
A
summary of Notes Payable at March 31, 2021 and December 31, 2020 follows.
|
|
March
31, 2021
|
|
|
December
31, 2020
|
|
Promissory notes issued between
December 2014 and January 2015. Lender earns interest at 10%, plus a pro-rata share of two percent of the Company’s gross receipts
for sales of IRT-103-LDN in perpetuity. Notes were to be repaid in 36 monthly installments of principal and interest commencing no
later than October 15, 2015. These notes are in default.
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between May 2015
and June 2016 and maturing between February 2017 and November 2018. Lenders earn interest at rates between 2% and 10%. These notes
are in default.
|
|
$
|
149,500
|
|
|
|
149,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $1,350,000
issued in 2016. The notes accrue interest at 2% and mature between November 2017 and December 2017. These notes are in default.
|
|
$
|
606,500
|
|
|
|
606,500
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes aggregating $500,000 issued in 2017 accrue interest at 2% and mature between January 2018 and September 2018. These notes are
in default.
|
|
$
|
205,000
|
|
|
|
205,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes aggregating $300,000 issued in 2017 accrue interest at 2% and mature in May 2018. These notes are in default.
|
|
$
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes aggregating $191,800 issued in 2017 accrue interest at 2% and mature between August 2018 and September 2018. These notes are
in default.
|
|
$
|
116,800
|
|
|
|
116,800
|
|
|
|
|
|
|
|
|
|
|
A
promissory note for $425,000 was issued in October 2017 with an original issue discount of $70,000 and an annual interest rate of
22% on all outstanding balances. 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. The defaults triggered certain penalties, resulting in
an outstanding balance of $454,032. The original noteholder entered into a Note Purchase Agreement, in the amount of $697,600 reflecting
the total principal, interest and penalties associated with this instrument, and transferred the note to Global Reverb Corp., an
entity wholly owned by the Company’s former Chief Executive Officer and director, Noreen Griffin. During the first quarter
of 2021, the Global Reverb Corp. sold 50% of the value of the note to another investor.
|
|
$
|
697,600
|
|
|
|
454,032
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating
$105,500 issued in 2017 accrue interest at 2%. These notes were in default.
|
|
$
|
105,500
|
|
|
|
105,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $47,975 issued
in the 2018 accrue interest at 2% and mature between May 2018 and January 2019. These notes are in default.
|
|
$
|
47,975
|
|
|
|
47,975
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating
$65,000 issued in 2018 accrue interest at 2% 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. These notes are in default.
|
|
$
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $208,000 were
issued in 2018, of which $3,000 were issued to a related party. The notes accrue interest at 2% and mature between August 2019 and
January 2019. These notes include warrants between 60,000 and 500,000 shares with an exercise price of $0.05. These notes are in
default.
|
|
$
|
118,000
|
|
|
|
118,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $533,855 were
issued in 2018, of which $210,000 is to a related party. The notes accrue interest at 2% and mature between January 2019 and November
2019. These notes include warrants between 200 and 39,500 shares with an exercise price of $5 to $40. These notes are in default.
|
|
$
|
323,855
|
|
|
|
323,855
|
|
|
|
|
|
|
|
|
|
|
Promissory
note for $23,000 issued to a related party in the first quarter of 2019. The note accrues interest at 2% and matured during July
2019. The note includes warrants for 4,600 shares with an exercise price of $5. The note is in default.
|
|
$
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
Promissory
note issued in the first quarter of 2019. The note accrues interest at 6% and matured in February 2020. The note is in default.
|
|
$
|
231,478
|
|
|
|
231,478
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes for $50,000 issued in the second quarter of 2019 accrues interest at 2% and matured in July 2019. The notes include warrants
for 10,000 shares with an exercise price of $5. The note is in default.
|
|
$
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued on October
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
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued
in the third quarter of 2020 accrues interest at 12% and matures in August 2021. The Company recognized a $54,312 derivative liability
for the conversion rights attached to the note as of December 31, 2020. This outstanding principal and interest accrued on this note
was converted into 5,402 common shares in February 2021.
|
|
$
|
-
|
|
|
|
53,000
|
|
|
|
|
3,070,208
|
|
|
|
2,879,640
|
|
Less: Original issue
discount on notes payable and warrants issued with notes.
|
|
|
-
|
|
|
|
(34,789
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,070,208
|
|
|
$
|
2,844,851
|
|
As
of March 31, 2020 and December 31, 2020, the Company had $453,782 and $635,217, respectively, in accrued and unpaid interest and default
penalties.
4.
Derivative Liabilities
As
of March 31, 2021, and December 31, 2020 the fair value of the outstanding derivative liabilities was zero and $1,254,444, respectively.
During
the three-month period ended March 31, 2021, the Company entered into a Note Exchange Agreement with a noteholder that resulted in the
issuance of new non-convertible promissory notes of $697,600 in exchange for outstanding convertible promissory note with related accrued
interest. The new notes do not have conversion rights and as such, the Company reversed a derivative liability of $1,200,129 during the
first quarter of 2021.
The
Company issued 5,402 common shares, during the first quarter of 2021, in connection with a noteholder’s election to convert $56,480
in principal and interest to common shares. The Company recognized $21,899 for the change in fair market value on related derivative
liability prior to the conversion and reverse $76,211 in derivative liabilities for the conversion rights upon issuance of the common
shares.
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 measured the fair market value of the conversion option associated
with certain convertible notes, at December 31, 2020 utilizing Level 3 inputs which resulted in a derivative liability of $1,254,441.
A
reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the fair value hierarchy follows:
|
|
Conversion
option derivative liability
|
|
Balance December 31, 2020
|
|
$
|
1,254,441
|
|
Change in fair value
|
|
|
21,899
|
|
Settlement of liability
upon debt exchange and conversion
|
|
|
(1,276,340
|
)
|
Balance March 31, 2021
|
|
$
|
-
|
|
5.
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
During
the three months ended March 31, 2021 and March 31, 2020,
no warrants issued or exercised. There were no modifications to the terms of any warrants issued by the Company during these
periods.
At
March 31, 2021, the Company had a total of 20,068,435 warrants rights outstanding. Included in the outstanding warrants are 18,730,000
warrants, held by thirty one investors with an exercise price of $0.05 per share, that include provisions that limit the
maximum impact of a reverse split on their warrant shares and the exercise price per share at 10-to-1.
The
following is a summary of outstanding common stock warrants for the three-month period ended March 31, 2021.
Expiration
Date
|
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
Remaining
Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter 2021
|
|
|
5,812
|
|
|
$
|
14-200
|
|
|
|
.25
|
|
Third
Quarter 2021
|
|
|
5,167
|
|
|
$
|
30-200
|
|
|
|
.50
|
|
Fourth
Quarter 2021
|
|
|
300
|
|
|
$
|
100
|
|
|
|
.75
|
|
First
Quarter 2022
|
|
|
150
|
|
|
$
|
200
|
|
|
|
1.00
|
|
Second
Quarter 2022
|
|
|
1,750
|
|
|
$
|
150
|
|
|
|
1.25
|
|
Third
Quarter 2022
|
|
|
1,650
|
|
|
$
|
50-100
|
|
|
|
1.50
|
|
Fourth
Quarter 2022
|
|
|
9,811
|
|
|
$
|
80-290
|
|
|
|
1.75
|
|
First
Quarter 2023
|
|
|
1,204,000
|
|
|
$
|
0.05-40
|
|
|
|
2.00
|
|
Second
Quarter 2023
|
|
|
802,000
|
|
|
$
|
0.05-200
|
|
|
|
2.25
|
|
Third
Quarter 2023
|
|
|
7,521,500
|
|
|
$
|
0.05-100
|
|
|
|
2.50
|
|
Fourth
Quarter 2023
|
|
|
6,024,300
|
|
|
$
|
0.05-0.20
|
|
|
|
2
.75
|
|
First
Quarter 2024
|
|
|
3,660,000
|
|
|
$
|
0.05
|
|
|
|
3.00
|
|
Second
Quarter 2024
|
|
|
800,000
|
|
|
$
|
5.00
|
|
|
|
3.25
|
|
Third
Quarter 2028
|
|
|
3,000
|
|
|
$
|
70
|
|
|
|
7.50
|
|
Second
Quarter 2032
|
|
|
28,995
|
|
|
$
|
10-70
|
|
|
|
11.25
|
|
|
|
|
20,068,435
|
|
|
$
|
0.05-200
|
|
|
|
|
|
Following
is a summary of outstanding stock warrants activity for the three months ended March 31, 2021:
|
|
Number
of Shares
|
|
|
Exercise
Price
|
|
|
Weighted
Average Price
|
|
Warrants as of December 31, 2020
|
|
|
20,081,035
|
|
|
$
|
0.05-200
|
|
|
$
|
0.68
|
|
Issued
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expired and forfeited
|
|
|
(12,600
|
)
|
|
$
|
200
|
|
|
$
|
200
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Warrants as of March 31, 2021
|
|
|
20,068,435
|
|
|
$
|
0.05-200
|
|
|
$
|
0.55
|
|
6.
Income Taxes – Results of Operations
There
was no income tax expense reflected in the results of operations for the years ended March 31, 2021 and 2020 because the Company incurred
a net loss in both years. 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.
For
U.S. federal purposes the corporate statutory income tax rate was 21%, for 2021 and 2020 tax years. The Company has recognized
no tax benefit for the losses generated for the periods through March 31, 2021. ASC Topic 740 requires that a valuation allowance be
provided if it is more likely than not that some portion or all 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.
7.
Licenses Agreements
Due
to the Company’s need to generate short term cash flow to fund operations, the Company sublicensed all of its remaining technology
to Forte and Cytocom Inc. as detailed below. The Company is currently seeking to acquire pharmaceutical and medical device products,
technology and/or intellectual property that it can incubate for future commercialization using its experience and expertise in this
area.
Forte
Animal Health, Inc.
On
February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte Animal
Health Inc. (“Forte”). Forte has yet to fund the consideration defined in the agreement. This license agreement has not been
fully executed and as such the underlying license is not yet effective.
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. Milestone payments and royalties are defined in
the agreement based on development and royalties are based on sales during the license period.
The
Initial License Fee includes the assumption of certain Company defaulted Notes and other liabilities. Forte will assume a minimum
of IMUN defaulted debt and to assume certain additional obligations of the Company. The note holders and vendors associated with the
assigned liabilities have not yet assigned their rights to Forte.
Consideration
for February 28, 2020 License to Forte
Consideration
Assumption of:
|
|
|
|
Notes in Default
|
|
$
|
1,787,706
|
|
Accounts payable and accruals
|
|
|
261,706
|
|
Past Due Employee
Obligations
|
|
|
990,201
|
|
|
|
|
|
|
Total Consideration
to be Recognize Upon Execution
|
|
$
|
3,039,613
|
|
The
documentation and sign off of this agreement related to the Forte license has yet to be signed and the individual lenders need to provide
their approval for the transfer of these notes. As such the accompanying financial statements do not reflect any gain on sale. Until
such time as the transaction is completed Forte does not have clear title and interest to the veterinary rights.
Forte
has agreed to make payments to the Company in connection with this agreement as follows:
|
●
|
Initial
License Fee, upon the assignment of certain Company Notes Payable.
|
|
●
|
Development
Milestone Payments upon the occurrence of the identified events, one-time, non-creditable, non-refundable milestone payments of $100,000
will be earned by the Company upon: (1) a successful MUMS designation and (2) upon a successful conditional approval.
|
|
●
|
Commercial
Milestone Payments upon reaching the mutually agreed aggregate net sales. Forte will pay one-time, non-creditable, non-refundable
milestone payments to be negotiated and addressed in a separate Amendment later.
|
|
●
|
Royalties
during the royalty term (generally 15 years from the first sale of a product in a country), royalties on annual net sales as follows:
|
Annual
Sales of Royalty Qualifying Licensed Products
|
|
Royalty
Rate
|
|
<$500,000,000
|
|
|
2
|
%
|
500,000,000 to < $1,000,000,000
|
|
|
4
|
%
|
> $1,000,000,000)
|
|
|
6
|
%
|
Cytocom
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.
In
December 2014, the Company transferred to Cytocom certain of its rights, title and interest in or relating to intellectual property.
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 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 was 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.
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.
On
April 8, 2019, the Company signed a second amendment to its licensing agreement (the “Second Amendment”) with Cytocom. The
Second Amendment confirmed that, as of its effective date (December 31, 2018) the Company owned 15.57% of the common shares issued and
outstanding on that date. The Company agreed to assume the obligation to repay all accounts payable obligations and accrued liabilities
owed by Cytocom as of the effective date, except those accounts’ payable obligations and accrued liabilities as specified in the
Second Amendment. The Company also assumed the obligation to repay all notes payable, together with any interest or fees payable thereon,
owed by Cytocom as of the effective date, except those notes’ payable obligations, together with any interest or fees payable thereon,
as specified by the Second Amendment. The parties further agreed that in the event of a change of control of Cytocom, and at the option
of Cytocom, the Company would have the right to purchase outright the Company’s licensing rights to Emerging Markets for humans
under the License Agreement at a price equal to value of those licensing rights as determined by and independent valuator acceptable
to the Company and Cytocom.
On
May 13, 2020, the Company and Cytocom entered into Amendment to The Second Amendment to The License Agreement (“Third Amendment”)
that was effective December 31, 2018. The sublicense provides Cytocom with the Company’s previously licensed rights for LDN and
MENK in Emerging Markets.
Terms
for consideration for the sublicense were not finalized until August 12, 2020 at which time Cytocom and the Company signed a letter agreement
in which Cytocom agreed to assume a combination of defaulted notes plus certain other liabilities. The Company agreed to transfer all
the rights, title, and interest to Cytocom in technology licensed from Penn State Research Foundation in exchange for Cytocom assuming
all past due and future obligations under the Penn State license. While the Company formalized the agreement to deconsolidate on May
1, 2018, Cato Research Ltd and Penn State University, both vendors of the Company, did not consent to assign the payables to Cytocom.
As of March 31, 2021, the Company had outstanding accounts payable balances of $477,451 and $421,048 due to Cato Research Ltd and Penn
State University, respectively.
In
the third quarter of 2020, the Company received a Notice of Default (“Notice”) from Cytocom relating to the sublicensing
transaction. The Company disputes the validity of the Notice on the basis that Cytocom has failed to execute on their consideration for
the license.
The
Notes transaction has not been fully consummated. The Notes
in default have been assigned and the transfer signed off by the creditors, but Cytocom still has not completed the assumption of the
agreed upon obligations.
Consideration
for May 13, 2020 License to Cytocom
Consideration
Assumption of:
|
|
|
|
Notes in Default
|
|
$
|
3,038,107
|
|
Accounts payable and accruals
|
|
|
1,052,123
|
|
Past Due Employee
Obligations
|
|
|
1,110,567
|
|
Total anticipated Consideration
|
|
$
|
5,200,797
|
|
Recognized through
December 31, 2020
|
|
|
(3,312,333
|
)
|
To Be Recognized
upon Execution
|
|
$
|
1,888,464
|
|
At
March 31, 2021, the Company has an equity interest of 13.3% in Cytocom. In connection with the May 1, 2018 “Restated
Agreement” with Cytocom, the Company no longer has ongoing obligations to pay for costs in connection with the assets of Cytocom.
Accordingly, effective May 1, 2018, the Company deconsolidated Cytocom. The Company uses the equity method to account for its retained
interest in Cytocom.
8.
Subsequent Events
The
Company announced on May 6, 2021, that FINRA has processed a reverse split of 1-for 1,000 of the issued and outstanding stock. The reverse
stock split was completed with the state of Florida on March 12, 2020. FINRA’s processing was the last step necessary to fully
effectuate the reverse split approved by shareholders in October of 2019. The Company’s common stock began trading on a split-adjusted
basis on the Over-the-Counter Exchange (OTC-PINK) at market open on May 6, 2021.
As
a result of the reverse stock split, each 1,000 pre-split shares of common stock outstanding will automatically be combined into one
issued and outstanding share of common stock. No fractional shares of common stock will be issued as a result of any reverse stock split,
fractional shares will be rounded up to whole shares.