Notes
to the Condensed Consolidated Financial Statements
September
30, 2022
(Unaudited)
1.
Company Overview
Immune
Therapeutics Inc. (the “Company” or “IMUN”) is a Florida corporation trading on the OTC-Pink. 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.
Going
Concern
As
of September 30, 2022, the Company had $185,447 in
cash and a stockholders’ deficit of $2,602,278.
For the nine months ended September 30, 2022, the Company reported a net loss of $3,257,151
which included non-recurring charges and gains including: non-cash loss from the settlement of certain obligations upon the issuance of common shares, non-cash charge for the write-off the Company’s investment in common
shares of Statera BioPharma, Inc., the revaluation of the fair market value of certain warrants, and a non-cash gain upon the assignment of obligations in connection with the issuance of a license with Forte Animal Health Inc.
For
the nine months ended September 30, 2021, the Company reported net income of $3,790,645 which included several non-recurring gains and
losses including: a gain recognized upon the receipt of common stock and a related charge recognizing a decline in the market value of
these shares at quarter end and a gain on the assignment of debt upon the reversal of a derivative liability.
Since our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt
securities or obtain additional credit facilities. During the nine months ended September 30, 2022, we issued a total of 81,615,483 shares
of common stock in exchange for the cancellation, conversion or exercise of outstanding promissory notes and warrants. This issuance has
resulted in substantial dilution to our shareholders. The sale of additional equity securities could result in additional dilution to
our shareholders. Alternatively, the incurrence of indebtedness would result in increased debt service obligations and could require us
to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms
acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability
to expand or even continue our business operations and could harm our overall business prospects.
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 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 on September 30, 2022 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
is continuing to develop strategies to re-capitalize the Company and position it for future growth. Key steps to this process include:
|
● |
Improve
the condition of the balance sheet via license arrangements and capital infusions. |
|
● |
Identify
and acquire late-stage assets for commercialization. |
|
● |
Build
out operational infrastructure to generate revenue opportunities to grow shareholder value. |
There
can be no guarantees that the Company will be successful in securing adequate capital to continue operations and in identifying and acquiring
assets for future development. If the Company is unable to secure new working capital, other alternative strategies will be required.
Historically,
the Company has been able to acquire and develop assets, spin them out and retain both an equity stake and royalties and milestone payments.
In so doing, the Company has acted as an incubator for late-stage drug development. Management believes that this strategy can continue
to be successful. At this time, the Company is reviewing several opportunities which it may pursue as soon as funding is available. At
present no definitive actions have been taken.
There
can be no guarantees that the Company will be successful in:
|
● |
Executing
its restructuring plan; |
|
● |
Securing
adequate capital to continue operations; or |
|
● |
Identifying
and acquiring assets for future development. |
Company
History
Immune
Therapeutics, Inc. (the “Company” or “IMUN”) 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.
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, 2021 (including the notes thereto) set forth in the Company’s Annual Report on Form
10- K for that period.
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.
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 the Company’s investment in the common stock of Statera BioPharma, Inc. (“STAB”)
reflects an asset impairment charge taken in the second quarter of 2022 and is carried at zero in the consolidated balance sheet. The
carrying value of notes payable approximate fair value since they bear market rates of interest and other terms. None of these instruments
are held for trading purposes.
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. The Company did not incur any research and development costs during the nine months ended September 30, 2022.
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, 2022 and 2021, 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,
2022, and 2021, the Company does not have any interest or penalties related to uncertain tax positions.
Stock-Based
Compensation and Issuance of Common Stock for Non-Cash Consideration
The
Company measures and recognizes compensation expense for share-based awards 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.
On
September 20, 2022, the Company issued 50,000 shares of its common stock to for advisory services. This advisor is a shareholder of the
Company. The Company recorded stock compensation of $93,500 reflecting a market value of $1.87 per share on the date of the share issuance.
During the second quarter of 2022, the Company settled a liability through the issuance of 49,500 shares of common stock at $0.05 per
share for professional services of $2,463 provided in a prior year.
The
Company did not issue any stock-based compensation awards during the nine months ended September 30, 2021.
Net
Income per Share
For
the nine-and three- month periods ended September 30, 2022, basic and diluted net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration
for common stock equivalents.
For the nine and three- month periods ended September
30, 2021, diluted income per share was calculated by dividing the net income by the weighted-average number of common shares outstanding
for the period determined using the treasury-stock method and the if-converted method. A reconciliation of the weighted average shares
outstanding used in basic and diluted earnings per share for the periods ended in 202 are as follows:
Schedule of Basic and Diluted Earnings per Share
| |
Three
Months ended | | |
Nine
Months ended | |
| |
September
30, 2021 | |
Basic
EPS | |
| | | |
| | |
Income
available to common shareholders (Numerator) | |
$ | 3,112,940 | | |
$ | 3,790,645 | |
Weighted
average common shares (Denominator) | |
| 483,714 | | |
| 482,527 | |
Basic
EPS | |
$ | 6.44 | | |
$ | 7.86 | |
| |
| | | |
| | |
Diluted
EPS | |
| | | |
| | |
Income
available to common shareholders (Numerator) | |
$ | 3,112,940 | | |
$ | 3,790,645 | |
Weighted
average common shares | |
| 483,714 | | |
| 482,527 | |
Weighted
average common shares assuming exercise of outstanding warrants | |
| 12,507,218 | | |
| 12,507,218 | |
Denominator | |
| 12,990,932 | | |
| 12,989,745 | |
Diluted
EPS | |
$ | 0.24 | | |
$ | 0.29 | |
Recent
Accounting Standards
The
Company has reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the nine months ended September
30, 2022.
In
August 2020, the FASB issued ASU-2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
– Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contract in an Entity’s
Own Equity (“ASU 2020-06). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion
and cash conversion accounting models. Upon the adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial
premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between
debt and equity components. ASU 2020-06 will reduce the issue discount and result in less non-cash interest in the financial statements.
ASU 2020-06 revises the earnings per share calculation and requires entities to assume share settlement when the convertible debt can
be settled in cash or shares. The type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are
accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception.
ASU 2020-06 simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled
in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is
effective for fiscal years beginning after December 23, 2023. Early adoption is permitted, but no earlier than fiscal years beginning
after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company has adopted ASU 2020-06 effective January
1, 2022.
Management
does not believe there are other significant accounting pronouncements has had or will have a material impact on the Company’s
consolidated financial statements.
Note
3. Investment in Common Stock of Statera BioPharma, Inc.
In
2021, Cytocom, Inc., a former subsidiary of the Company (“Cytocom”), announced the completion of its merger with Cleveland
BioLabs, Inc. (“CBLI”) which resulted in the Company’s receipt of 1,150,000 common shares of CBLI, reflecting the Company’s
retained minority interest in Cytocom. Subsequent to the merger, CBLI adopted a new corporate name, Statera BioPharma, Inc., with the
ticker symbol “STAB” effective September 1, 2021. Cytocom emerged as a publicly traded entity following the merger with CBLI.
The
Company evaluated the carrying value of the STAB common shares during the second quarter of 2022 and determined that an impairment loss
of $362,250 should be reflected in the Statement of Operations. The impairment loss reflects the Company’s assessment of a series
of events reported by Statera BioPharma, Inc. to the Securities and Exchange Commission on and after March 25, 2022 including alleged
events of default with respect to STAB’s outstanding indebtedness, resignations of members of STAB’s board of directors and
notice by STAB to NASDAQ of its failure to comply with the Nasdaq Listing Rules. As a result of the foregoing, the Company recognized
an impairment loss of $362,250 during the three-month period ended June 30, 2022.
4.
Notes payable
During
the nine-month period ended September 30, 2022 the Company reported the following activity in notes and accrued interest:
|
●
|
The
Company assigned $1,775,275 in
notes to Forte Animal Health, Inc. (“Forte”) upon the receipt of release and assignments signed by these note holders in
connection with the issuance of an Amended License Agreement. In connection with the Amended License Agreement, Forte issued 2,235,000 of
its outstanding stock to the Company, representing 15% of
the issued and outstanding shares of Forte. (Note 7). |
|
● |
Certain
note holders utilized $376,250 in principle as proceeds in the exercise of warrant for common shares at a conversion rate of $0.05
per share. |
|
● |
Certain
note holders converted $1,209,206 in principle into common shares at a conversion price of $0.05 per share. |
|
● |
The
Company issued $265,000 in new notes in satisfaction of certain vendor and employee obligations. The new notes have a conversion price
of $0.05 per share. |
Notes
outstanding as of September 30, 2022 and December 31, 2021 are as follows:
Schedule of Notes Payable
| |
September 30, 2022 | | |
December 31, 2021 | |
Promissory notes issued in 2014 and 2015 and matured in 2015. Lenders earned interest at 10% and had a penalty rate of 5%. These notes were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
$ | 70,000 | |
Promissory notes issued in 2014 and 2015 and matured in 2015. Lenders earned interest at 10% and had a penalty rate of 5%. These notes were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
$ | 70,000 | |
Promissory notes issued in 2016 and matured in 2017. Lenders earned interest at 2% with a penalty rate of 5%. These notes were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 606,500 | |
Promissory note issued in 2016 and matured in 2016. Lenders earned interest at 2% with a penalty of 5%. This note was in default at December 31, 2021 and was settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 37,000 | |
Promissory notes issued in 2017 and matured in 2018. Lenders earn interest at 2% with a penalty rate of 5%. Notes aggregating $552,300 were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. The remaining note in the amount of $25,000 is convertible at $0.05 per share. | |
$ | 25,000 | | |
| 577,300 | |
Promissory note issued in 2018 and matured in 2019. Lender earned interest at 25%. This note was in default at December 31, 2021 and was settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 80,000 | |
Promissory note issued in 2018 and matured in 2018. Lender earned interest at 2% with a penalty rate of 5%. This note was in default at December 31, 2021 and was settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 112,500 | |
Promissory notes issued in 2018 and matured in 2019. Lenders earned interest at 2% with a penalty rate of 5%. These notes were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 497,830 | |
Promissory note issued in 2019 and matured in 2020. Lender earns 6% interest. This note is in default. | |
| 231,481 | | |
| 231,478 | |
Promissory note issued in 2019 and matured in 2019. Lender earned 6% interest. This note was in default at December 31, 2021 and was settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 10,000 | |
Promissory note issued in 2019 for the settlement of debt in the same amount and matured in 2021. Lender earns interest at 15%. This note is in default and is the subject of lawsuit filed by the noteholder in January 2022. | |
| 150,000 | | |
| 150,000 | |
Promissory note issued in 2021 resulted from a Note Purchase Agreement with the original noteholder. The new notes reflected all principal, interest and penalties associated with the original instrument. The notes had an interest rate of 5% and a penalty rate of 7%. The holder of $348,800 of these notes (Global Reverb Corp.) is an entity wholly owned by the Company’s former Chief Executive Officer that is also a former director of the Company. These notes were in default at December 31, 2021 and were settled in 2022 in connection with the Company’s recapitalization in 2022. | |
| - | | |
| 697,600 | |
Promissory note issued in 2022 and matures in 2023. Lender earns interest at 6%. The note is convertible into common stock at $0.05 per share. | |
| 65,000 | | |
| - | |
Promissory note issued in 2022 and matures in 2023. Lender earns interest at 6%. The note is convertible into common stock at $0.05 per share. The holder of the note is a current board member and the former Chief Executive Officer of the Company. | |
| 200,000 | | |
| - | |
| |
| | | |
| | |
| |
$ | 671,481 | | |
$ | 3,070,208 | |
At
September 30, 2022, the Company had $375,000 in promissory notes payable to shareholders of record on that date.
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
Warrant
holders exercised 17,225,000 common stock warrants during the nine-month period ended September 30, 2022. An additional 2,283,850 warrants
were forfeited or cancelled during the nine-month period ended September 30, 2022. During the nine months ended September 30, 2021, no
warrants were issued or exercised.
The
following is a summary of outstanding common stock warrants as of September 30, 2022.
Schedule of Outstanding Common Stock Warrants
Expiration Date | |
Number of Shares | | |
Exercise
Price | | |
Remaining Life (years) |
| |
| | |
| | |
|
Fourth Quarter 2022 | |
| 9,811 | | |
$ | 80 - 290 | | |
0.25 |
First Quarter 2023 | |
| 4,000 | | |
$ | 30
- 40 | | |
0.50 |
Second Quarter 2023 | |
| 1,000 | | |
$ | 200 | | |
0.75 |
Third Quarter 2023 | |
| 501,500 | | |
$ | 0.05-100 | | |
1.00 |
Third Quarter 2028 | |
| 3,000 | | |
$ | 70 | | |
6.00 |
Second Quarter 2032 | |
| 28,995 | | |
$ | 10 - 70 | | |
9.75 |
| |
| 548,306 | | |
$ | 0.05 - 290 | | |
|
Following
is a summary of stock warrant activity for the nine months ended September 30 2022:
Schedule
of Stock Warrants Activity
| |
Number of Shares | | |
Exercise Price | | |
Weighted Average Price | |
Warrants as of December 31, 2021 | |
| 20,057,156 | | |
$ |
2 - 290 | | |
$ | 5.21 | |
Issued | |
| - | | |
$ | - | | |
$ | - | |
Expired and forfeited | |
| (2,283,850 | ) | |
$ | 0.05 - 200 | | |
$ | 126.76 | |
Exercised | |
| (17,225,000 | ) | |
$ | 0.05 | | |
$ | 0.05 | |
Warrants as of September 30, 2022 | |
| 548,306 | | |
$ | .05 - 70 | | |
$ | 8.39 | |
On
June 29, 2022, the Company’s board of directors approved a resolution to clarify the anti-dilution protection granted to certain
note and warrant holders. In connection with this board action, the Company recognized a non-cash charge of $1,605,913 in the Statement
of Operations for the nine-month period ended September 30, 2022. The fair value of the re-measured warrants was determined using the
Black Scholes model and used the following assumptions:
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions
Expected term (years) | |
| 0.63 | |
Risk free rate | |
| 2.04 | % |
Volatility | |
| 436 | % |
Dividend yield | |
| - | |
The
average risk-free interest rate is based on the U.S. Treasury security rate in effect on June 29, 2022. We determined expected volatility
using the historical closing stock price. The expected life was determined using the simplified method as we do not believe we have sufficient
historical warrant exercise experiences on which to base the expected term.
6.
Income Taxes – Results of Operations
There
was no income tax expense reflected in the results of operations for the periods ended September 30, 2022 and 2021 because the Company
has significant net loss operating carryforwards available to offset the potential tax liabilities. 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 2022 and 2021 tax years. The Company has recognized no tax
benefit for the losses generated for the periods through September 30, 2022.
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.
License Agreement with Forte Animal Health, Inc.
On
July 8, 2021 the Company entered into an amended license agreement with Forte Animal Health, Inc (“Forte”). The initial license
fee included the assignment of certain Company defaulted notes and other vendor and employee obligations. During the second quarter of
2022, these debtors associated with the assigned obligations completed the assignment of $1,775,275 in notes payable, $264,790 of accrued
interest and $1,125,086 in other vendor and employee obligations to Forte. The Company recognized a non-cash gain upon the assignment
of these obligations.
In
connection with the amended license agreement, Forte issued 2,235,000 of its outstanding stock to the Company, representing 15% of the
issued and outstanding shares of Forte. The Company has not recognized a minority interest in the balance sheet as of September 30, 2022
as Forte is in the start-up phase of its business and has no earnings from operations to date.
8.
Subsequent Events
Settlement Agreement and Release
On October 23, 2022 the Company entered into a Settlement
Agreement and Release with a former board member that was a note holder as of September 30, 2022. The agreement provided for the utilization
of $25,000, the outstanding principal on a promissory note, as proceeds in the exercise of 500,000 warrants of common shares at a conversion
rate of $0.05 per share. The parties also agreed to fully discharge $63,338 of other accrued liabilities related to unpaid director fees
in exchange for common shares at $1.00 per share. The company issued 563,338 common shares subsequent to September 30, 2022 and before
the filing of this Form 10-Q.
Amendment to Promissory Note and Settlement of
Litigation
On November 4, 2022, the Company and Ira Gaines agreed
to a first amendment to a promissory note dated October 1, 2019 that included the following provisions:
|
● |
The maturity date of the amended note will be extended to September 1, 2023. |
|
● |
The Company will make a $60,000 lump sum payment on accrued interest no later than January 13, 2023. |
|
● |
The $16,911 remainder of unpaid interest will be paid through the issuance of common stock at a conversion price of $0.50 per share, for a total of 33,822 common shares, to be issued within ten business days of this amendment. |
|
● |
The $150,000 principal on the outstanding note shall accrue interest at a rate of 15% from October 31, 2022 through the extended maturity date. |
|
● |
Interest accrued will be paid in common stock measured at the lower of $0.50 per share or the average stock price from the previous 30 days of issuance and will be paid quarterly during the period from January 31, 2023 through the maturity date. |
Upon the Company’s issuance of the 33,822 interest
shares, described above, Gaines will file a Notice of Dismissal dismissing the litigation without prejudice.
License
signed with TaiwanJ Pharmaceuticals Co. Ltd.
On
September 30, 2022, the Company entered into an Intellectual Property License Agreement (the “Agreement”) with TaiwanJ
Pharmaceuticals Co. Ltd., a Taiwanese corporation (“TaiwanJ”), pursuant to which TaiwanJ granted the Company an exclusive,
royalty-bearing license, including the right to grant sublicenses, to commercialize and sell TaiwanJ’s pharmaceutical products
including naltrexone, or any other small molecule composition that either alone or in combination can be formulated and used in humans
to show anti-fibrotic, immune-modulating, and/or anti-inflammatory effects for the treatments of various diseases, (the “Products”).
This obligation, and costs associated with this agreement, will be reflected in the Company’s financial statements upon the license
transfer which requires the Company to provide the non-refundable cash payment of $500,000 as described below.
The
Company also received a non-exclusive worldwide right to make, manufacture, and receive technical manufacturing assistance from TaiwanJ
for the creation of the Products. The only territories excluded from the scope of the Agreement are any countries or territories in Asia,
and any countries or territories barred or sanctioned by the United States government. We did not have any relationship with TaiwanJ
prior to entering into the Agreement.
The
term of this Agreement is to be perpetual, but termination of the Agreement may occur upon (i) the Company providing sixty (60) days
prior written notice to TaiwanJ of termination, (ii) termination of the agreement for a material breach of the agreement, and failure
to cure that breach within ninety (90) days after receiving notice of such breach, (iii) the dissolution of the Company, or (iv) upon
bankruptcy of either party, upon receiving sixty (60) days’ notice by Registered Mail.
The
Company may grant sublicenses under the Agreement. Upon the granting of any such sublicense, the Company will pay TaiwanJ royalties based
on the stage of development of the Products. The Company will pay a royalty of 30% of the cash proceeds received from any sublicense
if the sublicense occurs before completing a clinical trial, 10% if the sublicence occurs after completing any trial, and 5% if sublicense
occurs after any new drug application (“NDA”) submission.
Pursuant
to the terms of the license in the Agreement, the Company shall adhere to a plan of development and attain certain milestones. As part
of the Development Plan, the Company shall (i) use commercially reasonable efforts and cause its sublicenses to use commercially reasonable
efforts to develop licensed Products, (ii) begin commercial sales of the Products in a country no less than eight (8) months after the
first registration of the Products in that same country, and (iii) following commercialization, the Company must keep the Products reasonably
available to the public.
In
consideration for the license, the Company will provide (i) a non-refundable cash payment of $500,000 within ninety (90) days of September
30, 2022, (ii) a non-refundable cash payment of $500,000 at the earliest of either the National Agency for Food and Drug Administration
and Control (“NAFDAC”) approval for JKB-122 in Africa for any indication, or the enrollment of the first patient in a Food and Drug Administration
(“FDA”) trail for Crohn’s Disease, (iii) 250,000 shares of common stock of the Company within sixty (60) days of September
30, 2022, (iv) an annual payment of $100,000 each anniversary of the date of the agreement until the Company gains regulatory approval
in Africa, (v) milestone payments (described below), and (vi) royalties on net sales. The 250,000 shares of common stock represent approximately
0.32% of the currently outstanding common stock of the Company.
The
Company will be required to pay one-time payments and issuances of equity for the achievement of each of four milestones in the commercialization
and development of the Products. In addition to the milestone payments, if there is any year that the Company is not required to pay
a Milestone Payment, the Company will pay a royalty percentage payment based on the total net sales due within sixty (60) days after
the end of each calendar quarter (the “Royalty Payment”).
If
the Company fails to make any of the above-described payments upon their designated due date, the payment amount will bear the lower
of (i) 1.5% interest per month or (ii) the maximum rate allowed by law, to be compounded quarterly. The interest will accrue beginning
on the first day after the payment is due.
TaiwanJ
will maintain, protect, and defend all patent-related intellectual property and the Company will reimburse TaiwanJ for any expenses related
to intellectual property patent payments that exclusively benefit the Company. If either the Company or TaiwanJ becomes aware of any
possible or actual infringement of any patent rights, then each party will notify the other, and provide it with details of such an infringement.
Both
the Company and TaiwanJ are limited in liability to the total amounts paid under this Agreement for any damages arising from negligence,
strict liability, or any other equitable theory. Further, both the Company and TaiwanJ agree to indemnify and hold harmless each other,
and their respective agents, for any claims or costs arising from this Agreement or any sublicenses for any cause of action relating
to any product, process, service made, used, or sold pursuant to this Agreement.