NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2020
1.
Organization and Description of Business
Company
Overview
Immune
Therapeutics Inc. (the “Company” or “IMUN”) is a Florida Public Company trading on the OTC-Pink. The Company
has been inactive for the last year due to a lack of funding, and with the Company’s current structure, it is impossible to move
forward until a restructuring of the Company is completed.
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 candidates 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, working capital at December 31, 2020 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 with Cytocom and Forte do
not provide any new working capital 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:
|
●
|
Re-apply
to secure FINRA approval of the reverse stock split.
|
|
●
|
Improve
the condition of the Company’s financial position and balance sheet:
|
|
○
|
License,
where practical technologies which the Company will otherwise not be able to commercialize.
|
|
○
|
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.
For the twelve months ended December 31, 2020, the Company reported net income attributable to common shareholders of $1,588,617
which included a non-cash gain of $3,502,280 during the period. As of December 31, 2020, the Company has a stockholders’
deficit of $11,666,981.
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 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 of the outstanding shares of TNI BioTech IP, Inc. On September 4, 2014, a majority of our
shareholders approved an amendment to our Amended and Restated Articles of Incorporation, as amended, to change our name to Immune
Therapeutics, Inc. We filed our name change amendment with the Secretary of State of Florida on October 27, 2014 changing our
name to Immune Therapeutics, Inc.
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,
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.
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 certain Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and
MENK for animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no
longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. 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.
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.
In
October 2019, the Board of Immune Therapeutics, Inc. (“Immune”) approved the restructuring of Immune (“Original
Restructuring Strategy”), which included a conversion of Immune promissory notes (the “Convertible Notes”) into
a proposed new class of Series D Preferred equity. However, Immune was unable to obtain the requisite shareholder approval to
issue the Series D Preferred equity, so that the plan to convert the debt into a Series D could not be completed. At the same
time, the Shareholders did approve a 1- for 1000 reverse stock split (“Reverse Stock Split”).
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 approved Management to pursue possible sublicensing options to Forte and Cytocom.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”)
and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management
to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying
notes. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
We
have identified the policies below as critical to our business operations and the understanding of its results of operations. The
Company’s 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.
Equity
investment in Cytocom, Inc.
Prior
to May 1, 2018, the Company consolidated Cytocom. On May 1, 2018, the Company entered into an amended and restated licensing agreement
(the “Restated Agreement”) with Cytocom, Inc., in accordance with which the Company no longer has any ongoing obligations
to pay for costs in connection with the assets of Cytocom. The Company deconsolidated Cytocom as of May 1, 2018, and accounts for its
retained interest in Cytocom under the equity method of accounting, with the Company’s share of Cytocom’s earnings recorded
in “loss from equity method investment” in the consolidated statements of operations. As the balance of the Company’s
investment in Cytocom has been zero since December 31, 2018, no losses have been recognized during the year ended December 31, 2019.
Leases
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months
to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured
at the present value of amounts expected to be paid over the term. At December 31, 2020 and 2019 the Company had no leases to which the
standard applies.
At
December 31, 2020, the Company was a party to an agreement to a short-term operating lease for office space in Orlando, Florida. This
agreement allows for cancellation with thirty days’ notice. Rental expense for the years ended December 31, 2020 and 2019 was $3,000
and $12,661 respectively.
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.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company
is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its
cash and cash equivalents to the extent of amounts recorded on the balance sheets. The cash accounts are insured by the Federal Deposit
Insurance Corporation up to $250,000. At December 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, accounts payable, and accrued liabilities
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 815, 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 comprised of fees paid to consultants and patent related costs.
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 December 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 December 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 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 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.
The
Company did not grant any stock-based compensation awards during the years ended December 31, 2020 and 2019.
Net
Income (Loss) per Share
Basic
net income (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.
The
Company’s potentially dilutive securities, which include warrants and potential common shares issuable under certain convertible
notes, have been included in the computation of diluted net income per share for the twelve-month period ended December 31, 2020. Net
income per share, for the year ended December 31, 2020, was calculated by dividing the net loss by the weighted-average number of common
share outstanding for the period determined using the treasury-stock method and the if-converted method.
For
the twelve-month period ended December 31, 2019, 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 for the year ended December 31, 2019.
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
|
|
$
|
1,588,617
|
|
|
|
461,190
|
|
|
$
|
3.44
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of warrants convertible into common stock
|
|
|
|
|
|
|
20,012,082
|
|
|
|
|
|
Potential shares purchasable using proceeds of warrants
|
|
|
|
|
|
|
(4,629,476
|
)
|
|
|
|
|
Effect of convertible debt
|
|
|
142,247
|
|
|
|
103,677
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
1,730,864
|
|
|
|
15,947,473
|
|
|
$
|
0.11
|
|
Recent
Accounting Standards
During
the year ended December 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.
Fixed Assets
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Fixed assets:
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
13,213
|
|
|
$
|
13,213
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(13,213
|
)
|
|
|
(12,522
|
)
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
$
|
-
|
|
|
$
|
691
|
|
The
Company utilizes the straight-line method for depreciation, using three to five-year depreciable asset lives. Depreciation expense was
not material for all periods presented.
4.
Notes payable
During
the twelve months ended December 31, 2020, the Company issued $197,000, in new promissory notes. As of December 31, 2020, the
Company had $1,639,275 in notes payable to shareholders of record.
On August 16, 2020, the Company and Cytocom entered
into an agreement for the Company to sublicense LDN and MENK for emerging markets to Cytocom. Pursuant to the agreement, effective September
30, 2020, the Company assigned notes payable aggregating $2,728,731 to Cytocom. The owner of each assigned note provided their written
consent to assignment, assumption, and amendment of the promissory notes.
Redstart
Holdings Corp.
On
March 30, 2020, the Company issued a Convertible Promissory Note (the “Note”) to Redstart Holdings Corp. (“Redstart”)
in the principal amount of $53,000. The Note matures on March 30, 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. Redstart has 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.
Redstart
converted the Note and related 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.
Geneva
Roth Remark Holdings, Inc.
During
the second and third quarters of 2020, the Company issued three Convertible Promissory Notes (the “Notes”) aggregating $144,000
to Geneva Roth Remark Holdings Corp. (“GRRH”). The Notes matures one year from the date of issuance, and bear interest at
the rate of 12% per annum. Any amount of the Notes not repaid at maturity, will bear interest at the rate of 22% per annum. GRRH has
the right, at any time during the period beginning 180 days following the date of the Notes 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 Notes 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.
During
the fourth quarter of 2020, GRRH converted $91,000 in principal and $5,460 in accrued interest on their outstanding Notes. The Company
issued 12,034 shares of common stock at an average price per share of $8.02 in connection with this conversion.
As
of December 31, 2020, the Company has $53,000 in principal outstanding in notes due to GRRH with a maturity date of August 13, 2021.
GRRH converted this note and associated accrued interest during the first quarter of 2021.
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 outstanding $53,000 Note. The Company is also required to
have authorized and reserved six times the number of shares that would be issuable upon full conversion of the Note. As of December
31, 2020, the Company had reserved 5,401,923 shares for this instrument.
Gain
on Settlement of Debt
On
August 16, 2020, the Company and Cytocom entered into an agreement for the Company to sublicense LDN and MENK for emerging markets to
Cytocom. Pursuant to the agreement, effective September 30, 2020 the Company assigned notes payable aggregating principal amount of $2,728,731
and related accrued interest of $495,409 to Cytocom.
Notes
Payable at December 31, 2020 and 2019:
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
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 at. In connection with an August 16, 2020 agreement with Cytocom, $216,000 of the notes were assumed by Cytocom.
|
|
$
|
70,000
|
|
|
$
|
286,000
|
|
|
|
|
|
|
|
|
|
|
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%. In connection with an August 16, 2020 agreement with Cytocom, $476,494 of the notes were assumed by Cytocom. These notes are in default.
|
|
$
|
149,500
|
|
|
|
625,994
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued to a former officer of the Company in 2015 with a maturity of November 3, 2016 in settlement of accrued payroll, bearing interest at 10% and including a stock conversion feature. These notes were assumed by Cytocom in connection with the August 16, 2020 agreement.
|
|
$
|
-
|
|
|
|
97,737
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between July 2016 and December 2016. Lenders earn interest at 2%. The notes matured on December 31, 2017. These notes were assumed by Cytocom in connection with the August 16, 2020 agreement.
|
|
$
|
-
|
|
|
|
206,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $1,350,000 issued in 2016. The notes accrue interest at 2% and mature between November 2017 and December 2017. In connection with an August 16, 2020 agreement with Cytocom, $747,500 of the notes were assumed by Cytocom. These notes are in default.
|
|
$
|
606,500
|
|
|
|
1,354,000
|
|
Promissory notes aggregating $500,000 issued in 2017 accrue interest at 2% and mature between January 2018 and September 2018 In connection with an August 16, 2020 agreement with Cytocom, $295,000 of the notes outstanding at June 30, 2020 were assumed by Cytocom. These notes are in default.
|
|
$
|
205,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $300,000 issued in 2017 accrue interest at 2% and mature in May 2018. In connection with an August 16, 2020 agreement with Cytocom, $150,000 of the notes were assumed by Cytocom. These notes are in default.
|
|
$
|
150,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $191,800 issued in 2017 accrue interest at 2% and mature between August 2018 and September 2018. In connection with an August 16, 2020 agreement with Cytocom, $75,000 of the notes were assumed by Cytocom. These notes are in default.
|
|
$
|
116,800
|
|
|
|
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 had increased to $454,032. $49,943 of accrued interest owed on the note has been converted
to stock. The Company recognized a $1,200,129 derivative liability for remaining conversion right. On November 10, 2020,
the noteholder entered into an agreement to sell all rights to the note to Global Reverb Corp., an entity wholly owned by the Company’s
former Chief Executive Officer and director, Noreen Griffin.
|
|
$
|
454,032
|
|
|
|
454,032
|
|
|
|
|
|
|
|
|
|
|
Promissory notes aggregating $105,500 issued in 2017 accrue interest at 2%. At September 30, 2020, the 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 $125,000 issued in 2018 accrue interest between 2% and 12% and mature between April 2018 and June 2018. These notes include warrants between 500,000 and 2,000,000 shares with an exercise price of $0.05. In connection with an August 16, 2020 agreement with Cytocom, these notes were assumed by Cytocom (the warrants remained with the Company).
|
|
$
|
-
|
|
|
|
125,000
|
|
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. In connection with an August 16, 2020 agreement with Cytocom, $80,000 of the notes outstanding were assumed by Cytocom. These notes are in default.
|
|
$
|
118,000
|
|
|
|
198,000
|
|
|
|
|
|
|
|
|
|
|
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. In connection with an August 16, 2020 agreement with Cytocom, $210,000 of the notes were assumed by Cytocom. These notes are in default.
|
|
$
|
323,855
|
|
|
|
533,855
|
|
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 for $231,478 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. In connection with an August 16, 2020 agreement with Cytocom, $40,000 of the notes were assumed by Cytocom. The note is in default.
|
|
$
|
10,000
|
|
|
|
50,000
|
|
Promissory note in the amount of $150,000 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 in the amount of $53,000 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.
|
|
$
|
53,000
|
|
|
|
-
|
|
|
|
|
2,879,640
|
|
|
|
5,545,371
|
|
Less: Original issue discount on notes payable and warrants issued with notes.
|
|
|
(34,789
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,844,851
|
|
|
$
|
5,545,371
|
|
As
of December 31, 2020, the Company had accrued $635,217 in unpaid interest and default penalties.
As
of December 31, 2019, the Company had accrued $899,904 in unpaid interest and default penalties. During the twelve-month period ended
December 31, 2019 the Company issued 18,255 shares with a fair value of $78,500 in settlement of $62,435 in promissory notes. Also, during
the twelve-month period ended December 31, 2019, the Company settled a $100,000 note with accrued interest and penalties in the aggregate
amount of $596,850, by assigning such amounts to a related party. In accordance with ASC 470-50-40-2, the extinguishment transactions
between related entities may be in essence capital transactions. When related parties are involved, recognition of the difference between
the retired debt’s reacquisition price and carrying amount as a gain is not appropriate. As such, no gain on the
extinguishment of the transaction was recorded.
5.
Derivative Liability
As
of December 31, 2020, and December 31, 2019, the fair value of the outstanding derivative liability was $1,254,444 and $798,126, respectively.
The Company estimated the fair value of the derivative liability using the binomial option pricing model on December 31, 2020. The Black-Scholes
option pricing model was used to determine the fair market value of the liability as of December 31, 2019.
|
|
Year End
December 31, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Volatility
|
|
|
178.65
|
%
|
|
|
165.62
|
%
|
Risk-free interest rate
|
|
|
1.0
|
%
|
|
|
1.96
|
%
|
Expected dividends
|
|
|
na
|
|
|
|
na
|
|
Expected term (years)
|
|
|
.25 - 1.00
|
|
|
|
1
|
|
The
Company determines the fair market values of its financial instruments based on the fair value hierarchy, which requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels
of inputs may be used to measure fair value:
Level
1
|
Quoted
prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
|
|
|
Level
2
|
Observable
inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
|
|
|
Level
3
|
Unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The
Company uses Level 3 inputs to estimate the fair value of its derivative liabilities.
The
following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of December 31, 2020:
|
|
Fair Value Measurements as of
December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,254,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,254,444
|
|
The
following schedule summarizes the valuation of financial instruments at fair value in the balance sheets as of December 31, 2019:
|
|
Fair Value Measurements as of
December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion option derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
798,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
798,126
|
|
The
following table sets forth a reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the fair
value hierarchy:
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Balance January 1, 2019
|
|
$
|
786,706
|
|
Change in fair value
|
|
|
46,745
|
|
Partial settlement of liability
|
|
|
(35,325
|
)
|
Balance December 31, 2019
|
|
|
798,126
|
|
Additions
|
|
|
361,116
|
|
Change in fair value
|
|
|
375,584
|
|
Conversion of notes to common stock
|
|
|
(280,382
|
)
|
Ending balance
|
|
$
|
1,254,444
|
|
6.
Common Stock and Common Stock Warrants
Each
holder of common stock is entitled to vote on all shareholder matters and is entitled to one vote for each share held. No holder of shares
of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional
issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized
or whether issued for money, for consideration other than money, or by way of dividend.
As
of December 31, 2020, and 2019, the Company was authorized to issue 750,000,000 and 500,000,000 common shares, respectively,
at a par value of $0.0001 per share. As of December 31, 2020, and 2019, the Company had 476,505 and 457,758 shares of common stock
outstanding, respectively.
Reverse Stock Split FINRA approval
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.
A 1 for 1,000 reverse stock split
(“Reverse”) was approved by over 55% of the shareholders in 2019. An application for approval was filed with both
the State of Florida and with the Financial Industry Regulatory Authority (“FINRA”). The request was approved by
the State of Florida in March 2020. In June 2020, FINRA informed the Company that it would not approve the request citing a
deficiency in the Company’s capital structure. Management believes it has resolved the deficiency and a re-application to FINRA is in process. Assuming approval is received, it is the
Company’s intent to proceed with the Reverse and the restructuring of the company.
The financial statements accompanying this Form
10-K are presented based on the implementation of the shareholder consent.
Common
Stock Warrants
The
Company did not issue or modify any warrants in the twelve-month periods ended December 31, 2020.
When
the Company sells its stock to stockholders for cash, it periodically issues common stock warrants to the investors at prices agreed
at the date of the original sale. The Company incurs a cost for the rights attached to the warrants, which is calculated using the Black-Scholes
Model and is reported in the Statements of Operations in the period of issuance.
A
summary of outstanding warrants as of December 31, 2020 follows:
Expiration Date
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Remaining Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2021
|
|
|
12,600
|
|
|
$
|
200
|
|
|
|
.25
|
|
Second Quarter 2021
|
|
|
5,812
|
|
|
|
$ 14-200
|
|
|
|
.50
|
|
Third Quarter 2021
|
|
|
5,167
|
|
|
|
$ 30-200
|
|
|
|
.75
|
|
Fourth Quarter 2021
|
|
|
300
|
|
|
$
|
100
|
|
|
|
1.00
|
|
First Quarter 2022
|
|
|
150
|
|
|
$
|
200
|
|
|
|
1.25
|
|
Second Quarter 2022
|
|
|
1,750
|
|
|
$
|
150
|
|
|
|
1.50
|
|
Third Quarter 2022
|
|
|
1,650
|
|
|
|
$ 50-100
|
|
|
|
1.75
|
|
Fourth Quarter 2022
|
|
|
9,811
|
|
|
|
$ 80-290
|
|
|
|
2.00
|
|
First Quarter 2023
|
|
|
1,204,000
|
|
|
|
$ 0.05-40
|
|
|
|
2.25
|
|
Second Quarter 2023
|
|
|
802,000
|
|
|
|
$ 0.05-200
|
|
|
|
2.50
|
|
Third Quarter 2023
|
|
|
7,521,500
|
|
|
|
$ 0.05-100
|
|
|
|
2.75
|
|
Fourth Quarter 2023
|
|
|
6,024,300
|
|
|
|
$ 0.05-0.20
|
|
|
|
3.00
|
|
First Quarter 2024
|
|
|
3,660,000
|
|
|
$
|
0.05
|
|
|
|
3.25
|
|
Second Quarter 2024
|
|
|
800,000
|
|
|
$
|
5.00
|
|
|
|
3.50
|
|
Third Quarter 2028
|
|
|
3,000
|
|
|
$
|
70
|
|
|
|
8.00
|
|
Second Quarter 2032
|
|
|
28,995
|
|
|
|
$ 10-70
|
|
|
|
11.75
|
|
|
|
|
20,081,035
|
|
|
|
$ 0.05-200
|
|
|
|
|
|
Following
is a summary of outstanding stock warrants activity for the twelve months ended December 31, 2020:
|
|
Number
of
Shares
|
|
|
Exercise
Price Per Share
|
|
|
Weighted
Average
Price
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
as of December 31, 2018
|
|
|
20,083,348
|
|
|
$
|
.05-3740
|
|
|
$
|
0.09
|
|
Issued
|
|
|
15
|
|
|
$
|
5
|
|
|
$
|
0.005
|
|
Expired
and forfeited
|
|
|
(28
|
)
|
|
$
|
50-3740
|
|
|
$
|
0.54
|
|
Exercised
|
|
|
|
|
|
$
|
-
|
|
|
$
|
|
|
Warrants
as of December 31, 2019
|
|
|
20,083,335
|
|
|
$
|
0.05-500
|
|
|
$
|
4.21
|
|
Issued
|
|
|
-
|
|
|
$
|
|
|
|
$
|
|
|
Expired
and forfeited
|
|
|
(2,300
|
)
|
|
$
|
100-500
|
|
|
$
|
195.65
|
|
Exercised
|
|
|
-
|
|
|
$
|
|
|
|
$
|
|
|
Warrants
as of December 31, 2020
|
|
|
20,081,035
|
|
|
$
|
0.05-200
|
|
|
$
|
4.22
|
|
7.
Income Taxes
There
was no income tax expense reflected in the results of operations for the years ended December 31, 2020 and 2019. As of December 31, 2020,
the Company had federal and state net operating loss carryforwards of $99,724,000 which may be used to offset future taxable income.
Approximately
$70,497,000 will expire in 2033 while $27,227,000 will be limited to 80% of taxable income but will not expire.
The
tax effects of temporary differences which give rise to deferred tax assets (liabilities) are summarized as follows:
Deferred
tax assets:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
$
|
19,892,000
|
|
|
$
|
20,346,000
|
|
Stock based compensation
|
|
|
39,284,000
|
|
|
|
39,284,000
|
|
Amortization, depreciation, and impairment
|
|
|
4,178,000
|
|
|
|
4,178,000
|
|
Capitalization of start-up costs for tax purposes
|
|
|
1,145,000
|
|
|
|
1,145,000
|
|
Gain/(loss) on conversion of debt
|
|
|
713,000
|
|
|
|
713,000
|
|
Total deferred tax assets
|
|
|
65,212,000
|
|
|
|
65,666,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(65,212,000
|
)
|
|
|
(65,666,000
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
In
assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the realization of future
taxable income during the periods in which those temporary differences become deductible. Deferred tax assets consist primarily of the
tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty
regarding realizability.
|
|
For the year ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Statutory federal tax rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Permanent differences
|
|
|
4.94
|
%
|
|
|
-
|
|
Prior period adjustment
|
|
|
2.63
|
%
|
|
|
-
|
|
Valuation allowance
|
|
|
(28.57
|
)%
|
|
|
(21.00
|
)%
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
The
Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the
statement of operations. As of December 31, 2020, and 2019, the Company had no unrecognized tax benefits. There were no changes in the
Company’s unrecognized tax benefits during the years ended December 31, 2020 and 2019. The Company did not recognize any interest
or penalties during fiscal 2020 or 2019 related to unrecognized tax benefits.
All
tax years remain open to examination for federal income tax purposes and by other taxing jurisdictions to which the Company is subject.
8.
Licenses and Supply Agreements
Forte
Biotechnology International Corp.
On
February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte
Biotechnology International Corp. (“Forte”). As of April 15, 2021, this license agreement has not been executed as
Forte has failed to fund the consideration defined in the agreement.
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 totals $3,039,599 comprised of 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 of $3,740,746 by May 16, 2020 upon the assignment of certain Company Notes Payable.
|
|
●
|
Development
Milestone Payments upon the occurrence of the identified events, the following one-time, non-creditable, non-refundable milestone
payments:
|
Event
|
|
Milestone Payment*
|
|
Successful MUMS Designation
|
|
$
|
100,000
|
|
Successful Conditional Approval
|
|
$
|
100,000
|
|
|
●
|
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 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
May 13, 2020, the Company and Cytocom entered into Amendment to The Second Amendment to The License Agreement (“Third Amendment”)
The License Agreement 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 December 31, 2020, the Company had outstanding accounts payable balances of $330,552 and $400,065 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.
As
of April 4, 2021, the Notes transaction has not been fully executed. 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
|
|
|
105,123
|
|
Past Due Employee Obligations
|
|
|
1,110,567
|
|
Total anticipated Consideration
|
|
$
|
5,200,797
|
|
Recognized through December31, 2020
|
|
|
(3,314,333
|
)
|
To Be Recognized upon Execution
|
|
$
|
1,888,464
|
|
At
December 31, 2020, the Company has an equity interest of 13.5% 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.
On
December 31, 2019, the Company reached a settlement with Cytocom to recover the net payable balance outstanding of $382,308. The
Company recorded a gain on the settlement of that amount.
9.
Commitments and Contingencies
Distribution
Agreements in Nigeria
In
October 2013, the Company announced the signing of a Distribution Agreement with AHAR Pharma, a Nigerian company, to market Lodonal™,
in Nigeria for the treatment of autoimmune diseases and cancer. AHAR intends to distribute Lodonal™ through a local distributor
network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The first deliveries under the agreement
took place in February 2018. Under the original agreement, the Company is obligated to provide delivery of an initial supply of between
1 million and 1.5 million doses of Lodonal™ product to cover AHAR Pharma’s first-year purchase commitment. Due to the fact
that AHAR Pharma failed to meet its contractual purchase obligations, the Company formally issued notice of default under the agreement.
On
April 18, 2018, AHAR Pharma transferred its rights under the Distribution Agreement to Fidson Healthcare Plc (“Fidson”),
and Fidson signed an exclusive distribution agreement with the Company to distribute Lodonal™. There were no shipments under this
agreement during the years ended December 31, 2020 and 2019. There were also no discussions with Fidson regarding the Distribution Agreement
in 2020 or 2019.
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.
10.
Related Party Transactions
Board
and Officer Transactions
Kevin
Phelps, the Company’s Chief Executive Officer, and a member of the board of directors, is earned board compensation
of $5,000 a month during 2020. Mr. Phelps has unpaid board fees of $125,000 and $65,000 at December 31, 2020 and 2019,
respectively, which is included in amounts due to related parties. Mr. Phelps serves as the Company’s Chief Executive Officer
with an annual salary of $240,000. As of December 31, 2020, Mr. Phelps had $160,000 in earned and unpaid compensation included
in amounts due to related parties.
Dr. Roscoe Moore, the chairman of the board of directors,
is entitled to receive compensation of $5,000 a month for board fees. Dr. Moore has unpaid board fees of $155,250 and $95,250
at December 31, 2020 and 2019, respectively, which is included in amounts due to related parties. Dr. Moore had a note payable
with a balance of $3,000 at December 31, 2020.
Noreen
Griffin, the Company’s former Chief Executive Officer, has unpaid cash compensation of $1,962,464 at December 31, 2020 and 2019,
respectively, which is included in accrued payroll expenses. There was an additional $55,500 due to Mrs. Griffin at December 31, 2020
and 2019 related to certain benefits. During the fourth quarter of 2020, Ms. Griffin acquired a convertible note with a face amount of
$454,032 and accrued unpaid interest of $243,569 from an existing noteholder of the Company. As of December 31, 2020, the principal and
interest in this note was convertible into 96,889 commons shares. Subsequent to December 31, 2020, Ms. Griffin assigned 50% of the principal
and unpaid interest to another investor of the Company.
11.
Subsequent Events
Subsequent
to December 31, 2020, the Company received a notice of conversion of the May 4, 2020 convertible promissory note with a face
value of $53,000 and $3,180 in accrued interest. In connection with this notice, the Company issued 5,402 in common
stock on February 26, 2021 reflecting a conversion price of $10.40 per share.