Company Quick10K Filing
Immune Therapeutics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 456 $0
10-Q 2019-11-19 Quarter: 2019-09-30
10-Q 2019-08-14 Quarter: 2019-06-30
10-Q 2019-05-20 Quarter: 2019-03-31
10-K 2019-04-16 Annual: 2018-12-31
10-Q 2018-11-14 Quarter: 2018-09-30
10-Q 2018-08-14 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-04-02 Annual: 2017-12-31
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-31 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-15 Quarter: 2016-06-30
10-Q 2016-05-16 Quarter: 2016-03-31
10-K 2016-03-30 Annual: 2015-12-31
10-Q 2015-11-16 Quarter: 2015-09-30
10-Q 2015-08-14 Quarter: 2015-06-30
10-Q 2015-05-15 Quarter: 2015-05-13
10-K 2015-03-31 Annual: 2014-12-31
10-Q 2014-11-14 Quarter: 2014-09-30
10-Q 2014-08-14 Quarter: 2014-06-30
10-Q 2014-05-15 Quarter: 2014-03-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-13 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
8-K 2020-03-20 Regulation FD, Other Events, Exhibits
8-K 2020-02-14 Officers, Exhibits
8-K 2019-10-25 Shareholder Vote
8-K 2019-09-20 Enter Agreement, Officers, Exhibits
8-K 2019-05-30 Shareholder Vote
8-K 2019-05-15 Other Events, Exhibits
8-K 2019-01-02 Officers
8-K 2018-06-04 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-04-26 Other Events, Exhibits
8-K 2018-04-17 Enter Agreement, Leave Agreement
8-K 2018-03-26 Other Events, Exhibits
IMUN 2019-09-30
Part 1 - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Subsequent Events
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-32.1 ex32-1.htm

Immune Therapeutics Earnings 2019-09-30

IMUN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
DNO 0 0 0 -1 0 -2 -2 -0 -0% 0.0
SNPW 0 7 11 0 0 -1 -0 6 30% -17.5 -20%
BRLL 0 1 0 0 -1 -1 -0 0.0 -9,818%
PTON 2,388 812 228 105 -50 -43 -1,377 46% 32.3 -2%
BLPG 0 2 6 3 1 -3 -3 -0 40% 0.0 -189%
GTHP 0 0 16 0 0 6 7 0 332% 0.1 1,462%
NCRE 0 0 0 0 0 -0 -0 -0 0.0
EXPC 277 10 0 0 0 0 -2 -14.5 0%
DIGAF 0 1 1 0 0 0 0 0 0%
PHBI 1 1 0 0 -1 -1 -0 0.1 -107%

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

[  ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

 

From the transition period from ___________ to ____________

 

Commission File Number 000-54933

 

IMMUNE THERAPEUTICS, INC.

(Exact name of small business issuer as specified in its charter)

 

Florida   59-3226705

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

37 North Orange Ave, Suite 800M, Orlando, FL 32801

(Address of principal executive offices)

 

888-613-8802

(Issuer’s telephone number)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

  Large Accelerated Filer [  ] Accelerated Filer [  ]
     
  Non-Accelerated Filer [  ] Smaller Reporting Company [X]

 

Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act: Yes [  ] No [X]

 

As of November 19, 2019, there were 445,578 shares of Common Stock outstanding.

 

 

 

 
 

 

TABLE OF CONTENTS

 

 

2
 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained or incorporated by reference in this Annual Report on Form 10-Q are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) concerning our business, results of operations, economic performance and/or financial condition, based on management’s current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:

 

  strategy;
  new product discovery and development;
  current or pending clinical trials;
  our products’ ability to demonstrate efficacy or an acceptable safety profile;
  actions by the FDA and other regulatory authorities;
  product manufacturing, including our arrangements with third-party suppliers;
  product introduction and sales;
  royalties and contract revenues;
  expenses and net income;
  credit and foreign exchange risk management;
  liquidity;
  asset and liability risk management;
  the outcome of litigation and other proceedings;
  intellectual property rights and protection;
  economic factors;
  competition; and
  legal risks.

 

Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward- looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “may,” “could,” “will,” “will continue,” “seeks,” “should,” “predict,” “potential,” “outlook,” “guidance,” “target,” “forecast,” “probable,” “possible” or the negative of such terms and similar expressions. Forward-looking statements are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, except as required by law, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws.

 

We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described herein, under “Risk Factors” and elsewhere in this Annual Report and in our other public reports filed with the Securities and Exchange Commission. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward- looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.

 

Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

 

  our lack of operating history;
  our inability to keep up with industry competition;
  interpretations of current laws and the passages of future laws;
  acceptance of our business model by investors and our ability to raise capital;
  our reliance on key personnel, including our ability to attract and retain scientists;
  our reliance on third party manufacturing to supply drugs for clinical trials and sales;
  our limited distribution organization with no sales and marketing staff;
  our being subject to product liability claims;
  our reliance on key personnel, including our ability to attract and retain scientists;
  legislation or regulation that may increase the cost of our business or limit our service and product offerings;
  risks related to our intellectual property, including our ability to adequately protect intellectual property rights;
  risks related to government regulation, including our ability to obtain approvals for the commercialization of some or all of our drug candidates, and ongoing regulatory obligations and continued regulatory review which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements; and
  our ability to obtain regulatory approvals in foreign jurisdictions to allow us to market our products internationally.

 

Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.

 

JUMPSTART OUR BUSINESS STARTUPS ACT

 

We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2018, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

As an emerging growth company, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:

 

  being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this annual report;
  not being requested to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (“Sarbanes-Oxley Act”);
  reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

 

We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal year 2019; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.

 

3
 

 

PART 1 – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   (Unaudited)     
   September 30, 2019   December 31, 2018 
ASSETS          
           
Current Assets:          
Cash and cash equivalents  $6,456   $5,859 
Inventories   -    82,801 
Total current assets   6,456    88,660 
           
Fixed Assets:          
Computer equipment, net of accumulated depreciation of $11,443 and $10,477 respectively   1,770    2,766 
Deposits   200    200 
           
Total assets  $8,426   $91,626 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities:          
Accounts payable  $2,275,216   $2,065,476 
Accrued liabilities   4,235,367    3,302,355 
Notes payable, net of debt discount   5,632,541    5,187,727 
Derivative liability   1,336,110    786,706 
Total current liabilities   13,479,234    11,342,264 
           
Total liabilities   13,479,234    11,342,264 
           
Commitments and Contingencies (Note 12)          
           
Stockholders’ Deficit:          
Common stock – par value $0.0001; 500,000,000 shares authorized; 455,578 and 434,323 shares issued and outstanding respectively   46    44 
Additional paid in capital   370,179,858    369,924,426 
Stock issuance due   35,303    35,303 
Accumulated deficit   (383,686,015)   (381,210,411)
           
Total stockholders’ deficit   (13,470,808)   (11,250,638)
           
Total liabilities and stockholders’ deficit  $8,426   $91,626 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4
 

 

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 

   Three Months ended   Nine Months ended 
   September 30, 2019   September 30, 2018   September 30, 2019  

September 30, 2018

 
                 
Revenues, net  $-   $-   $-   $65,013 
Cost of products sold   -    -    -    33,172 
Gross profit   -    -    -    31,841 
Operating expenses                    
Selling, general and administrative   388,898    587,726    1,372,480    2,346,090 
Research and development expense   -    -    -    185,692 
Stock issued for services G&A   -    62,500    120,000    716,075 
Depreciation and amortization expense   304    217    995    1,084 
Total operating expense   389,202    650,443    1,493,475    3,248,941 
                     
Loss from operations   (389,202)   (650,443)   (1,493,475)   (3,217,100)
                     
Other income (expense):                    
Interest expense   (125,046)   (408,507)   (397,400)   (870,479)
Loss on deconsolidation   -    -    -    (2,791,172)
Loss on valuation derivative   (427,237)   (876,830)   (584,729)   (118,542)
Loss on settlement of debt   -    (666,632)   -    (684,668)
Total other expense   (552,283)   (1,951,969)   (982,129)   (4,464,861)
                     
Net loss  $(941,485)  $(2,602,412)  $(2,475,604)  $(7,681,961)
Net loss attributable to non-controlling interest   -    -    -    (450,382)
Net loss attributable to common stockholders  $(941,485)  $(2,602,412)  $(2,475,604)  $(7,231,579)
                     
Basic and diluted loss per share attributable to common stockholders  $(2.07)  $(6.39)  $(5.47)  $(18.22)
                     
Weighted average number of shares outstanding   455,578    407,254    452,956    396,863 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5
 

 

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

FOR THE PERIODS ENDED SEPTEMBER 30, 2019 AND 2018

(Unaudited)

 

   Common Stock   Additional Paid-in   Stock To Be   Prepaid   Accumulated   Non-Controlling     
   Shares   Amount   Capital   Issued   Services   (Deficit)   Interest   Total 
Balance December 31, 2017   386,782   $39   $366,663,784   $103,226   $(226,667)  $(373,035,183)  $(4,608,585)  $(11,103,386)
                                         
Issuance of common stock for services   10,739    1    514,375    (24,967)   -    -    -    489,409 
                                         
Amortization of prepaid services   -    -    -    -    226,667    -    -    226,667 
                                         
Issuance of common stock in exchange for debt   17,940    2    562,504    -    -    -    -    562,506 
                                         
Issuance of common stock for interest   200    -    9000    -    -    -    -    9,000 
                                         
Issuance of Cytocom common stock for sale and exercise of warrants   -    -    240,500    -    -    -    -    240,500 
                                         
Issuance and modification of common stock warrants   -    -    1,478,821    -    -    -    -    1,478,821 
                                         
Elimination of Cytocom noncontrolling interest and deconsolidation   -    -    -    -    -    -    5,058,967    5,058,967 
                                         
Net loss   -    -    -    -    -    (7,231,579)   (450,382)   (7,681,961)
                                         
Balance September 30, 2018   415,661   $42   $369,468,984   $78,259   $-   $(380,266,762)  $-   $(10,719,477)
                                         
Balance December 31, 2018   434,323   $44   $369,924,426   $35,303   $-   $(381,210,411)  $-   $(11,250,638)
                                         
Issuance of common stock for services   3,000    -    120,000    -    -    -    -    120,000 
                                         
Issuance of warrants in connection with debt agreement   -    -    73,000    -    -    -    -    73,000 
                                         
Issuance of common stock in exchange for debt   18,255    2    62,432    -    -    -    -    62,434 
                                         
Net Loss   -    -    -    -    -    (2,475,604)   -    (2,475,604)
                                         
Balance, September 30, 2019   455,578   $46   $370,179,858   $35,303   $-   $(383,686,015)  $-   $(13,470,808)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6
 

 

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

   Nine months ended 
   September 30, 2019   September 30, 2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(2,475,604)  $(7,681,961)
Adjustments to reconcile net loss to net cash flows used in (provided by) operating activities:          
Depreciation   996    1,084 
Stock issued, and amortization of stock issued, for prepaid services   -    226,667 
Stock issued for services   120,000    665,230 
Amortization of debt discount   214,428    274,777 
           
Change in value of derivative   584,729    118,542 
Loss on deconsolidation   -    2,791,172 
Loss on settlement of debt   -    684,668 
Stock issued for interest   -    9,000 
Penalties related to note default   -    75,792 
Expenses paid by lender   -    150,505 
Changes in operating assets and liabilities:          
Accounts payable   514,218    737,246 
Inventories   82,801    19,450 
Interest accrued on debt   181,499    - 
Accrued liabilities   777,530    979,113 
Due to Cytocom   -    23,771 
           
Net cash from (used in) operating activities   597    (924,944)
           
CASH FLOWS FROM INVESTING ACTIVITES          
Deconsolidation of subsidiary   -    (11,631)
Purchase of computer equipment   -    (1,754)
Net cash used in investing activities   -    (13,385)
           
CASH FLOWS FROM FINANCING ACTIVITES          
Proceeds from sale of stock and exercise of warrants   -    240,500 
Proceeds from issuance of notes payable   -    688,970 
           
Net cash provided by financing activities   -    929,470 
Net increase (decrease) in cash   597    (8,859)
           
Cash and cash equivalents at beginning of period   5,859    14,718 
Cash and cash equivalents at end of period  $6,456   $5,859 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

7
 

 

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

   Nine Months Ended, 
   September 30, 2019   September 30, 2018 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for interest  $16,000   $53,341 
           
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITES:          
           
Debt discount  $73,000   $243,000 
           
Conversion of debt and accrued interest to common stock  $27,110   $692,640 
           
Settlement of derivative liability  $-   $243,199 
           
Deconsolidation of Cytocom, Inc.  $-   $2,278,237 
           
Reclassification from notes payable to accounts payable  $254,749   $40,628 
           
Increase in note due to new agreement  $-   $150,000 
           
Accounts payable paid directly by lender  $-   $150,505 
           
Debt settled and reclassed to accrued expenses  $35,325   $- 
Increase in note due to default provisions   -    190,792 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

8
 

 

Immune Therapeutics, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

September 30, 2019

(Unaudited)

 

1. Organization and Description of Business

 

Immune Therapeutics, Inc. (the “Company,” “we,” or “our”) was initially incorporated in Florida on December 2, 1993 as Resort Clubs International, Inc. (“Resort Clubs”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on May 27, 1998 and began trading in November 1999 through the filing of a 15C-211. On November 10, 2004, Galliano merged with Resort Clubs. Resort Clubs was the surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”).

 

On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, we executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. On September 4, 2014, a majority of our shareholders approved an amendment to our Amended and Restated Articles of Incorporation, as amended, to change our name to Immune Therapeutics, Inc. We filed our name change amendment with the Secretary of State of Florida on October 27, 2014 changing our name to Immune Therapeutics, Inc.

 

The Company currently operates out of Orlando, Florida. In July 2012, the Company’s focus turned to acquiring patents that would protect and advance the development of new uses of opioid-related immune- therapies, such as low dose naltrexone (“LDN”) and Methionine [Met5]-enkephalin (“MENK”). The Company’s therapies are believed to stimulate and/or regulate the immune system in such a way that they provide the potential to treat a variety of diseases. We believe our therapies may be able to correct abnormalities or deficiencies in the immune system in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer; all of which can lead to disease progression and life-threatening situations when the immune system is not functioning optimally.

 

In 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.

 

The Original Agreement also granted the Company rights to market Lodonal™ and Met-Enkephalin (“MENK”) in “Emerging Markets,” which included all countries excluding Canada, Italy, Japan, France, Germany, United Kingdom, European Community and the United States. Pursuant to the Original Agreement, the Company was required to pay Cytocom a 5% royalty on all sales all ongoing drug development and fees due in connection with the underlying patents until such time as Cytocom was funded.

 

On December 8, 2014, the number of Cytocom shares of common stock that were issued to our shareholders totaled 113,242,522 shares. In connection with the Original Agreement, Cytocom issued an additional 140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% stake in Cytocom on that date. In April 2016, the Board of Directors and a majority of shareholders of Cytocom approved a reverse stock split of Cytocom’s outstanding common stock with one new share of stock for each twenty old shares of common stock. Cytocom effectuated and finalized the reverse split in June 2016.

 

9
 

 

On May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with Cytocom. The Restated Agreement restates the licensing arrangement between the Company and Cytocom as provided by the Original Agreement. The Restated Agreement grants the Company distribution and marketing rights for Lodonal™ and MENK for humans in Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and MENK for animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom.

 

On June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement. Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis. The Restated Agreement was a condition of the Stock Agreement.

 

At September 30, 2019, the Company’s equity interest in Cytocom stood at 7.30% of Cytocom’s common stock issued and outstanding on that date. The Company’s policies with respect to accounting for its equity interest in Cytocom is described in Note 2 to the “Notes to the Condensed Consolidated Financial Statements” below (“Summary of Significant Accounting Policies: Non-Controlling Interest in Consolidated Subsidiaries”).

 

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.

 

At present, the Company is a late development-stage biopharmaceutical company focused on the licensing, development and commercialization of innovative prescription medications for humans in Africa, Central and South America, the Caribbean and China (hereinafter referred to as “Emerging Markets”) and worldwide for animals and companion pet therapeutics. The Company is not permitted to market its licensed products in the United States.

 

Going Concern

 

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidate and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital at September 30, 2019 was not sufficient to meet the cash requirements to fund planned operations through for the next 12 months without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

 

The Company experienced a net loss attributable to common shareholders of $2,475,604 during the nine months ended September 30, 2019, resulting in stockholders’ deficit of $13,470,808 at that date.

 

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2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2018 (including the notes thereto) set forth in Form 10- K.

 

We have identified the policies below as critical to our business operations and the understanding of its results of operations. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Company’s Board of Directors. The impact and any associated risks related to these policies on our business operations are discussed throughout this section where such policies affect our reported and expected financial results.

 

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue for the year ended December 31, 2018. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

Non-Controlling Interest in Consolidated Subsidiaries

 

Prior to May 1, 2018, the Company consolidated Cytocom. On May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with Cytocom, Inc., in accordance with which the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. On June 4, 2018, the Company and Cytocom entered into a Stock Purchase Agreement (the “Stock Agreement”). Pursuant to the Stock Agreement, the Company cancelled approximately $4,000,000 of debt owed to it by Cytocom in exchange for ten percent (10%) of the issued and outstanding common stock of Cytocom, as calculated on a fully diluted basis on June 4, 2018. At September 30, 2019, the Company’s equity interest in Cytocom stood at 7.30% of Cytocom’s common stock issued and outstanding. Accordingly, the Company deconsolidated Cytocom as of May 1, 2018, and accounts for its retained interest in Cytocom under the equity method of accounting, with the Company’s share of Cytocom’s earnings recorded in “loss from equity method investment” in the consolidated statements of operations. As the balance of the Company’s investment in Cytocom has been $0 since December 31, 2018, no losses have been recognized during the quarter ended September 30, 2019.

 

Revenue Recognition

 

We recognize revenue on sales to customers and distributors upon satisfaction of our performance obligations when the goods are shipped. For consignment sales, we recognize revenue when the goods are pulled from consignment inventory.

 

Sales of LodonalTM pills or capsules product are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of product at a delivery point, as negotiated within each contract. Each quantity of product sold is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the product, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.

 

Leases

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and ‘the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). On January 1, 2019, the Company applied ASU 842 on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. At September 30, 2019, we had no leases that fall within the scope of this standard. Accordingly, the standard has no impact on our consolidated financial position or our results of operations.

 

11
 

 

Use of Estimates

 

The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.

 

Cash, Cash Equivalents, and Short-Term Investments

 

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheets. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At September 30, 2019, the Company has no cash balances in excess of insured limits.

 

Segment and Geographic Information

 

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment and does not segment the business for internal reporting or decision making.

 

Fair Value of Financial Instruments

 

In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments. Cash, cash equivalents and accounts payable are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payable also approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.

 

Derivative Financial Instruments

 

FASB ASC 820, Fair Value Measurements requires bifurcation of certain embedded derivative instruments in certain debt or equity instruments, and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s note payable requires bifurcation from its host instrument and is accounted for as a freestanding derivative.

 

Inventory

 

Inventories comprise finished product, raw materials and materials used for packaging. Inventories are stated at the lower of cost or market with cost based on the first-in, first-out (FIFO) method. Inventory that can be used in either the production of clinical or commercial products is expensed as research and development costs when identified for use in a clinical trials or clinical manufacturing campaigns. Inventory used in marketing activities is charged to selling, general and administrative expense.

 

12
 

 

Inventory as of September 30, 2019 was valued at $0, a decrease of $158,648 or 100% from the inventory balance at the end of September 2018, as the inventory was deemed obsolete and written off as a result.

 

Fixed Assets

 

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense for the quarters ended September 30, 2019 and September 30, 2018 was $304 and $217, respectively.

 

Impairment of Long-Lived Assets

 

The Company evaluates long-lived assets for impairment whenever events or change in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by ASC Topic 360-10-05, “Property, Plant and Equipment.” If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest, the Company will recognize an impairment loss equal to the difference between its carrying amount and its estimated fair value.

 

Research and Development Costs

 

Research and development costs are charged to expense as incurred and are typically comprised of salaries and benefits, pre-clinical studies, clinical trial activities, drug development and manufacturing, fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf and third-party service fees, including clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as operating expenses.

 

Income Taxes

 

The Company follows ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of September 30, 2019 and 2018, 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, 2019, and 2018, the Company has not accrued any interest or penalties related to uncertain tax positions.

 

Stock-Based Compensation and Issuance of Stock for Non-Cash Consideration

 

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.

 

13
 

 

The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 505-50, “Equity-Based Payments to Non-Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.

 

Net Loss per Share of Common Stock

 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position

 

The Company’s potential dilutive securities which include warrants (as described in Note 8 to the Financial Statements – “Capital Structure – Common Stock and Common Stock Purchase Warrants”) and convertible debt (as described in Note 6 to the Financial Statements – “Notes Payable”), have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share.

 

Recent Accounting Standards

 

During the quarter ended September 30, 2019, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

 

3. Fixed Assets

 

   September 30, 2019   December 31, 2018 
Fixed Assets:          
Computer equipment  $13,213   $13,213 
Less accumulated depreciation   (11,443)   (10,447)
Fixed assets, net  $1,770   $2,766 

 

The Company utilizes the straight-line method for depreciation, using three to five-year depreciable asset lives. Depreciation expense was not material for all periods presented.

 

4. Investments: Deconsolidation of Cytocom

 

In accordance with the May 1, 2018 “Restated Agreement” with Cytocom, the Company no longer has any ongoing obligations to pay for costs in connection with the assets of Cytocom. Accordingly, effective May 1, 2018, the Company deconsolidated Cytocom. However, the Company exercises influence through its retained equity interest and through representation on Cytocom’s board of directors. As a result, the Company uses the equity method to account for its retained interest in Cytocom.

 

On May 1, 2018, the Company recorded an equity method investment in Cytocom of $1,189, the par value of Cytocom common stock multiplied by the number of shares owned by the Company, due to the negative equity associated with Cytocom’s underlying financial position. As a result of the continuing losses in Cytocom, the balance of this investment is currently $0.

 

At September 30, 2019, Cytocom had no significant assets or income.

 

14
 

 

5. Accrued Liabilities

 

Accrued expenses and other liabilities consist of the following:

 

   September 30, 2019   December 31, 2018 
Accrued payroll to officers and others  $3,139,898   $2,010,570 
Accrued interest and penalties – notes payable   959,412    877,571 
Estimated legal settlements   136,057    136,057 
Other accrued liabilities   -    15,512 
           
Total accrued expenses and other liabilities  $4,235,367   $3,039,710 

 

6. Notes payable

 

Notes payable consist of the following:

 

   September 30, 2019   December 31, 2018 
Promissory note issued July 29, 2014 to Ira Gaines. In 2016, the maturity date on the note was extended to December 1, 2017. As of September 30, 2019, the note is in default. The note earns interest at a rate of 18% per annum.  $100,000   $100,000 
           
Promissory notes issued between November 26, 2014 and December 31, 2015, to raise up to $2,000,000 in debt. Lenders earn interest at a rate of 10% per annum, plus a pro-rata share of two percent of the Company’s gross receipts for sales of IRT-103-LDN in perpetuity. Notes will be repaid in 36 monthly installments of principal and interest commencing no later than October 15, 2015. These notes were in default at September 30, 2019, as the Company was unable to pay installments on their due dates.   286,000    286,000 
           
Promissory notes issued between May 1, 2015 and December 31, 2016 and maturing between June 14, 2015 and December 1, 2017. Lenders on loans aggregating $375,994 earn interest at rates between 2% and 18% per annum. On loans aggregating $100,000, interest is payable in a fixed amount not tied to a specific interest rate. The Company was unable to repay the notes at maturity and at September 30, 2019 the note was in default.   725,994    725,994 
           
Promissory notes issued to an officer of the Company effective November 3, 2015 and maturing November 3, 2016 for settlement of accrued payroll, bearing interest at 10% per annum and including a stock conversion feature. The Company was unable to repay the note at maturity and at September 30, 2019 the note was in default.   97,737    97,737 
           
Promissory notes issued between July 1, 2016 and December 31, 2016. Lenders earn interest at 2% per annum. The notes mature on December 31, 2017, and at September 30, 2019 the notes were in default.   206,000    206,000 
           
Promissory notes aggregating $1,350,000 issued in the fourth quarter 2016. The notes accrue interest at 2% per annum and mature between November 1, 2017 and December 31, 2017. As September 30, 2019, the notes were in default.   1,354,000    1,354,000 
           
Promissory notes aggregating $500,000 issued in the first quarter of 2017. The notes accrue interest at 2% per annum and mature between January 12, 2018 and September 30, 2018. At September 30, 2019, the notes were in default.   500,000    500,000 
           
Promissory notes issued January 25, 2017. The lenders earn interest at 7% per month. The notes mature on July 5, 2017, and at September 30, 2019 the notes were in default.   50,000    50,000 

 

15
 

 

Promissory notes aggregating $300,000 issued in the second quarter of 2017. The notes accrue interest at 2% per annum and mature between April 3, 2018 and May 31, 2018. At September 30, 2019, the notes were in default.   300,000    300,000 
           
Promissory notes aggregating $191,800 issued in the third quarter of 2017. The notes accrue interest at 2% per annum and mature between June 16, 2018 and December 31, 2018. At September 30, 2019, the notes were in default.   191,800    191,800 
           
Promissory note for $425,000 issued in October 2017 with an original issue discount of $70,000. The note is in default, giving the holder an option to convert the note to stock using the lowest value of the Company’s common stock 25 days prior to the conversion. In 2018, The defaults also resulted in certain penalties, as a result of which the principal amount of the note outstanding at September 30, 2019 had increased to $454,032. $49,943 of accrued interest owed on the note has been converted to stock. The Company has accrued a $908,873 derivative liability for the remaining conversion right.   454,032    455,122 
           
Promissory notes aggregating $105,500 issued in the fourth quarter of 2017. The notes accrue interest at 2% per annum. At September 30, 2019, the notes were in default.   105,500    105,500 
           
Promissory notes aggregating $47,975 issued in the first quarter of 2018. The notes accrue interest at 2% per annum and mature between May 2018 and January 2019. At September 30, 2019, the notes were in default.   47,975    47,975 
           
Promissory notes aggregating $125,000 issued in the first quarter of 2018. The notes accrue interest between 2% and 12% per annum and mature between April 2018 and June 2018. These notes include warrants between 5,000 and 20,000 shares with an exercise price of $0.5. At September 30, 2019 the notes were in default   125,000    125,000 
           
Promissory notes aggregating $65,000 issued in the second quarter of 2018. The notes accrue interest between 2% per annum and mature between July 2018 and October 2018. These notes include warrants between 1,000 and 5,000 shares with an exercise price of $5. At September 30, 2019 the notes were in default   65,000    65,000 
           
Promissory notes aggregating $193,000 issued in the third quarter of 2018. The notes accrue interest at 2% per annum and mature between November 2018 and January 2019. These notes include warrants between 600 and 5,000 shares with an exercise price of $5. At September 30, 2019, the notes were in default.   193,000    193,000 
           
Promissory notes aggregating $533,855 issued in the fourth quarter of 2018. The notes accrue interest from 2% to 3.5% per annum and mature between February 2019 and December 2019. These notes include warrants between 200 and 39,500 shares with an exercise price of $5 to $40. At September 30, 2019, $479,000 of these notes were in default.   533,855    533,855 
           
Promissory note for $23,000 issued in the first quarter of 2019. The note accrues interest at 2% per annum and matures during July 2019. The note includes warrants for 4,600 shares with an exercise price of $5. At September 30, 2019, the note was in default.   23,000    - 
           
Promissory note for $231,478 issued in the first quarter of 2019. The note accrues interest at 6% per annum and matures in February 2020.   231,478    - 
           
Promissory notes aggregating $50,000 issued in the second quarter of 2019. The notes accrue interest at 2% per annum and mature between July and September 2019. These notes include warrants for 10,000 shares with an exercise price of $5. At September 30, 2019, the notes were in default.   50,000    - 
           
Less: Original issue discount on notes payable and warrants issued with notes.   (7,829)   (149,256)
           
Total  $5,632,542   $5,187,727 

 

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As of September 30, 2019, the Company had accrued $1,033,010 in unpaid interest and default penalties. During the quarter ended September 30, 2019, no shares were issued by the Company in settlement of promissory notes.

 

As of September 30, 2018, the Company had accrued $738,878 in unpaid interest and default penalties. During the quarter ended September 30, 2018, 9,333 shares with a fair value of $111,091 were issued by the Company for settlement of promissory notes totaling $60,000.

 

7. Derivative Liabilities

 

As of September 30, 2019, and December 31, 2018 the aggregate fair value of the outstanding derivative liability was $1,336,110 and $786,706, respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model using the following key assumption during the quarter September 30, 2019:

 

  

Three months ended

September 30, 2019

 
Volatility   189.35%
Risk-free interest rate   1.96%
Expected dividends   -%
Expected term   1 year 

 

The Company determines the fair values of its financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The following three levels of inputs may be used to measure fair value:

 

Level 1 Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

 

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The Company uses Level 3 inputs to estimate the fair value of its derivative liabilities.

The following schedule summarizes the valuation of financial instruments at fair value in the balance sheet as of September 30, 2019:

 

  

Fair Value Measurements as of

September 30, 2019

 
   Level 1   Level 2   Level 3 
Assets               
Total assets   -    -    - 
Liabilities               
Conversion option derivative liability  $-   $-   $1,336,110 
Total liabilities  $-   $-   $1,336,110 

 

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The following table set forth a reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the fair value hierarchy:

 

   Significant Unobservable Input (Level 3) 
Beginning balance  $786,706 
Change in fair value   584,729 
Partial settlements of liability   (35,325)
Ending balance  $1,336,110 

 

8. 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.

 

As of September 30, 2019, and 2018, the Company was authorized to issue 500,000,000 common shares at a par value of $0.0001 per share.

 

As of September 30, 2019, the Company had 455,578 shares of common stock outstanding and 434,323 outstanding as of December 31, 2018.

 

Stock Warrants

 

In the nine months ended September 30, 2019, 14,600 new warrants were issued by the Company.

 

There were no modifications of the terms of any warrants issued by the Company in the quarters ended September 30, 2019 and 2018.

 

Following is a summary of outstanding stock warrants at, and activity during the nine months ended, September 30, 2019:

 

   Number of
Shares
   Exercise Price   Weighted
Average Price
 
Warrants as of December 31, 2018   281,783   $5.00-3,740.00   $900.00 
                
Issued in 2019   14,600   $5.00   $5.00 
                
Expired and forfeited   (4,419)  $0.00-2,000.00   $1,176.26 
                
Exercised   -   $-   $- 
                
Warrants as of September 30, 2019   291,964   $ 5.00-3,740   $65.84 

 

Summary of outstanding warrants as of September 30, 2019:

 

Expiration Date  Number of Shares   Exercise Price   Remaining Life (years) 
             
Fourth Quarter 2019   23,223   $50-3,740    0.25 
Second Quarter 2020   300   $500    0.75 
Fourth Quarter 2020   1,000   $200    1.25 
First Quarter 2021   12,600   $200    1.50 
Second Quarter 2021   5,812   $14-200    1.75 
Third Quarter 2021   5,167   $30-200    2.00 
Fourth Quarter 2021   300   $100    2.25 
Second Quarter 2022   1,750   $150    2.75 
Third Quarter 2022   2,650   $50-100    3.00 
Fourth Quarter 2022   9,811   $80-290    3.25 
First Quarter 2023   8,000   $5-40    3.50 
Second Quarter 2023   15,000   $5-200    3.75 
Third Quarter 2023   76,700   $5-100    4.00 
Fourth Quarter 2023   60,243   $5-20    4.25 
First Quarter 2024   36,600   $5    4.50 
Second Quarter 2024   8,000   $5    4.75 
Third Quarter 2028   3,000   $70    9.00 
Second Quarter 2032   21,808   $10-70    12.75 
    291,964   $5-3,740      

 

18
 

 

9. Stock Compensation

 

Shares Issued for Services

 

During the quarters ended September 30, 2019 and 2018, the Company issued 0 and 7,500 shares of common stock respectively for consulting fees. The Company valued these shares at $0 and $190,000 respectively, based upon the fair value of the common stock at the dates of the agreements. The consulting fees are amortized over the contract periods, which are typically between 12 and 24 months. The amortization of prepaid services totaled $0 for the quarters ended September 30, 2019 and 2018.

 

10. Income Taxes – Results of Operations

 

There was no income tax expense reflected in the results of operations for the years ended September 30, 2019 and 2018 because the Company incurred a net loss in both years.

 

On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes to the U.S. corporate income tax system. The impact of U.S. Tax Reform primarily represents the Company’s estimates of revaluing the Company’s U.S. deferred tax assets and liabilities based on the rates at which they are expected to be recognized in the future. For U.S. federal purposes the corporate statutory income tax rate was reduced from 35% to 21%, effective for the 2018 tax year.

 

The Company has recognized no tax benefit for the losses generated for the periods through September 30, 2019. ASC Topic 740 requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company’s ability to realize the benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize revenue, we believe that the full valuation allowance should be provided.

 

Our effective tax rate for fiscal years 2019 and 2018 was 0%. Our tax rate can be affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions. It may also be affected by discrete items that may occur in any given year but are not consistent from year to year.

 

11. Licenses and Supply Agreements

 

Patent and Subsidiary Acquisition

 

In December 2014, the Company transferred to Cytocom certain of its rights, title and interest in or relating to intellectual property (i) patents, patent applications, and all divisional, continuations and continuations-in-part thereof, together with all reissues, reexaminations, renewals and extensions thereof and all rights to obtain such divisionals, continuations and continuations-in-part, reissues, reexaminations, renewals and extensions, and all utility models and statutory invention registrations and any other such analogous rights, (ii) trademarks, service marks, Internet domain names, trade dress, trade styles, logos, trade names, services names, brand names, corporate names, assumed business names and general intangibles and other source identifiers of a like nature, together with the goodwill associated with any of the foregoing, and all registrations and applications for registrations thereof, together with all renewals and extensions thereof and all rights to obtain such renewals and extensions, (iii) copyrights, mask work rights, database and design rights, moral rights and rights in Internet websites, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, together with all renewals, continuations, reversions and extensions thereof and all rights to obtain such renewals, continuations, reversions and extensions, and (iv) confidential and proprietary information, including, trade secrets and know-how. Cytocom licensed back to the Company a perpetual, non-exclusive, royalty-free right and license to use the assigned intellectual property for veterinary indications and for the marketing rights to emerging markets, access to all clinical data, use of the formulation for LDN and MENK.

 

19
 

 

The Original Agreement also granted the Company rights to market Lodonal™ and Met-Enkephalin (“MENK”) in “Emerging Markets,” which included all countries excluding Canada, Italy, Japan, France, Germany, United Kingdom, European Community and the United States. Pursuant to the Original Agreement, the Company was required to pay Cytocom a 5% royalty on all sales all ongoing drug development and fees due in connection with the underlying patents until such time as Cytocom was funded.

 

On May 1, 2018, the Company entered into an amended and restated licensing agreement (the “Restated Agreement”) with Cytocom. The Restated Agreement restates the licensing arrangement between the Company and Cytocom as provided by the Original Agreement. The Restated Agreement grants the Company distribution and marketing rights for Lodonal™ and MENK for humans in Emerging Markets. In addition, the Company has been granted the rights to distribute and market Lodonal™ and MENK for animal use in the United States. The royalty due to Cytocom has been reduced from 5% to 1% of sales and the Company no longer has any ongoing obligations to pay for the cost in connection with the assets of Cytocom.

 

12. Commitments and Contingencies

 

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 in the first three quarters of 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.

 

Operating Leases

 

At September 30, 2019, the Company was a party to an agreement to lease office space in Orlando, Florida. Rental expense for the three months ended September 30, 2019 and 2018 was $2,102 and $2,238 respectively.

 

13. Subsequent Events

 

On October 25, 2019, The Company authorized 10,000,000 shares of preferred stock, and designated 1,000,000 of such preferred shares as Series D Preferred Stock. Additionally, the Company effected a reverse stock split of the Company’s issued and outstanding, but not authorized, common stock at a ratio of 1,000-to-1. The reverse stock split has been retroactively reflected in these financial statements for all periods presented,

 

20
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Forward-Looking Statements and Associated Risks

 

This section and other parts of this Form 10-Q contain forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2018 filed with the Securities and Exchange Commission on April 16, 2019 (the “2017 Form 10-K”) under the heading “Risk Factors”.

 

The following discussion should be read in conjunction with the 2018 Form 10-K and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar. Unless otherwise stated, references in this report to particular years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months, or periods of those fiscal years. Each of the terms the “Company”, “we”, “us” or “our” as used herein refers collectively to Immune Therapeutics, Inc. and its subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

 

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

 

Revenues

 

We had no revenues from operations for the three months ended September 30, 2019 and 2018.

 

Operating Expenses

 

Selling, general and administrative

 

Selling, general and administrative expenses and related percentages for the three months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the three months ended
September 30,
 
   2019   2018 
Selling, general and administrative  $389   $588 
Decrease from prior year  $(199)  $(33)
Percent decrease from prior year   (34)%   (5)%

 

For the three months ended September 30, 2019 and 2018, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

 

   For the three months ended
September 30,
 
   2019   2018 
Stock listing and investor relations expenses  $2   $11 
Consulting and contractors   45    127 
Payroll   235    165 
Professional fees   27    19 
Travel   4    8 
Other expenses   76    258 

 

21
 

 

In the three months ended September 30, 2019, total cash and cash accruals for selling, general and administrative expense was $389 compared to $588 for the corresponding period in 2018, a decrease of $199 or 34%. Significant items included:

 

  consulting and contractor services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $45 in 2019, a decrease of $82 or 65% over the $127 spent in 2018. The decrease was the result primarily of the expiration of certain consulting contracts by the end of 2018;
     
  professional fees for legal, tax and accounting services in the amount of $27 in 2019, an increase of $8 or 42% over the $19 spent in 2018. The increase was primarily due to an increase in legal fees in 2019 related to a vote by shareholders to approve a reverse split of the Company’s stock; and
     
  payroll in the amount of $235 in 2019, an increase of $70 or 42% over the $165 accrued in 2018. The increase reflects adjustments made in 2018 for the deconsolidation of Cytocom in May 2018. No adjustments were made in 2019; and
     
 

other expenses in the amount of $76 in 2019, a decrease of $182 or 70% over the $258 incurred in 2018, primarily reflecting credits taken in 2019 for obligations that expired in the quarter.

 

Research and development

 

R&D expenses and related percentages for the three months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the three months ended  September 30, 
   2019   2018 
Research and development  $-   $- 
Decrease from prior year  $-   $(109)
Percent increase/(decrease) from prior year   -%   (100)%

 

Expenses for research and development in the three months ended September 30, 2019 was unchanged compared to expenses in the same period in 2018, as a result of the deconsolidation of Cytocom in May 2018, which eliminated Cytocom’s R&D expenses from the Company’s books thereafter.

 

Stock issued for services

 

The Company periodically receives services from consultants under long-term consulting contracts, in terms of which it issues stock to prepay for the services. In such cases, the Company initially accounts for the full cost of these services as Prepaid Services on its balance sheet, calculated by the number of shares issued multiplied by the share price on the contract date. This amount is then amortized as a cost over the period in which the services are provided to the Company. The Company reports these costs separately from Selling, general and administrative costs, and Research and development costs, to better demonstrate the true costs of Selling, general and administrative activities, and Research and development.

 

Amortization of amounts recorded as Prepaid Services for stock issued for services G&A and related percentages for the three months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the three months ended
September 30,
 
   2019   2018 
Amortization of prepaid consulting expense G&A  $-   $63 
Percentage decrease from prior year   (100)%   (86)%

 

The number of shares issued for prepaid consulting services G&A in the three months ending September 30, 2019 was nil.

 

There were no prepaid consulting services G&A in the three months ended September 30, 2019.

 

22
 

 

Warrant valuation expense

 

When the Company sells its stock for cash or settles debt for stock, it periodically issues warrants to acquire additional stock 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 (see above 8. Capital Structure—Common Stock and Common Stock Purchase Warrants.) This expense is reported in the Condensed Consolidated Statements of Operations above as the Warrant valuation expense.

 

In the three months ended September 30, 2019, the Company issued no warrants to stockholders.

 

In the three months ended September 30, 2018, the Company issued 80,550,000 warrants to stockholders at an exercise price range of $0.005 to $0.20, for which it recorded an expense of $1,313,821.

 

  

For the three months ended

September 30,

 
   2018   2017 
Warrant valuation expense  $-   $1,313 
Percentage increase/(decrease) from prior year   (100)%   381%

 

Depreciation and amortization

 

The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements. All of the Company’s patents and licenses had been fully amortized by December 31, 2018.

 

Depreciation and amortization expenses for the three months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

    

For the three months ended

September 30,

 
    2019    2018 
Depreciation expense  $-   $- 
Amortization expense  $-   $- 
Increase/ (Decrease) from prior year  $-   $- 
Percentage increase/(decrease) from prior year   -%   -%

 

Interest Expense

 

Interest expense for the three months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the three months ended
September 30,
 
   2019   2018 
Interest expense  $125   $409 
Increase / (Decrease) from prior year  $(284)  $290 
Percentage Increase (Decrease) from prior year   (69)%   243%

 

The decrease in interest expense was primarily due to the deconsolidation of Cytocom in May 2018, which eliminated Cytocom’s notes payable and related interest expense from the books thereafter.

 

Loss of settlement of debt

 

There were no gains or losses on settlement by lenders or vendors of any of their notes or accounts payable by converting them to equity for both the three months ended September 30, 2019 and the three months ended September 30, 2018.

 

Nine months Ended September 30, 2019 Compared to Nine months Ended September 30, 2018 (dollar amounts in thousands)

 

23
 

 

Revenues

 

We had revenues of $0 from operations for the nine months ended September 30, 2019, compared to $65 for the nine months ended September 30, 2018. In February 2018, the Company reported the first shipments of LodonalTM to Nigeria.

 

Operating Expenses

 

Selling, general and administrative

 

Selling, general and administrative expenses and related percentages for the nine months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Selling, general and administrative  $1,372   $2,346 
Increase/(decrease) from prior year  $(974)  $503 
Percent increase/(decrease) from prior year   (42)%   27%

 

For the nine months ended September 30, 2019 and 2018, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Stock listing and investor relations expenses  $20   $37 
Consulting and contractors   171    634 
Payroll   705    1,100 
Professional fees   101    121 
Travel   2    52 
Other expenses   374    402 

 

In the nine months ended September 30, 2019, total cash and cash accruals for selling, general and administrative expense was $1,372 compared to $2,346 for the corresponding period in 2018. Significant items included:

 

  consulting and contractor services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $171 in 2019, a decrease of $463 or 73% over the $634 spent in 2018. The decrease was the result of the deconsolidation of Cytocom in May 2018, and the expiration of certain consulting contracts by the end of 2018;
     
  payroll in the amount of $705 in 2019, a decrease of $395 or 36% over the $1,100 accrued in 2018. The decrease reflects the deconsolidation of Cytocom in May 2018;
     
 

travel expenses in the amount of $5 in 2019, a decrease of $47 or 90% over the $52 incurred in 2018, primarily reflecting the reduction in travel to Africa in 2019; and

 

  professional fees for legal, tax and accounting services in the amount of $101 in 2019, a decrease of $20 or 17% over the $121 spent in 2018. The decrease was primarily due to the deconsolidation of Cytocom in May 2018.

 

Research and development

 

R&D expenses and related percentages for the nine months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Research and development  $0   $186 
Increase/ (decrease) from prior year  $(186)  $(176)
Percent increase/(decrease) from prior year   (100)%   (49)%

 

24
 

 

No expenses were incurred for research and development in the nine months ended September 30, 2019.

 

Stock issued for services

 

The Company periodically receives services from consultants under long-term consulting contracts, in terms of which it issues stock to prepay for the services. In such cases, the Company initially accounts for the full cost of these services as Prepaid Services on its balance sheet, calculated by the number of shares issued multiplied by the share price on the contract date. This amount is then amortized as a cost over the period in which the services are provided to the Company. The Company reports these costs separately from Selling, general and administrative costs, and Research and development costs, to better demonstrate the true costs of Selling, general and administrative activities, and Research and development.

 

Amortization of amounts recorded as Prepaid Services for stock issued for services G&A and related percentages for the nine months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Amortization of prepaid consulting expense G&A  $0   $716 
Percentage decrease from prior year   (100)%   (53)%

 

The decline in expense reflects the decrease in the price of the Company’s stock year over year and the fact that the cost of shares issued for services had been fully amortized in prior years.

 

Three thousand (3,000) shares were issued for prepaid consulting services G&A in the nine months ending September 30, 2019, for which the Company recorded an expense of $120 (10,738,640 shares were issued in the corresponding period in 2018, at a cost of $489).

 

There were no Prepaid consulting services G&A in the nine months ended September 30, 2019 ($716 in the corresponding period in 2018).

 

Warrant valuation expense

 

When the Company sells its stock for cash or settles debt for stock, it periodically issues warrants to acquire additional stock 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 (see above 8. Capital Structure—Common Stock and Common Stock Purchase Warrants.) This expense is reported in the Condensed Consolidated Statements of Operations above as the Warrant valuation expense.

 

14,600,000 warrants were issued by the Company in the nine months ended September 30, 2019, for which it recorded an expense of $73.

 

In the nine months ended September 30, 2018, the Company issued 141,620,636 warrants to stockholders at an exercise price range of $0.005 to $0.20, for which it recorded an expense of $1,479.

 

   For the nine months ended
September 30,
 
   2019   2018 
Warrant valuation expense  $73   $1,478 
Percentage increase/(decrease) from prior year   (95)%   150%

 

Depreciation and amortization

 

The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements. All of the Company’s patents and licenses had been fully amortized by December 31, 2018.

 

25
 

 

Depreciation and amortization expenses for the nine months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Depreciation expense  $0   $1 
Amortization expense  $0   $- 
Increase/ (decrease) from prior year  $(1)  $- 
Percentage increase/(decrease) from prior year   (100)%   -%

 

Interest Expense

 

Interest expense for the nine months ended September 30, 2019 and 2018 were as follows (dollar amounts in thousands):

 

   For the nine months ended
September 30,
 
   2019   2018 
Interest expense  $397   $870 
Decrease from prior year  $(473)  $47 
Percentage decrease from prior year   (54)%   6%

 

The decrease in interest expense was primarily due to the deconsolidation of Cytocom in May 2018, which eliminated Cytocom’s notes payable and related interest expense from the books thereafter.

 

Loss on settlement of debt

 

In the nine months ended September 30, 2019, there was no gain or loss on settlement by lenders or vendors of any of their notes or accounts payable by converting them to equity. In nine months ended September 30, 2018, the Company recorded a loss of $685, reflecting the fair value of the shares of common stock issued in exchange for the debt in that period.

 

Liquidity

 

Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had cash of $6,456 at September 30, 2019, compared to $5,859 at September 30, 2018.

 

For the nine months ended September 30, 2019 and 2018, net cash generated/(used) in operating activities from operations was $597 and $(924,944), respectively.

 

$0 of cash was used in investing activities for the nine months ended September 30, 2019 ($13,385 in 2018).

 

During the nine months ended September 30, 2019 proceeds from the sale of stock and exercise of stock warrants totaled $0 compared to $240,500 for the corresponding period in 2018. The Company received $0 from the issuance of notes payable in nine months ended September 30, 2019, compared to $688,970 in 2018. There were $0 of loan repayments made in cash in the nine months ended September 30, 2019 ($0 in 2018).

 

The Company does not expect to generate revenues from sales in the first half of 2020. If the Company is unable to raise additional working capital to meet all of its operating obligations and expenditures, the Company may have to modify its business plan.

 

Off-Balance Sheet Arrangements

 

During the three months ended September 30, 2019 and 2018, we did not engage in any off-balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.

 

26
 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures as defined in Rules 13(a)-15(e) under the Exchange Act. Based on this evaluation, the principal executive officer and principal financial officer concluded that, because of the weakness in internal controls over financial reporting described below, our disclosure controls and procedures are ineffective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

Management assessed the effectiveness of the internal controls over financial reporting as of June 30, 2019, using the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that, as of June 30, 2019, the internal controls over financial reporting were not effective. The reportable conditions and material weakness relate to a limited segregation of duties and lack of an audit committee. The limited segregation of duties within our company and the lack of an audit committee are due to the small number of employees. Management has determined that this control deficiency constitutes a material weakness. This material weakness could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, we are not always able to detect minor errors or omissions in reporting.

 

Going forward, management anticipates that additional staff will be necessary to mitigate these weaknesses, as well as to implement other planned improvements. Additional staff will enable us to document and apply transactional and periodic controls procedures, permit a better review and approval process and improve quality of financial reporting. However, the potential addition of new staff is contingent on obtaining additional financing, and there is no assurance that we will be able to do so.

 

Limitations on the Effectiveness of Internal Controls

 

Readers are cautioned that our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our control have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

27
 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On October 25, 2018, the Company closed its 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 three actions for which the Company was soliciting written consent: (i) authorize the Company to issue up to 10,000,000 shares of preferred stock (“the Preferred Authorization”), and designate 1,000,000 of such preferred shares as Series D Preferred Stock (“Series D Designation”) (Proposal No. 1); (ii) 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 (Proposal No. 2); and (iii) change the Company’s name to Forte Biotechnology, Inc. (the “Name Change”) (Proposal No. 3).

 

The Company’s shareholders approved the Reverse Split and the Name Change but not the Preferred Authorization or Series D Designation, which required a 2/3rds vote rather than a simple majority.

 

ITEM 2. SUBSEQUENT EVENTS

 

None.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

No shares of common stock were issued in the quarter ended September 30, 2019. No shares were issued to settle amounts owed to certain of the Company’s vendors and employees (0 in 2018). In the quarter ended September 30, 2018, the Company issued a total of 8,982,200 shares of common stock (net of stock cancellations). 8,607,200 of those shares were issued to settle amounts owed under notes payable, including accrued and unpaid interest as applicable, to common stock as repayment of the notes. 375,000 shares were issued for services provided. Between January 1, 2018 and September 30, 2018, there were no warrants exercised to purchase common shares.

 

In the quarter ended September 30, 2019, the Company received $0 as consideration for the exercise of previously-issued warrants ($0 in 2018) and $0 for the purchase of common stock ($0 in 2018).

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The current portion of notes payable on the Company’s Condensed Consolidated Balance Sheets above contains, at September 30, 2019, certain promissory notes on which the Company was in arrears on payments of principal as follows:

 

  1. Promissory note issued July 29, 2014 for $100,000. As of September 30, 2019, the note is in default. The note earns interest at a rate of 18% per annum.
     
  2. Promissory notes issued between November 26, 2014 and December 31, 2015. Lenders earn interest at a rate of 10% per annum, plus a pro-rata share of two percent of the Company’s gross receipts for sales of IRT-103-LDN in perpetuity. Notes will be repaid in 36 monthly installments of principal and interest commencing no later than October 15, 2015. Notes aggregating $286,000 were in default at September 30, 2019, as the Company was unable to pay installments on those notes on their due dates.
     
  3. Promissory notes issued between May 1, 2015 and December 31, 2016 and maturing between June 14, 2015 and December 1, 2017. Lenders on loans aggregating $375,994 earn interest at rates between 2% and 18% per annum. On loans aggregating $100,000, interest is payable in a fixed amount not tied to a specific interest rate. Notes aggregating $725,994 were in default at September 30, 2019, as the Company was unable to repay those notes on their due dates.
     
  4. Promissory notes totaling $97,737 issued to an officer of the Company effective November 3, 2015 and maturing November 3, 2016 for settlement of accrued payroll, bearing interest at 10% per annum and including a stock conversion feature. The Company was unable to repay the note at maturity and at September 30, 2019 the notes were in default.

 

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  5. Promissory notes for $206,000 issued between July 1, 2016 and December 31, 2016. The notes mature on December 31, 2017. Lenders earn an interest rate of 2% per annum The Company was unable to repay the note at maturity and at September 30, 2019 the notes were in default.
     
  6. Promissory notes totaling $1,354,000 issued in the fourth quarter of 2016. The lenders earn interest at 2% per annum and mature between November 1, 2017 and December 31, 2017. The Company was unable to repay the note at maturity and at September 30, 2019 the notes were in default.
     
  7. Promissory notes aggregating $500,000 issued in the first quarter of 2017. The notes accrue interest at 2% per annum and mature between January 12, 2018 and June 30, 2018. The Company was unable to repay the notes at maturity and at September 30, 2019 the notes were in default.
     
  8. Promissory note for $50,000 issued January 25, 2017. The lenders earn interest at 7% per month. The note matures on July 15, 2017. The Company was unable to repay the note at maturity and at September 30, 2019 the note was in default.
     
  9. Promissory notes aggregating $300,000 issued in the second quarter of 2017. The notes accrue interest at 2% per annum and mature between April 3, 2018 and May 31, 2018. At September 30, 2019, the notes were in default.
     
  10. Promissory notes aggregating $191,800 issued in the third quarter of 2017. The notes accrue interest at 2% per annum and mature between June 16, 2018 and December 31, 2018. At September 30, 2019, the notes were in default.
     
  11. Promissory note for $425,000 issued in October 2017 with an original issue discount of $70,000. The note is in default, giving the holder an option to convert the note to stock using the lowest value of the Company’s common stock 25 days prior to the conversion. In 2018, The defaults also resulted in certain penalties, as a result of which the principal amount of the note outstanding at September 30, 2019 had increased to $454,032. $49,943 of accrued interest owed on the note has been converted to stock. The Company has accrued a $908,873 derivative liability for the remaining conversion right.
     
  12. Promissory notes aggregating $105,500 issued in the fourth quarter of 2017. The notes accrue interest at 2% per annum. At September 30, 2019, the notes were in default.
     
  13. Promissory notes aggregating $47,975 issued in the first quarter of 2018. The notes accrue interest at 2% per annum and mature between May 2018 and January 2019. At September 30, 2019, $10,000 of the notes were in default.
     
  14. Promissory notes aggregating $125,000 issued in the first quarter of 2018. The notes accrue interest between 2% and 12% per annum and mature between April 2018 and June 2018. These notes include warrants between 5,000,000 and 20,000,000 shares with an exercise price of $0.005. At September 30, 2019, the notes were in default.
     
  15. Promissory notes aggregating $65,000 issued in the second quarter of 2018. The notes accrue interest of 2% per annum and mature between July 2018 and October 2018. These notes include warrants between 1,000,000 and 5,000,000 shares with an exercise price of $0.005. At September 30, 2019, the notes were in default.
     
  16. Promissory notes aggregating $193,000 issued in the third quarter of 2018. The notes accrue interest at 2% per annum and mature between November 2018 and January 2019. These notes include warrants between 600,000 and 5,000,000 shares with an exercise price of $0.005. At September 30, 2019, the notes were in default.
     
  17. Promissory notes aggregating $533,855 issued in the fourth quarter of 2018. The notes accrue interest from 2% to 3.5% per annum and mature between February 2019 and December 2019. These notes include warrants between 200,000 and 39,500,000 shares with an exercise price of $0.005 to $0.04. At September 30, 2019 $419,000 of the notes were in default.
     
  18. Promissory note for $23,000 issued in the first quarter of 2019. The note accrues interest at 2% per annum and matures during July 2019. The note includes warrants for 4,600,000 shares with an exercise price of $0.005. At September 30, 2019, the note was in default.
     
  19. Promissory notes aggregating $50,000 issued in the second quarter of 2019. The notes accrue interest at 2% per annum and mature between July and September 2019. These notes include warrants for 10,000,000 shares with an exercise price of $0.005. At September 30, 2019, the notes were in default.

 

At September 30, 2019, the Company had insufficient cash on hand to repay these notes.

 

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ITEM 6. EXHIBITS

 

Exhibit Number   Name of Exhibit
     
31.1   Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase
     
101.LAB   XBRL Taxonomy Extension Label Linkbase
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase

 

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SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Immune Therapeutics, Inc.
   
Date: November 19, 2019 By: /s/ Michael K. Handley
    Michael K. Handley
    Chief Executive Officer
     
  Immune Therapeutics, Inc.
   
Date: November 19, 2019 By: /s/ Peter Aronstam
    Peter Aronstam
    Chief Financial Officer

 

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