UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
OR
From the transition period from ___________ to ____________
Commission
File Number
(Exact name of small business issuer as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
| (Former name or former address, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: None
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | ||
| Smaller
Reporting Company |
|||
| Emerging
growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act: Yes ☐
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 14, 2022, there were shares of common stock, $0.0001 par value per share, outstanding.
TABLE OF CONTENTS
| PART I – FINANCIAL STATEMENTS | ||
| Item 1. | Financial Statements | 5 |
| Item 2. | Management’s Discussion and Analysis of Financial Conditions and Results of Operations | 18 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24 |
| Item 4. | Controls and Procedures | 24 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 25 |
| Item 1A. | Risk Factors | 25 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 25 |
| Item 3. | Default upon Senior Securities | 25 |
| Item 4. | Mine Safety Disclosure | 25 |
| Item 5. | Other Information | 25 |
| Item 6. | Exhibits | 26 |
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Quarterly 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 U.S. Food and Drug Administration 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 protections; | |
| ● | 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, and elsewhere in this Quarterly 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.
| 3 |
Important factors that could cause such differences include, but are not limited to:
| ● | our lack of operating history; | |
| ● | our current and future capital requirements and our ability to satisfy our capital needs; | |
| ● | 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 drug discovery and development activities may not result in products that are approved by the applicable regulatory authorities and even if our drug candidates do obtain regulatory approval, they may never achieve market acceptance or commercial success; | |
| ● | our reliance on key personnel and collaborative partners, 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 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 Quarterly Report are based on information available to us on the date of this Quarterly 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 because 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 Quarterly Report.
| 4 |
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022 UNAUDITED | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Deposits | ||||||||
| Investment in common stock | ||||||||
| Total current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Notes payable | ||||||||
| Accrued payroll | ||||||||
| Accrued liabilities | ||||||||
| Accrued interest | ||||||||
| Due to related parties | ||||||||
| Undocumented investor advances | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 8) | ||||||||
| Stockholders’ Deficit: | ||||||||
| Common stock – par value $; shares authorized; and shares issued and outstanding respectively | ||||||||
| Additional paid in capital | ||||||||
| Stock issuances due | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
Three Months ended September 30, | Nine Months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | $ | $ | ||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Gain on issuance of Forte license | ||||||||||||||||
| (Loss) gain on settlement of obligations and conversion of debt | ( | ) | ( | ) | ||||||||||||
| Impairment loss on common shares | ( | ) | ( | ) | ( | ) | ||||||||||
| Charge from warrant modification and debt settlement | ( | ) | ( | ) | ||||||||||||
| Receipt of common shares | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on derivative liability valuation | ||||||||||||||||
| Total other income | ( | ) | ( | ) | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Basic (loss) income per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Diluted (loss) earnings per share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Basic weighted average shares outstanding | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)
FOR THE PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Common Stock | Additional Paid-in | Stock To Be | Accumulated | |||||||||||||||||||||
| Shares | Amount | Capital | Issued | Deficit | Total | |||||||||||||||||||
| Balance December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Issuance of common stock upon conversion of notes | ||||||||||||||||||||||||
| Extinguishment of derivative liability upon conversion of debt | - | |||||||||||||||||||||||
| Effect of fractional shares upon reverse stock split | ||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||
| Balance September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Issuance of common stock upon conversion of notes and obligations | ||||||||||||||||||||||||
| Issuance of common stock upon exercise of warrants | ||||||||||||||||||||||||
| Charge resulting from warrant modification | - | |||||||||||||||||||||||
| Issuance of common stock for services | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
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
FOR THE PERIODS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash flows (used in) operating activities: | ||||||||
| Gain on issuance of license agreement | ( | ) | ||||||
| Loss (gain) on settlement of obligations | ( | ) | ||||||
| Loss on impairment on investment in common stock | ||||||||
| Gain recognized upon receipt of common stock | ( | ) | ||||||
| Loss resulting from warrant modification | ||||||||
| Change in value of derivative | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Deposits | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued payroll | ( | ) | ||||||
| Net due to related parties | ||||||||
| Accrued interest | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Net cash (used in) operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from undocumented investor advances | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | ||||||||
| Conversion of debt and accrued interest to common stock | $ | $ | ||||||
| Stock issued for services | $ | $ | ||||||
| Reclassification to notes payable from accrued interest | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 8 |
Immune Therapeutics, Inc.
Notes to the Condensed Consolidated Financial Statements
September 30, 2022
(Unaudited)
1. Company Overview
Immune Therapeutics Inc. (the “Company” or “IMUN”) is a Florida corporation trading on the OTC-Pink. The Company is a drug development and commercialization company. We identify, evaluate, and seek to acquire technologies in the medical device and drug development sectors with the intent to further develop them and move them to commercialization.
Going Concern
As
of September 30, 2022, the Company had $
For
the nine months ended September 30, 2021, the Company reported net income of $
Since our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. During the nine months ended September 30, 2022, we issued a total of shares of common stock in exchange for the cancellation, conversion or exercise of outstanding promissory notes and warrants. This issuance has resulted in substantial dilution to our shareholders. The sale of additional equity securities could result in additional dilution to our shareholders. Alternatively, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand or even continue our business operations and could harm our overall business prospects.
Historically, the Company has relied on the funding of operations through private equity financings and management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of product candidates as they become available and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources.
Working capital on September 30, 2022 is not sufficient to meet the cash requirements to fund planned operations through the next twelve months without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.
Management is continuing to develop strategies to re-capitalize the Company and position it for future growth. Key steps to this process include:
| ● | Improve the condition of the balance sheet via license arrangements and capital infusions. | |
| ● | Identify and acquire late-stage assets for commercialization. | |
| ● | Build out operational infrastructure to generate revenue opportunities to grow shareholder value. |
There can be no guarantees that the Company will be successful in securing adequate capital to continue operations and in identifying and acquiring assets for future development. If the Company is unable to secure new working capital, other alternative strategies will be required.
Historically, the Company has been able to acquire and develop assets, spin them out and retain both an equity stake and royalties and milestone payments. In so doing, the Company has acted as an incubator for late-stage drug development. Management believes that this strategy can continue to be successful. At this time, the Company is reviewing several opportunities which it may pursue as soon as funding is available. At present no definitive actions have been taken.
| 9 |
There can be no guarantees that the Company will be successful in:
| ● | Executing its restructuring plan; | |
| ● | Securing adequate capital to continue operations; or | |
| ● | Identifying and acquiring assets for future development. |
Company History
Immune Therapeutics, Inc. (the “Company” or “IMUN”) was initially incorporated in Florida on December 2, 1993, as Resort Clubs International, Inc. (“Resort Clubs”). It was formed to manage and market golf course properties in resort markets throughout the United States. Galliano International Ltd. (“Galliano”) was incorporated in Delaware on May 27, 1998 and began trading in November 1999 through the filing of a 15C-211. On November 10, 2004, Galliano merged with Resort Clubs. Resort Clubs was the surviving corporation. On August 23, 2010, Resort Clubs changed its name to pH Environmental Inc. (“pH Environmental”). On April 23, 2012, pH Environmental completed a name change to TNI BioTech, Inc., and on April 24, 2012, we executed a share exchange agreement for the acquisition of all the outstanding shares of TNI BioTech IP, Inc. On September 4, 2014, a majority of our shareholders approved an amendment to our Amended and Restated Articles of Incorporation, as amended, to change our name to Immune Therapeutics, Inc. We filed our name change amendment with the Secretary of State of Florida on October 27, 2014, changing our name to Immune Therapeutics, Inc.
2. Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2021 (including the notes thereto) set forth in the Company’s Annual Report on Form 10- K for that period.
Use of Estimates
The preparation of the Company’s financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from such estimates.
Cash, Cash Equivalents, and Short-Term Investments
The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include bank demand deposits, marketable securities with maturities of three months or less at purchase, and money market funds that invest primarily in certificates of deposits, commercial paper and U.S. government and U.S. government agency obligations. Cash equivalents are reported at fair value.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company
is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its
cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheets. The cash accounts are insured
by the Federal Deposit Insurance Corporation up to $
| 10 |
Segment and Geographic Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment and does not segment the business for internal reporting or decision making.
Fair Value of Financial Instruments
In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments.
Cash, cash equivalents and accounts payable are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of the Company’s investment in the common stock of Statera BioPharma, Inc. (“STAB”) reflects an asset impairment charge taken in the second quarter of 2022 and is carried at zero in the consolidated balance sheet. The carrying value of notes payable approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.
Research and Development Costs
Research and development costs are charged to expense as incurred and are typically comprised of expenses associated with advancing the commercialization of our technologies. The Company did not incur any research and development costs during the nine months ended September 30, 2022.
Income Taxes
The Company follows ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
At the date of adoption, and as of September 30, 2022 and 2021, the Company does not have a liability for unrecognized tax uncertainties. The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2022, and 2021, the Company does not have any interest or penalties related to uncertain tax positions.
The Company measures and recognizes compensation expense for share-based awards based on estimated fair values equaling either the market value of the shares issued, or the value of consideration received, whichever is more readily determinable. Generally, the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 718, “Compensation-Stock Compensation.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
| 11 |
On
September 20, 2022, the Company issued shares of its common stock to for advisory services. This advisor is a shareholder of the
Company. The Company recorded stock compensation of $
The Company did not issue any stock-based compensation awards during the nine months ended September 30, 2021.
For the nine-and three- month periods ended September 30, 2022, basic and diluted net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents.
For the nine and three- month periods ended September 30, 2021, diluted income per share was calculated by dividing the net income by the weighted-average number of common shares outstanding for the period determined using the treasury-stock method and the if-converted method. A reconciliation of the weighted average shares outstanding used in basic and diluted earnings per share for the periods ended in 202 are as follows:
| Three Months ended | Nine Months ended | |||||||
| September 30, 2021 | ||||||||
| Basic EPS | ||||||||
| Income available to common shareholders (Numerator) | $ | $ | ||||||
| Weighted average common shares (Denominator) | ||||||||
| Basic EPS | $ | $ | ||||||
| Diluted EPS | ||||||||
| Income available to common shareholders (Numerator) | $ | $ | ||||||
| Weighted average common shares | ||||||||
| Weighted average common shares assuming exercise of outstanding warrants | ||||||||
| Denominator | ||||||||
| Diluted EPS | $ | $ | ||||||
Recent Accounting Standards
The Company has reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the nine months ended September 30, 2022.
In August 2020, the FASB issued ASU-2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contract in an Entity’s Own Equity (“ASU 2020-06). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon the adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. ASU 2020-06 will reduce the issue discount and result in less non-cash interest in the financial statements. ASU 2020-06 revises the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. The type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the derivative scope exception. ASU 2020-06 simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 23, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company has adopted ASU 2020-06 effective January 1, 2022.
| 12 |
Management does not believe there are other significant accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
Note 3. Investment in Common Stock of Statera BioPharma, Inc.
In 2021, Cytocom, Inc., a former subsidiary of the Company (“Cytocom”), announced the completion of its merger with Cleveland BioLabs, Inc. (“CBLI”) which resulted in the Company’s receipt of common shares of CBLI, reflecting the Company’s retained minority interest in Cytocom. Subsequent to the merger, CBLI adopted a new corporate name, Statera BioPharma, Inc., with the ticker symbol “STAB” effective September 1, 2021. Cytocom emerged as a publicly traded entity following the merger with CBLI.
The
Company evaluated the carrying value of the STAB common shares during the second quarter of 2022 and determined that an impairment loss
of $
4. Notes payable
During the nine-month period ended September 30, 2022 the Company reported the following activity in notes and accrued interest:
| ● | The
Company assigned $ | |
| ● | Certain
note holders utilized $ | |
| ● | Certain
note holders converted $ | |
| ● | The
Company issued $ |
| 13 |
Notes outstanding as of September 30, 2022 and December 31, 2021 are as follows:
| September 30, 2022 | December 31, 2021 | |||||||
| Promissory notes issued in 2014 and 2015 and matured in 2015. Lenders earned interest at | $ | |||||||
| Promissory notes issued in 2016 and matured in 2017. Lenders earned interest at | ||||||||
| Promissory note issued in 2016 and matured in 2016. Lenders earned interest at | ||||||||
| Promissory notes issued in 2017 and matured in 2018. Lenders earn interest at | $ | |||||||
| Promissory note issued in 2018 and matured in 2019. Lender earned interest at | ||||||||
| Promissory note issued in 2018 and matured in 2018. Lender earned interest at | ||||||||
| Promissory notes issued in 2018 and matured in 2019. Lenders earned interest at | ||||||||
| Promissory note issued in 2019 and matured in 2020. Lender earns | ||||||||
| Promissory note issued in 2019 and matured in 2019. Lender earned | ||||||||
| Promissory note issued in 2019 for the settlement of debt in the same amount and matured in 2021. Lender earns interest at | ||||||||
| Promissory note issued in 2021 resulted from a Note Purchase Agreement with the original noteholder. The new notes reflected all principal, interest and penalties associated with the original instrument. The notes had an interest rate of | ||||||||
| Promissory note issued in 2022 and matures in 2023. Lender earns interest at | ||||||||
| Promissory note issued in 2022 and matures in 2023. Lender earns interest at | ||||||||
| $ | $ | |||||||
At
September 30, 2022, the Company had $
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.
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Stock Warrants
Warrant holders exercised common stock warrants during the nine-month period ended September 30, 2022. An additional warrants were forfeited or cancelled during the nine-month period ended September 30, 2022. During the nine months ended September 30, 2021, no warrants were issued or exercised.
The following is a summary of outstanding common stock warrants as of September 30, 2022.
| Expiration Date | Number of Shares | Exercise Price | Remaining Life (years) | |||||||
| Fourth Quarter 2022 | $ | |||||||||
| First Quarter 2023 | $ | |||||||||
| Second Quarter 2023 | $ | |||||||||
| Third Quarter 2023 | $ | |||||||||
| Third Quarter 2028 | $ | |||||||||
| Second Quarter 2032 | $ | |||||||||
| $ | ||||||||||
Following is a summary of stock warrant activity for the nine months ended September 30 2022:
Number of Shares | Exercise Price | Weighted Average Price | ||||||||||
| Warrants as of December 31, 2021 | $ | - | $ | |||||||||
| Issued | $ | $ | ||||||||||
| Expired and forfeited | ( | ) | $ | - | $ | |||||||
| Exercised | ( | ) | $ | $ | ||||||||
| Warrants as of September 30, 2022 | $ | - | $ | |||||||||
On
June 29, 2022, the Company’s board of directors approved a resolution to clarify the anti-dilution protection granted to certain
note and warrant holders. In connection with this board action, the Company recognized a non-cash charge of $
| Expected term (years) | ||||
| Risk free rate | % | |||
| Volatility | % | |||
| Dividend yield |
The average risk-free interest rate is based on the U.S. Treasury security rate in effect on June 29, 2022. We determined expected volatility using the historical closing stock price. The expected life was determined using the simplified method as we do not believe we have sufficient historical warrant exercise experiences on which to base the expected term.
6. Income Taxes – Results of Operations
There was no income tax expense reflected in the results of operations for the periods ended September 30, 2022 and 2021 because the Company has significant net loss operating carryforwards available to offset the potential tax liabilities. Our tax rate can be affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions. It may also be affected by discrete items that may occur in any given year but are not consistent from year to year.
For
U.S. federal purposes the corporate statutory income tax rate was
ASC Topic 740 requires that a valuation allowance be provided if it is more likely than not that some portion or all a deferred tax asset will not be realized. The Company’s ability to realize the benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize revenue, we believe that the full valuation allowance should be provided.
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7. License Agreement with Forte Animal Health, Inc.
On
July 8, 2021 the Company entered into an amended license agreement with Forte Animal Health, Inc (“Forte”). The initial license
fee included the assignment of certain Company defaulted notes and other vendor and employee obligations. During the second quarter of
2022, these debtors associated with the assigned obligations completed the assignment of $
In
connection with the amended license agreement, Forte issued of its outstanding stock to the Company, representing
8. Subsequent Events
Settlement Agreement and Release
On October 23, 2022 the Company entered into a Settlement
Agreement and Release with a former board member that was a note holder as of September 30, 2022. The agreement provided for the utilization
of $
Amendment to Promissory Note and Settlement of Litigation
On November 4, 2022, the Company and Ira Gaines agreed to a first amendment to a promissory note dated October 1, 2019 that included the following provisions:
| ● | The maturity date of the amended note will be extended to September 1, 2023. | |
| ● | The Company will make a $ | |
| ● | The $ | |
| ● | The $ | |
| ● | Interest accrued will be paid in common stock measured at the lower of $ per share or the average stock price from the previous 30 days of issuance and will be paid quarterly during the period from January 31, 2023 through the maturity date. |
Upon the Company’s issuance of the interest shares, described above, Gaines will file a Notice of Dismissal dismissing the litigation without prejudice.
License signed with TaiwanJ Pharmaceuticals Co. Ltd.
On September 30, 2022, the Company entered into an Intellectual Property License Agreement (the “Agreement”) with TaiwanJ Pharmaceuticals Co. Ltd., a Taiwanese corporation (“TaiwanJ”), pursuant to which TaiwanJ granted the Company an exclusive, royalty-bearing license, including the right to grant sublicenses, to commercialize and sell TaiwanJ’s pharmaceutical products including naltrexone, or any other small molecule composition that either alone or in combination can be formulated and used in humans to show anti-fibrotic, immune-modulating, and/or anti-inflammatory effects for the treatments of various diseases, (the “Products”).
This obligation, and costs associated with this agreement, will be reflected in the Company’s financial statements upon the license
transfer which requires the Company to provide the non-refundable cash payment of $
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The Company also received a non-exclusive worldwide right to make, manufacture, and receive technical manufacturing assistance from TaiwanJ for the creation of the Products. The only territories excluded from the scope of the Agreement are any countries or territories in Asia, and any countries or territories barred or sanctioned by the United States government. We did not have any relationship with TaiwanJ prior to entering into the Agreement.
The term of this Agreement is to be perpetual, but termination of the Agreement may occur upon (i) the Company providing sixty (60) days prior written notice to TaiwanJ of termination, (ii) termination of the agreement for a material breach of the agreement, and failure to cure that breach within ninety (90) days after receiving notice of such breach, (iii) the dissolution of the Company, or (iv) upon bankruptcy of either party, upon receiving sixty (60) days’ notice by Registered Mail.
The
Company may grant sublicenses under the Agreement. Upon the granting of any such sublicense, the Company will pay TaiwanJ royalties based
on the stage of development of the Products. The Company will pay a royalty of
Pursuant to the terms of the license in the Agreement, the Company shall adhere to a plan of development and attain certain milestones. As part of the Development Plan, the Company shall (i) use commercially reasonable efforts and cause its sublicenses to use commercially reasonable efforts to develop licensed Products, (ii) begin commercial sales of the Products in a country no less than eight (8) months after the first registration of the Products in that same country, and (iii) following commercialization, the Company must keep the Products reasonably available to the public.
The Company will be required to pay one-time payments and issuances of equity for the achievement of each of four milestones in the commercialization and development of the Products. In addition to the milestone payments, if there is any year that the Company is not required to pay a Milestone Payment, the Company will pay a royalty percentage payment based on the total net sales due within sixty (60) days after the end of each calendar quarter (the “Royalty Payment”).
If
the Company fails to make any of the above-described payments upon their designated due date,
TaiwanJ will maintain, protect, and defend all patent-related intellectual property and the Company will reimburse TaiwanJ for any expenses related to intellectual property patent payments that exclusively benefit the Company. If either the Company or TaiwanJ becomes aware of any possible or actual infringement of any patent rights, then each party will notify the other, and provide it with details of such an infringement.
Both the Company and TaiwanJ are limited in liability to the total amounts paid under this Agreement for any damages arising from negligence, strict liability, or any other equitable theory. Further, both the Company and TaiwanJ agree to indemnify and hold harmless each other, and their respective agents, for any claims or costs arising from this Agreement or any sublicenses for any cause of action relating to any product, process, service made, used, or sold pursuant to this Agreement.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our condensed consolidated financial statements and should be read in conjunction with such condensed consolidated financial statements and notes thereto and set forth elsewhere herein.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains certain forward-looking statements that are based on the beliefs of management as well as assumptions made by and currently available to management. The statements contained in this report relating to matters that are not historical facts are forward-looking statements that involve risks and uncertainties, including, but not limited to, future demand for our products and services, the successful commercialization of our products, general domestic and global economic conditions, government and environmental conditions and regulations, competition and customer strategies, changes in our business strategy or development plans, capital deployment, business disruptions, including those by fires, raw material supplies, environmental regulations, and other risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those forward-looking statements. For further discussion of certain of the matters described above see the Cautionary Note Regarding Forward-Looking Statements included in our 2021 Annual Report on Form 10-K.
Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim an obligation to update any factors or to publicly announce the results of any revisions to any of the forward-looking statements contained in this quarterly report on Form 10-Q to reflect new information, future events, or other developments. The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Forward-looking statements 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 a guarantee of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. 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.
COMPANY OVERVIEW
Immune Therapeutics Inc. (the “Company,” “IMUN,” “we,” “us” or “our”) is a Florida corporation trading on the OTC-Pink. We are a drug development and commercialization company. We identify, evaluate, and seek to acquire technologies in the medical and drug development sectors with the intent to further develop them and move them to commercialization. Such commercialization efforts include sale, licensing and go to market strategies.
Our strategy has been limited due to lack of capital. Management is seeking to secure new investment capital with which to continue to pursue the Company’s strategy. There is no guarantee that the Company will be successful in securing additional capital.
GOING CONCERN
As of September 30, 2022, the Company had $185,447 in cash and a stockholders’ deficit of $2,602,278. For the nine months ended September 30, 2022, the Company reported a net loss of $3,257,151 which included non-recurring charges and gains including: non-cash loss from the settlement of certain obligations upon the issuance of common shares, non-cash charge for the write-off the Company’s investment in common shares of Statera BioPharma, Inc., the revaluation of the fair market value of certain warrants, and a non-cash gain upon the assignment of obligations in connection with the issuance of a license with Forte Animal Health Inc.
For the nine months ended September 30, 2021, the Company reported net income of $3,790,645 which included several non-recurring gains and losses including: a gain recognized upon the receipt of common stock and a related charge recognizing a decline in the market value of these shares at quarter end and a gain on the assignment of debt upon the reversal of a derivative liability.
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Since our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. During the nine months ended September 30, 2022, we issued a total of 81,615,483 shares of common stock in exchange for the cancellation, conversion or exercise of outstanding promissory notes and warrants. This issuance has resulted in substantial dilution to our shareholders. The sale of additional equity securities could result in additional dilution to our shareholders. Alternatively, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand or even continue our business operations and could harm our overall business prospects.
Historically the Company has relied on the funding of operations through private equity financings and management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its current or future product candidates as they become available and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources. If the Company is unable to secure new working capital, other alternatives strategies will be required.
Based on our operating plan, working capital at September 30, 2022 is not sufficient to meet the cash requirements to fund planned operations through the next twelve months without additional sources of cash. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we 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.
Historically, the Company has been able to acquire and develop assets, spin them out and retain both an equity stake and royalties and milestone payments. In so doing, the Company has acted as an incubator for late-stage drug development. Management believes that this strategy can continue to be successful.
At this time, the Company continues to review several opportunities which it may pursue as soon as funding is available. At present no definitive actions have been taken.
There can be no guarantees that the Company will be successful in:
| ● | Executing its restructuring plan | |
| ● | Securing adequate capital to continue operations. | |
| ● | Identifying and acquiring assets for future development. |
RESULTS FROM OF THE THREE MONTHS ENDED SEPTEMBER 30, 2022
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2021
Revenues
We had no revenues from operations for the three months ended September 30, 2022 and 2021.
Operating Expenses
Selling, General and Administrative Expenses
For the three months ended September 30, 2022 and 2021, selling, general and administrative expenses were made up as follows:
For the three months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| Shareholder and investor relations | $ | 13,734 | $ | 5,510 | ||||
| Professional fees and consulting costs | 133,397 | (6,432 | ) | |||||
| Consulting fees with related parties | 93,500 | - | ||||||
| Board fees | 75,000 | 30,000 | ||||||
| Occupancy | 49,433 | - | ||||||
| Salaries and benefits | 46,504 | 82,127 | ||||||
| Other expenses | 9,294 | 3,362 | ||||||
| Total | $ | 420,862 | $ | 114,567 | ||||
| Increase (decrease) from prior year | $ | 306,295 | $ | (16,000 | ) | |||
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The increase in selling, general and administrative expenses for the three months ended September 30, 2022 reflects the transition to an operating focus upon the Company’s completion of the recapitalization during the second and third quarters of the current year. The recapitalization was focused on the reduction of outstanding notes and obligations in exchange for equity issuances.
The selling, general and administrative expense for the three months ended September 30, 2022 reflect the following:
| ● | Professional advisors were engaged in the areas of legal, tax, accounting, and administrative support in connection with the Company’s financial reorganization efforts and licensing strategies. | |
| ● | During the third quarter, the Company increased its board to five members each earning $5,000 per month. | |
| ● | The Company initiated a month-month sublease of a temporary corporate office utilized by the Company’s CEO. This sublease was terminated in October 2022. | |
| ● | The Company issued 50,000 common shares, at $1.87 per share, to a shareholder in connection with advisory services provided during the third quarter. | |
| ● | Payroll expenses reflect salaries and statutory tax benefits in support of financial reporting. |
Research and Development Expenses
The Company did not incur research and development related costs during the third quarters ended September 30, 2022 and 2021.
Non-operating Income (Expense)
The Company recognized several non-recurring non-operating transactions during the three-month period ended September 30, 2022 as described below.
| ● | The Company recognized a non-cash charge of $1,467,271 upon the receipt of signed releases of obligations from certain vendors, employees, and notes holders in connection with the corporate recapitalization designed to improve the financial condition of the Company and to position it for future growth. | |
| ● | During the third quarter, the Company entered into agreements to allow certain warrants holders of and promissory notes currently in default to exercise and convert these instruments at $0.05 per share. The Company recognized the fair market value of the warrants using the Black Scholes valuation model and recognized a charge of $594,288 in connection with this action. |
Interest Expense
Interest expense for the three months ended September 30, 2022 and 2021 were as follows (dollar amounts in thousands):
For the three months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| Interest expense | $ | 11,034 | $ | 32,197 | ||||
| (Decrease) from prior year | $ | (21,163 | ) | $ | (68,484 | ) | ||
The Company reduced interest expense through the reduction of outstanding principal on notes as of September 30, 2021 through:
| ● | The assignment of $1,775,275 of notes in the second quarter of 2022 to Forte. | |
| ● | The conversion of $1,209,206 of principal and interest on promissory notes during the second and third quarters of 2022. and | |
| ● | These principal reductions were offset by the issuance of $962,000 in new short-term notes during the second and third quarters of 2022. |
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RESULTS FROM THE NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED
TO NINE MONTHS ENDED SEPTEMBER 30, 2021
Revenues
We had no revenues from operations for the nine months ended September 30, 2022 and 2021.
Operating Expenses
Selling, General and Administrative Expenses
For the nine months ended September 30, 2022 and 2021, selling, general and administrative expenses were made up as follows:
For the nine months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| Shareholder and investor relations | $ | 19,499 | $ | 15,354 | ||||
| Professional fees and consulting costs | 207,047 | 102,499 | ||||||
| Consulting fees with related parties | 299,829 | - | ||||||
| Board fees | 125,000 | 90,000 | ||||||
| Occupancy | 51,704 | - | ||||||
| Salaries and benefits | 175,014 | 220,926 | ||||||
| Other expenses | 16,503 | 9,804 | ||||||
| Total | $ | 894,596 | $ | 438,583 | ||||
| Increase (decrease) from prior year | $ | 456,013 | $ | (77,000 | ) | |||
During the nine months ended September 30, 2022, the Company focused on business development activities and the negotiation and finalization of certain licensing transactions. The increase in selling, general and administrative expenses during the nine months ended September 30, 2022 reflects the transition to an operating focus upon the completion of the recapitalization of the Company during the second and third quarters of 2022.
The selling, general and administrative expenses for the three months ended September 30, 2022 reflect the following:
| ● | Professional advisors were engaged in the areas of legal, tax, accounting, and administrative support in connection with the Company’s financial reorganization efforts and licensing strategies. | |
| ● | The Company utilized the services of three related parties during the nine months ended September 30, 2022: Noreen Griffin was issued a $200,000 convertible note for services provided in connection with the recapitalization, 50,000 common shares, valued at $1.87 per share, were issued to a shareholder for advisory services and another shareholder was paid $6,000 for financial advisory services. | |
| ● | During the third quarter, the Company increased its board to five members each earning $5,000 per month. | |
| ● | The Company initiated a month-month sublease in May 2022 that is utilized by the Company’s CEO. | |
| ● | Payroll expenses reflect salaries and statutory tax benefits in support of financial reporting. |
Research and Development Expenses
The Company did not incur any research and development related costs during the nine-month period ended September 30, 2022.
During the nine months ended September 30, 2021, the Company recorded $153,000 in fees to Penn State related to license maintenance fees, minimum royalties, and various patent evaluation and filing expenses. These liabilities were assigned to Cytocom in connection with the August 12, 2020 letter agreements. As Penn State had not consented to the assignment of these fees, the Company retained the liability until paid by Cytocom; at that time, the Company recognized a gain on the assignment of liabilities.
Non-operating Income (Expense)
The Company recognized several non-recurring non-operating transactions during the nine-month period ended September 30, 2022 as described below.
| ● | The Company recognized a non-cash gain of $3,165,151 upon the assumption of certain Company defaulted notes and other vendor and employee obligations by Forte. The assignments of these obligations were made as consideration for the July 8, 2021 Amended License Agreement with Forte. |
| 21 |
| ● | The Company recognized a non-cash charge of $1,169,691 upon the receipt of signed releases of obligations from certain vendors, employees, and notes holders in connection with the corporate recapitalization which allowed for certain of these obligations to be converted into common stock at $0.05 per share. | |
| ● | During the nine-month period ended September 30, 2022, the Company recognized an asset impairment associated of $2,645,000 associated with the carrying value of the shares of common stock of STAB held by the Company. | |
| ● | On June 29, 2022, the Company entered into agreements to allow certain warrants holders of and promissory notes currently in default to exercise and convert these instruments at $0.05 per share. The Company recognized the fair market value of the warrants using the Black Scholes valuation model and recognized a charge of $1,605,913 in connection with this action. |
Interest Expense
Interest expense for the nine months ended September 30, 2022 and 2021 were as follows (dollar amounts in thousands):
| For the nine months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| Interest expense | $ | 107,102 | $ | 164,731 | ||||
| Decrease from prior year | $ | (57,629) | $ | (36,466 | ) | |||
The Company reduced interest expense through the reduction of outstanding principal on notes as of September 30, 2021 through:
| ● | The assignment of $1,775,275 of notes in the second quarter of 2022 to Forte. | |
| ● | The conversion of $1,209,206 of principal and interest on promissory notes during the second and third quarters of 2022. and | |
| ● | These principal reductions were offset by the issuance of $962,000 in new short-term notes during the second and third quarters of 2022. |
LIQUIDITY AND CAPITAL RESOURCES
Overview
Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. The Company does not anticipate generating sufficient cash flows from our operations to fund the next twelve months. We had cash on hand of $185,447 at September 30, 2022, compared to $493,888 at December 31, 2021.
Summary of Cash Flows
For the nine months ended September 30, 2022, the Company used $996,865 in cash to support operating activities. Included in the net loss for the nine months ended September 30, 2022, was a non-cash gain of: $3,165,151 recognized upon the assignment of notes and other obligations in connection with a license agreement, a non-cash loss of $515,553 recognized upon the settlement with owners of the obligations, a non-cash charge of $2,645,000 upon the recognition of an asset impairment of the STAB common shares held by the Company, and a $1,605,913 charge for the market value from the modification of certain warrant provisions.
The Company had $688,427 in net cash from financing activities for the nine-month period ended September 30, 2022 including $6,369 from investor advances, new convertible notes and related parties.
During the nine months ended September 30, 2021, the Company used $220,616 in cash to support operating activities. Included in net income for the nine months ended September 30, 2021, are certain non-cash non-operating transactions aggregating of $4,546,626 related to: the valuation of the Company’s investment in common stock of Stratera BioPharma and the write-off of certain liabilities including derivative liabilities in the amount of $1,178,230 which were written off upon the conversion of the underlying debt instrument.
The Company received $240,000 from investors for which the documentation had not been completed as of September 30, 2021. These proceeds are included in financing activities during the nine months ended September 30, 2021.
| 22 |
The Company does not expect to generate revenues in the foreseeable future. If the Company is unable to raise additional working capital to meet its operating obligations and expenditures, the Company will be required to modify its business plan.
OFF BALANCE SHEET ARRANGEMENTS
During the nine months ended September 30, 2022, and 2021, the Company did not engage in any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial conditions, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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.
Fair Value of Financial Instruments
In accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this standard and includes this additional information in the notes to the financial statements when the fair value is different than the carrying value of those financial instruments.
Cash, cash equivalents and accounts payable are accounted for at cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of the Company’s investment in the common stock of Statera BioPharma, Inc. (“STAB”) reflects an asset impairment charge taken in the second quarter of 2022 and is carried at zero in the consolidated balance sheet. The carrying value of notes payable approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.
Research and Development Costs
Research and development costs are charged to expense as incurred and are typically comprised of expenses associated with advancing the commercialization of our technologies.
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.
Stock-Based Compensation and Issuance of Stock for Non-Cash Consideration
The Company measures and recognizes compensation expense for share-based awards based on estimated fair values equaling either the market value of the shares issued, or the value of consideration received, whichever is more readily determinable. Generally, the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.
The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of ASC Topic 718, “Compensation-Stock Compensation.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this report on Form 10-Q that have materially affected, or are 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 Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on this evaluation, the principal executive officer and the principal financial officer concluded that, because of the weakness in internal control 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 our internal control over financial reporting 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, management concluded that our internal control over financial reporting was 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 the 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 remediate these weaknesses, as well as 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 Disclosure Controls and Procedures and Internal Control Over Financial Reporting
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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 27, 2022, the Company was named as defendant in a lawsuit filed in the Superior Court of the State of Arizona for the County of Maricopa by Ira Gaines (“Mr. Gaines”). The lawsuit is based on claims for breach of contract alleging the failure by the Company to make required payments of principal and interest arising out of the secured promissory note dated October 1, 2019 made by the Company in favor of Mr. Gaines in the original principal amount of $150,000. The relief sought by the plaintiff includes payment by the Company of the full principal balance, accrued and unpaid interest, continuing interest through the date of entry of judgment, late fees, post-judgment interest, and attorneys’ fees. The Company has retained counsel to respond to the complaint. As of September 2022, the case is pending.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2022, the Company issued or sold the following securities:
| ● | The Company issued 4,120,000 shares of common stock upon the exercise of warrants at the exercise price of $0.05 per share. | |
| ● | The Company issued 57,674,804 shares of common stock to certain note holders, for shares of common stock at the warrants’ exercise price of $0.05 per share. | |
| ● | The Company issued 50,000 shares of common stock to a vendor for services provided at $1.87 per share. |
The issuance of the convertible promissory notes, shares of common stock upon the exercise of warrants, and shares of common stock upon conversion of promissory notes described above will not be registered under the Securities Act of 1933, as amended, or the Securities Act, in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act, and/or Regulation D promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Refer to Note 4 to the Condensed Consolidated Financial Statements of Part I Item 1, which is incorporated by reference, for additional details. The notes payable on the Company’s Condensed Consolidated Balance Sheet above contains, at September 30, 2022, certain promissory notes on which the Company was in arrears on payment of principal as follows:
| $25,000 promissory note issued in 2017. The note accrued interest at 2% and matured in 2018. |
| $231,478 promissory note issued in 2019. The note accrued interest at 6% and matured in 2020. |
| $150,000 promissory note issued in 2019. The note accrued interest at 15% and matured in 2021. |
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed with this Quarterly Report:
* Filed herewith
** Furnished herewith
*** Portions of this exhibit have been omitted in compliance with Regulation S-K Item 601(b)(10)(iv) because the Company has determined that the information is not material and is the type that the Company treats as private or confidential.
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Pursuant to 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 14, 2022 | By: | /s/ Kelly Wilson |
| Name: | Kelly Wilson | |
| Title: | Chief Executive Officer | |
| Immune Therapeutics, Inc. | ||
| Date: November 14, 2022 | By: | /s/ Glen Farmer |
| Name: | Glen Farmer | |
| Title: | Chief Financial Officer | |
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