Notes
to the Condensed Consolidated Financial Statements
June
30, 2021
(Unaudited)
1.
Company Overview
Immune
Therapeutics Inc. (the “Company” or “IMUN”) is a Florida corporation trading on the OTC-Pink market. The
Company is a drug development and commercialization company. We identify, evaluate, and seek to acquire technologies in the medical device
and drug development sectors with the intent to further develop them and move them to commercialization. Such commercialization efforts
include sale, licensing and go to market strategies. During 2020 as described herein, the Company executed two such licenses; one to
Cytocom, Inc. (“Cytocom”) and one to Forte Animal Health, Inc. (“Forte”).
The
Company’s strategy has been limited due to lack of capital. Management is seeking to secure new investment capital with which to
continue to pursue the Company’s strategy. There is no guaranty that the Company will be successful in securing additional capital.
Going
Concern
As
of June 30, 2021, the Company had $23,216 in
cash on hand, negative working capital of $10,856,585 and
a stockholders’ deficit of $10,856,585.
For the six months ended June 30, 2021, the Company reported net income attributable to common shareholders of $677,705.
For the three months ended June 30, 2021, the Company reported a net loss attributable to common shareholders of $112,696.
During the three and six months ended June 30, 2020, the Company reported a net loss attributable to common shareholders of $803,546
and $1,596,420,
respectively.
Included
in net income for the six months ended June 30, 2021, are non-cash gains of $1,178,230 and $108,693 related to the write-off of certain
liabilities. Derivative liabilities in the amount of $1,178,230 were written off upon the conversion of the underlying debt instrument
and $108,693 in vendor payables, previously assigned to Cytocom, were reversed upon payment by Cytocom.
Historically
the Company has relied on the funding of operations through private equity financings and management expects operating losses and negative
cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability
is dependent upon the successful development, approval, and commercialization of its current or future product candidates as they become
available and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve
profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future
operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic
partners or from other sources.
Working
capital at June 30, 2021 is not sufficient to meet the cash requirements to fund planned operations through the next twelve months without
additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include
adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s
assets and the satisfaction of liabilities in the normal course of business.
If
the Company is unable to secure new working capital, other alternatives strategies will be required.
There
can be no guaranties that the Company will be successful in:
|
●
|
Executing
its restructuring plan
|
|
●
|
Securing
adequate capital to continue operations.
|
|
●
|
Identifying
and acquiring assets for future development.
|
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all
adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position
and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of
trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements
of the Company for the year ended December 31, 2020 (including the notes thereto) set forth in Form 10- K.
We
have identified the policies below as critical to our business operations and the understanding of its results of operations. The Company’s
senior management has reviewed these critical accounting policies and related disclosures with the Company’s Board of Directors.
The impact and any associated risks related to these policies on our business operations are discussed throughout this section where
such policies affect our reported and expected financial results.
Shares
Issued and Outstanding
The
Company’s shareholders approved a 1,000:1
reverse stock split in October 2019. The action
was filed with the State of Florida during the first quarter of 2020 at which time all current and historical financial reporting was
restated to reflect the impact of the reverse split on per share and warrant grant disclosures. On May 6, 2021, the Company received
approval from the Financial Industry Regulatory Authority (“FINRA”). All share amounts for all periods have been
retroactively adjusted to reflect this reverse split.
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 June 30, 2021, the Company has no cash balances in excess of insured
limits.
Segment
and Geographic Information
Operating
segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief
operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views
its operations and manages its business in one operating segment and does not segment the business for internal reporting or decision
making.
Fair
Value of Financial Instruments
In
accordance with the reporting requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic
825, “Financial Instruments”, the Company calculates the fair value of its assets and liabilities which qualify as financial
instruments under this standard and includes this additional information in the notes to the financial statements when the fair value
is different than the carrying value of those financial instruments. Cash, cash equivalents and accounts payable are accounted for at
cost which approximates fair value due to the relatively short maturity of these instruments. The carrying value of notes payable also
approximate fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.
Derivative
Financial Instruments
FASB
ASC 820, Fair Value Measurements requires bifurcation of certain embedded derivative instruments in certain debt or equity instruments,
and measurement at their fair value for accounting purposes. A holder redemption feature embedded in the Company’s note payable
requires bifurcation from its host instrument had been accounted for as a freestanding derivative in previous reporting periods.
Research
and Development Costs
Research
and development costs are charged to expense as incurred and are typically comprised of expenses associated with advancing the commercialization
of our technologies. Expenses recognized in the quarter ended June 30, 2021 consisted of amounts paid to consultants for patent related
activities.
Income
Taxes
The
Company follows ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets
and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance
to the extent management concludes it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled.
The
standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of
the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on
de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
At the date of adoption, and as of June 30, 2021 and 2020, the Company does not have a liability for unrecognized tax uncertainties.
The
Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of June 30, 2021 and
2020, the Company has not accrued any interest or penalties related to uncertain tax positions.
Stock-Based
Compensation and Issuance of Stock for Non-Cash Consideration
The
Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated
fair values equaling either the market value of the shares issued, or the value of consideration received, whichever is more readily
determinable. Generally, the non-cash consideration pertains to services rendered by consultants and others and has been valued at the
fair value of the Company’s common stock at the date of the agreement.
The
Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows
the provisions of ASC Topic 718, “Compensation-Stock Compensation.” The measurement date for the fair value of the
equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor
is reached or (ii) the date at which the consultant or vendor’s performance is complete.
The
Company did not grant any stock-based compensation awards during the six months ended June 30, 2021 and 2020.
Net
Income (Loss) per Share
The
Company’s potentially dilutive securities, common stock warrants, have been included in the computation of diluted net income
per share for the six-month period ended June 30, 2021. Net income per share for the six-month period ended June 30, 2021 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.
Basic
net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common
shares outstanding for the period, without consideration for common stock equivalents.
For
the three-month period ended June 30, 2021 and for the three- and six-month periods ended June 30, 2020, the potentially dilutive securities
were excluded from the computation of diluted loss per share as the effect would be to reduce the net loss per common share. Therefore,
the weighted-average common stock outstanding used to calculate both basic and diluted net loss per share is the same for these loss
periods.
A
reconciliation of the weighted average shares outstanding used in basic and diluted earnings per share computation is as follows:
Schedule of Antidilutive Securities
|
|
Net Income
(Numerator)
|
|
|
Weighted Average
Common Shares
(Denominator)
|
|
|
Per
Share
Amount
|
|
Basic EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
677,705
|
|
|
|
480,115
|
|
|
$
|
1.41
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
exercise of outstanding warrants
|
|
|
|
|
|
|
13,397,552
|
|
|
$
|
0.05
|
|
Income available to common stockholders
|
|
$
|
677,705
|
|
|
|
13,874,667
|
|
|
|
|
|
Recent
Accounting Standards
The
Company has reviewed the accounting pronouncements issued by the Financial Accounting Standards Board during the first half of 2021.
Applicable pronouncements will be adopted by the Company in accordance with the accounting guidance and definition. Management does not
believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated
financial statements.
3.
Notes payable
As
of June 30, 2021 and December 31, 2020, the Company had $1,677,275 and $1,639,275, respectively, in notes payable to shareholders of
record.
During
the first quarter of 2021, the Company issued 5,402 common shares, at a price of $10.40 per share, upon the conversion of $53,000 in
promissory notes and $3,480 in accrued interest. The Company did not issue any in new promissory notes during the six months ended June
30, 2021.
During
the first quarter of 2020, the Company issued a $53,000
promissory note. The noteholder subsequently
converted the principal and all accrued interest on these notes in the amount of $3,180
in October 2020. The Company issued 6,893
shares of common stock at an average price per
share of $8.15
in connection with this conversion.
A
summary of Notes Payable at June 30, 2021 and December 31, 2020 follows.
Schedule of Notes Payable
|
|
June
30,
2021
|
|
|
December
31,
2020
|
|
Promissory notes issued between December 2014 and January 2015. The notes accrues
interest at 10%
and include a penalty rate of 5%,
plus a pro-rata share of two percent of the Company’s gross receipts for sales of IRT-103-LDN in perpetuity. Notes were to
be repaid in 36
monthly installments of principal and interest commencing no later than October 15, 2015. These notes are in default.
|
|
$
|
70,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued between February 2016 and July 2018 with interest rates ranging from 2 and 10%
and maturing between February 2017 and November 2018. These notes are in default.
|
|
|
149,500
|
|
|
|
149,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in the fourth quarter of 2016, accrue interest at 2%, include a penalty rate
of 5%, and matured in the fourth quarter of 2017. These notes are in default.
|
|
|
606,500
|
|
|
|
606,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in 2017 accrue interest at 2%, include a penalty rate of 5%, and matured in
March 2018. These notes are in default.
|
|
|
205,000
|
|
|
|
205,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in May 2017 accrue interest at 2% with a penalty rate of 5% matured in May 2018.
These notes are in default.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in the third quarter of 2017 accrue interest at 2% include a penalty rate of
5% and matured in the third quarter of 2018. These notes are in default.
|
|
|
116,800
|
|
|
|
116,800
|
|
|
|
|
|
|
|
|
|
|
A promissory note for $425,000 was issued in October 2017 with an original issue discount of $70,000
and an annual interest rate of 22% on all outstanding balances. The note was in default, which triggered certain penalties, resulting
in an outstanding balance of $454,032. The original noteholder entered into a Note Purchase Agreement in November 2020, in the amount
of $697,600, reflecting the total principal, interest and penalties, and transferred the note to Global Reverb Corp., an entity wholly
owned by the Company’s former Chief Executive Officer and director, Noreen Griffin. During the first quarter of 2021, Global
Reverb Corp. sold 50% of the value of the note to another investor.
|
|
|
-
|
|
|
|
454,032
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in December 2017 accrue interest at 2% with a penalty rate of 5% and matured
in December 2018. These notes are in default.
|
|
|
105,500
|
|
|
|
105,500
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in January 2018 accrue interest at 2% with a penalty rate of 5% and matured
between May 2018 and January 2019. These notes are in default.
|
|
|
47,975
|
|
|
|
47,975
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued from March 2018 through June 2018 accrue interest at 2% with a penalty rate
of 5% and matured between July and October 2018. These notes include warrants with an exercise price of $5 per share. These notes
are in default.
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in the second quarter of 2018 accrue interest at 2% with a penalty rate of 5%
and matured between November 2018 and August 2019. These notes include warrants with an exercise price of $0.05 per share. These
notes are in default.
|
|
|
118,000
|
|
|
|
118,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in the third and fourth quarters of 2018 accrue interest at 2% with a penalty
rate of 5% and matured in November 2019. These notes include warrants with an exercise price ranging from $5 to $40 per share. These
notes are in default.
|
|
|
323,855
|
|
|
|
323,855
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued to Global Reverb Corp. in the first quarter of 2019 accrues interest at 2%
with a penalty rate of 5%
and matured in July
2019. The note includes warrants with an exercise price of $5
per share. The note is in default.
|
|
|
23,000
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued in the first quarter of 2019, accrues interest at 6% and matured in February
2020. This note is in default.
|
|
|
231,478
|
|
|
|
231,478
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued in April 2019 accrues interest at 2%
with a 5%
penalty matured in July
2019. The note include warrants with an exercise price of $5
per share. The note is in default.
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued in October 2019 for the settlement of outstanding debt in the same amount. The
note accrues interest at 15% with a penalty rate of 5%. The note requires $1,875 in monthly interest payments and matured on April
30, 2021. The note is in default.
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
Promissory note issued in the third quarter of 2020 accrues interest at 12% and matures in August 2021.
The Company recognized a $54,312 derivative liability for the conversion rights attached to the note as of December 31, 2020. This
outstanding principal and interest accrued on this note was converted into 5,402 common shares in February 2021
|
|
|
-
|
|
|
|
53,000
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued in the first quarter of 2021 in connection with a Note
Purchase Agreement with a previous note holder. The new notes reflect all principal, interest and penalties associated with the original
instrument. These notes accrue interest at 5% and a penalty rate of 7%. The holder of $348,800 of these notes (Global Reverb Corp.)
is an entity wholly owned by the Company’s former Chief Executive Officer that is also a former director of the Company. These
notes mature in March 2022.
|
|
|
697,600
|
|
|
|
-
|
|
|
|
|
3,070,208
|
|
|
|
2,879,640
|
|
Less: Original issue discount on notes payable and warrants issued with notes.
|
|
|
-
|
|
|
|
(34,789
|
)
|
|
|
$
|
3,070,208
|
|
|
$
|
2,844,851
|
|
As
of June 30, 2021 and December 31, 2020, the Company had $485,915 and $635,217, respectively, in accrued and unpaid interest and default
penalties.
4.
Derivative Liabilities
As
of June 30, 2021, and December 31, 2020, the fair value of the outstanding derivative liabilities was zero and $1,254,444, respectively.
During
the first quarter of 2021, the Company entered into a Note Exchange Agreement with a noteholder that resulted in the issuance of new
non-convertible promissory notes of $697,600 in exchange for outstanding convertible promissory note with related accrued interest. The
new notes do not have conversion rights and as such, the Company reversed a derivative liability of $1,200,129 during the first quarter
of 2021.
Also
during the first quarter of 2021, the Company issued 5,402
common shares in connection with a noteholder’s
election to convert $56,480
in principal and interest to common shares. The
Company recognized $21,899
for the change in fair market value on related
derivative liability prior to the conversion and derecognized $76,211
in derivative liabilities.
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.
|
A
reconciliation of changes in the fair value of derivative liabilities classified as Level 3 in the fair value hierarchy follows:
Schedule of Reconciliation of Changes in the Fair Value of Derivative Liabilities
|
|
|
|
|
|
Conversion option derivative liability
|
|
Balance December 31, 2020
|
|
$
|
1,254,441
|
|
Change in fair value
|
|
|
21,899
|
|
Settlement of liability upon debt exchange and conversion
|
|
|
(1,276,340
|
)
|
Balance June 30, 2021
|
|
$
|
-
|
|
5.
Capital Structure – Common Stock and Stock Purchase Warrants
Each
holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares of stock
of any class shall be entitled, as a matter of right, to subscribe for or purchase or receive any part of any new or additional issue
of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized or
whether issued for money, for consideration other than money, or by way of dividend.
Stock
Warrants
During
the six months ended June 30, 2021 and June 30, 2020, no warrants were issued or exercised. There were no modifications to the terms
of any warrants issued by the Company during these periods.
The
following is a summary of outstanding common stock warrants at June 30, 2021.
Schedule
of Outstanding Common Stock Warrants
Expiration Date
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Remaining Life (years)
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2021
|
|
|
5,167
|
|
|
|
$ 30 - 200
|
|
|
|
.50
|
|
Fourth Quarter 2021
|
|
|
300
|
|
|
|
$ 100
|
|
|
|
.75
|
|
First Quarter 2022
|
|
|
150
|
|
|
|
$
200
|
|
|
|
1.00
|
|
Second Quarter 2022
|
|
|
1,750
|
|
|
|
$
150
|
|
|
|
1.25
|
|
Third Quarter 2022
|
|
|
1,650
|
|
|
|
$ 50
- 100
|
|
|
|
1.50
|
|
Fourth Quarter 2022
|
|
|
9,811
|
|
|
|
$ 80
- 290
|
|
|
|
1.75
|
|
First Quarter 2023
|
|
|
1,204,000
|
|
|
|
$ 5 - 40
|
|
|
|
2.00
|
|
Second Quarter 2023
|
|
|
802,000
|
|
|
|
$ 5
- 200
|
|
|
|
2.25
|
|
Third Quarter 2023
|
|
|
7,521,500
|
|
|
|
$ 5 - 100
|
|
|
|
2.50
|
|
Fourth Quarter 2023
|
|
|
6,024,300
|
|
|
|
$
0.20
-
5
|
|
|
|
2.75
|
|
First Quarter 2024
|
|
|
3,660,000
|
|
|
|
$ 5
|
|
|
|
3.00
|
|
Second Quarter 2024
|
|
|
800,000
|
|
|
|
$ 5
|
|
|
|
3.25
|
|
Third Quarter 2028
|
|
|
3,000
|
|
|
|
$ 70
|
|
|
|
7.50
|
|
Second Quarter 2032
|
|
|
28,995
|
|
|
|
$ 10
- 70
|
|
|
|
11.25
|
|
|
|
|
20,062,623
|
|
|
|
$ 5
- 200
|
|
|
|
|
|
The
following is a summary of outstanding stock warrant activity for the six months ended June 30, 2021:
Schedule of Outstanding Stock Warrants
|
|
Number
of
Shares
|
|
|
Exercise Price
|
|
|
Weighted
Average
Price
|
|
Warrants as of December 31, 2020
|
|
|
20,081,035
|
|
|
$
|
0.05-200
|
|
|
$
|
0.68
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired and forfeited
|
|
|
(18,412
|
)
|
|
$
|
14-200
|
|
|
$
|
152.68
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Warrants as of June 30, 2021
|
|
|
20,062,623
|
|
|
$
|
0.05-200
|
|
|
$
|
0.54
|
|
6.
Income Taxes – Results of Operations
There
was no income tax expense reflected in the results of operations for the six months ended June 30, 2021 as the net income recognized
during the period would be offset by the utilization of net operating loss carryforwards available to the Company.
The
Company’s effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount
of income we earn in jurisdictions. This rate may also be affected by discrete items that may occur in any given year but are not consistent
from year to year.
For
U.S. federal purposes the corporate statutory income tax rate was 21%, for 2021 and 2020 tax years. The Company has recognized no tax
benefit for the losses generated for the periods through June 30, 2021. ASC Topic 740 requires that a valuation allowance be provided
if it is more likely than not that some portion or all a deferred tax asset will not be realized. The Company’s ability to realize
the benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize
revenue, we believe that the full valuation allowance should be provided.
7.
Licenses Agreements
Due
to the Company’s need to generate short term cash flow to fund operations, the Company sublicensed its remaining technology to
Forte and Cytocom Inc. as detailed below. The Company is currently seeking to acquire pharmaceutical and medical device products, technology
and/or intellectual property that it can incubate for future commercialization.
Forte
Animal Health, Inc.
On
February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte Animal
Health Inc. (“Forte”).
Under
the License Agreement, the Company granted Forte an exclusive license to develop and commercialize pharmaceutical products consisting
of Lodonal and MENK for use in veterinary applications for all indications world-wide. Milestone payments and royalties are defined in
the agreement based on development and royalties are based on sales during the license period.
The
Initial License Fee includes the assumption of certain Company defaulted Notes and other liabilities. Forte will assume a minimum of
IMUN defaulted debt and to assume certain additional obligations of the Company. The note holders and vendors associated with the assigned
liabilities have not yet assigned their rights to Forte.
Consideration
for February 28, 2020 License to Forte (as amended July 8, 2021)
Schedule of Consideration
The
documentation and sign off, of the Forte license, have yet to be executed by the individual lenders that will be required to provide
their approval for the transfer of these notes. As such the accompanying financial statements do not reflect any gain on sale. Until
such time as the transaction is completed Forte does not have clear title and interest to the veterinary rights.
Forte
has agreed to make payments to the Company in connection with this agreement as follows:
|
●
|
Initial
License Fee, upon the assignment of certain Company Notes Payable.
|
|
|
|
|
●
|
Development
Milestone Payments upon the occurrence of the identified events, one-time, non-creditable, non-refundable milestone payments of $100,000
will be earned by the Company upon: (1) a successful MUMS designation and (2) upon a successful conditional approval.
|
|
●
|
Commercial
Milestone Payments upon reaching the mutually agreed aggregate net sales. Forte will pay one-time, non-creditable, non-refundable
milestone payments to be negotiated and addressed in a separate Amendment later.
|
|
●
|
Royalties
during the royalty term (generally 15 years from the first sale of a product in a country), royalties on annual net sales as follows:
|
|
|
|
Schedule of Royalty Rate
Annual Sales of Royalty Qualifying Licensed Products
|
|
Royalty Rate
|
|
<$500,000,000
|
|
|
2
|
%
|
500,000,000 to < $1,000,000,000
|
|
|
4
|
%
|
> $1,000,000,000)
|
|
|
6
|
%
|
To date the Company has not received any payments
under the terms of this agreement.
Cytocom
On
May 13, 2020, the Company and Cytocom entered into Amendment to The Second Amendment to The License Agreement (“Third Amendment”)
that was effective December 31, 2018. The sublicense provides Cytocom with the Company’s previously licensed rights for LDN and
MENK in Emerging Markets.
Original
terms for consideration for the sublicense were not finalized until August 12, 2020, at which time Cytocom and the Company signed a letter
agreement in which Cytocom agreed to assume a combination of defaulted notes plus certain other liabilities. Such terms were amended
and the Company agreed to transfer all the rights, title, and interest to Cytocom in technology licensed from Penn State Research Foundation
in exchange for Cytocom assuming all past due and future obligations under the Penn State license. While the Company formalized the agreement
to deconsolidate Penn State University, a vendor of the Company, did not consent to assign the payables to Cytocom. As of June 30, 2021,
the Company had outstanding accounts payable balances of $372,732 and $421,048 due to Penn State University.
In
the third quarter of 2020, the Company received a Notice of Default (“Notice”) from Cytocom relating to the sublicensing
transaction. The Company disputes the validity of the Notice on the basis that Cytocom has failed to execute on their consideration for
the license. On July 20, 2021 the Notice of Default was rescinded.
On
July 20, 2021, Cytocom and the Company agreed to modify the terms of the original sublicense. The renegotiated terms are presented below.
The Notes in Default portion of the transaction was fully executed in the third quarter of 2020 with the transfer of the notes upon the
creditors signoff. The Company recognized a gain upon the assignment of these notes in the third quarter of 2020. Cytocom has not completed
the assumption of the remaining liabilities.
At
June 30, 2021, the Company has an equity interest of approximately 13.3% in Cytocom. In connection with the May 1, 2018 “Restated
Agreement” with Cytocom, the Company no longer has ongoing obligations to pay for costs in connection with the assets of Cytocom.
Accordingly, effective May 1, 2018, the Company deconsolidated Cytocom. The Company uses the equity method to account for its retained
interest in Cytocom. As the balance of the Company’s investment in Cytocom has been zero since 2018, no losses have been recognized
during the six months ended June 30, 2021.
On
July 27, 2021, Cytocom reported the completion of its previously announced merger with Cleveland BioLabs, Inc. (“CBLI”)
The shares of Cytocom were exchanged for shares of CBLI in connection with this transaction. The Company will use the Fair Value Method
of accounting to measure the carrying value of these share beginning in the third quarter of 2021.