Biostax Corp. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

From the transition period from ___________ to ____________

Commission File Number 000-54933

IMMUNE THERAPEUTICS, INC.

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

2431 Aloma Ave., Suite 124, Winter Park, FL 32792

(Address of principal executive offices)

888-613-8802

(Issuer’s telephone number)

N/A

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

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

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

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

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: Yes [X]

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

Securities registered pursuant to Section 12(b) of the Act:

As of November 16, 2020, there were 464,470 shares of Common Stock outstanding.

TABLE OF CONTENTS

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:

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. Factors that might cause such differences include, but are not limited to, the effects of the novel coronavirus COVID-19 (“COVID-19”) pandemic, and those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2019 filed with the Securities and Exchange Commission on September 30, 2020 (the “2019 Form 10-K”) under the heading “Risk Factors”. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward- looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.

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

Moreover, new risks regularly emerge and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this 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 as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Quarterly Report.

JUMPSTART OUR BUSINESS STARTUPS ACT

We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2019, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

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

We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1 billion or more in annual gross revenues; (ii) the end of fiscal year 2020; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(Unaudited)

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

IMMUNE THERAPEUTICS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

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

Immune Therapeutics, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

September 30, 2020

(Unaudited)

1. Organization and Description of Business

Immune Therapeutics, Inc. (the “Company”) was initially incorporated in Florida on December 2, 1993 as Resort Clubs International, Inc. (“Resort Clubs”). On November 10, 2004, Galliano International Ltd. 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, it executed a share exchange agreement for the acquisition of all of the outstanding shares of TNI BioTech IP, Inc. In October 2014, the name was changed to Immune Therapeutics, Inc.

The Company initially focused on acquiring patents that would protect and advance the development of new uses of opioid-related immune therapies such as low dose naltrexone (“LDN”) and Methionine [Met5]-enkephalin (“MENK”) to stimulate and/or regulate the immune system to treat a variety of diseases. The Company believed that the therapies may be able to correct abnormalities or deficiencies in the immune system in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer, all of which can lead to disease progression and life-threatening situations when the immune system is not functioning optimally.

At present, the Company is a late development-stage biopharmaceutical company focused on the licensing, development and commercialization of innovative prescription medications for humans in Africa, Central and South America, the Caribbean and China. The Company is not permitted to market its licensed products in the United States.

In December 2013, the Company formed a subsidiary, Cytocom Inc. (“Cytocom”), to focus on conducting LDN and MENK clinical trials in the United States. In a series of licensing agreements between the Company and Cytocom entered into between 2014 and 2020, in return for an up-front payment, the transfer of certain Company notes payable and other liabilities to Cytocom, and the payment of royalties by Cytocom on future sales, the Company transferred rights to Cytocom to develop and sell LDN and MENK for treatment in humans in the United States and certain other developed economies. The Company retained the right to develop and sell the licensed products in Emerging Markets.

Under a May 2018 amendment to the licensing agreements, the royalty due from Cytocom was set at 1% of sales and the Company no longer had any ongoing obligations to pay for costs in connection with the assets of Cytocom. As a consequence of this amendment, the Company no longer consolidated the financial statements of Cytocom with its own statements.

On February 27, 2020, the Company entered into a license agreement (the “License Agreement”) with Forte Biotechnology International Corp. (“Forte”), which 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. Forte is managed by Noreen Griffin, a former Chief Executive Officer of the Company.

On August 16, 2020, the Company and Cytocom closed on an agreement for the Company to sublicense LDN and MENK for developing markets to Cytocom. Accordingly, the Company transferred to Cytocom all of its right, title and interest in and to LDN and MENK in Developing Markets and the License under the License Agreement of May 1, 2018 between the companies. Cytocom agreed in return to assume and pay approximately $5,200,800 of the Company’s notes payable, accounts payable and other accrued obligations. As of September 30, 2020, approximately $3,266,000 of notes payable together with interest accrued thereon had been assigned to Cytocom. The companies are continuing to negotiate and implement the assignments to Cytocom of the accounts payable and other accrued obligations.

As a consequence of the 2020 transactions, the Company has now licensed most of the previously owned intellectual property rights. In exchange the Company has acquired and continues to own equity interest in the licensees. The consideration for the licenses has provide the Company with an opportunity to reduce its liabilities and strengthen its balance sheet.

The Company intends to continue on as a bio-pharmaceutical drug company and will pursue efforts to acquire assets through acquisition and licenses. To do so the Company will be required to raise additional capital in for the form of debt and/or equity. There is no guaranty that the Company will be able to make such acquisition or raise the capital required to execute the strategy.

Going Concern

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings. Management expects operating losses and negative cash flows to continue in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidate and the achievement of a level of revenues adequate to support the Company’s cost structure.

The Company reported net income of $4,094,415 and net income attributable of $2,497,999, respectively for the three and nine months ended September 30, 2020. Earnings for three months ended September 30, 2020 were primarily derived by non-cash item gains on the settlement of certain notes and loans payable and certain accrued liabilities settled in connection with the August 16, 2020 agreement with Cytocom. As of September 30, 2020, the Company had a stockholder’s deficit of $11,190,620.

The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings and may seek additional capital through arrangements with strategic partners or from other sources.

Based on the Company’s operating plan, existing working capital as of September 30, 2020 was not sufficient to meet the cash requirements to fund planned operations through for the next 12 months without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2019 (including the notes thereto) set forth in Form 10- K.

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

The Company qualifies as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue for the year ended December 31, 2019. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

Shares Issued and Outstanding

On October 25, 2019, the Company closed voting by written consent as detailed in its Proxy Statement on form 14A, filed September 5, 2019 pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (“Proxy Statement”). The Proxy Statement disclosed actions for which the Company was soliciting written consent, including consent to effect a reverse stock split of the Company’s issued and outstanding, but not authorized, common stock (the “Reverse Split”) at a ratio of 1,000-to-1. The Company’s shareholders approved the Reverse Split. On February 6, 2020, the Company’s Florida certificate of incorporation was amended to reflect this action.

The implementation of the shareholder approval is subject to approval by the Financial Industry Regulatory Authority (“FINRA”). In connection with our application to FINRA, on February 6, 2020, we filed Articles of Amendment to our Articles of Incorporation to effect the reverse stock split of our issued and outstanding, but not authorized, common stock at a ratio of 1 to 1,000. On March 12, 2020 we corrected a typographical error to reflect the proper ratio of 1 to 1,000 by the filing of Articles of Amendment to our Articles of Incorporation. Although we filed the Articles of Amendment at FINRA’s instruction, on June 9, 2020, we were advised by FINRA that our 1 for 1,000 reverse stock split would not be processed. By not processing the reverse stock split, quotations for our common stock do not reflect the 1 for 1,000 reverse stock split, which occurred on February 6, 2020.

The financial statements accompanying this Form 10-Q are presented based on the implementation of the reverse stock 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 September 30, 2020, the Company has no cash balances in excess of insured limits.

Segment and Geographic Information

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

Fair Value of Financial Instruments

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

Derivative Financial Instruments

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

Fixed Assets

Fixed assets are stated at cost, less accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which generally range from three to five years. Maintenance and repairs are charged against expense as incurred. Depreciation expense for the quarters ended September 30, 2020 and September 30, 2019 was $479 and $995, respectively.

Impairment of Long-Lived Assets

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

Research and Development Costs

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

Income Taxes

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

The standard addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC Topic 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of September 30, 2020 and 2019, the Company does not have a liability for unrecognized tax uncertainties.

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2020, 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, including employee stock options, based on estimated fair values equaling either the market value of the shares issued or the value of consideration received, whichever is more readily determinable. The majority of the non-cash consideration pertains to services rendered by consultants and others and has been valued at the fair value of the Company’s common stock at the date of the agreement.

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

Net Income/Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. Dilutive common stock equivalents are comprised of common stock purchase warrants outstanding.

The Company’s potential dilutive securities, which include stock and warrants, have been included from the computation of diluted net income for the three month period and nine month period ended September 30, 2020. They have been excluded from the computation of diluted net loss per share for the three month period and nine month period ended September 30, 2019, as the effect would be to reduce the net loss per share.

A reconciliation of the weighted average shares outstanding used in basic and diluted earnings per share computation is as follows:

The following shares of potentially dilutive securities have been included from the computations of diluted weighted average shares outstanding for the three month period and nine month period ended September 30, 2020. They have been excluded from the computations of diluted weighted average shares outstanding for the three month period and nine month period ended September 30, 2019 as the effect of including such securities would be antidilutive:

Recent Accounting Standards

During the quarter ended September 30, 2020, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

3. Accrued Liabilities

Accrued expenses and other liabilities consist of the following:

4. Notes payable

During the three and nine months ended September 30, 2020, the Company issued $53,000 and $197,000, respectively in promissory notes.

On August 16, 2020, the Company and Cytocom entered into an agreement for the Company to sublicense LDN and MENK for emerging markets to Cytocom. Pursuant to the agreement, effective September 30, 2020 the Company assigned notes payable aggregating $2,728,731 to Cytocom.

Notes payable consist of the following:

As of September 30, 2020, the Company had accrued $574,931 in unpaid interest and default penalties. During the quarter ended September 30, 2020, no shares were issued by the Company in settlement of promissory notes.

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

5. Derivative Liabilities

As of September 30, 2020, and December 31, 2019 the aggregate fair value of the outstanding derivative liabilities was $962,235 and $798,126, respectively. The Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model using the following key assumption during the quarter ended September 30, 2020:

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

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

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

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

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

The following schedule summarizes the valuation of financial instruments at fair value in the balance sheet as of September 30, 2020:

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

6. 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

In the three and nine months ended September 30, 2020, no new warrants were issued. There were no modifications of the terms of any warrants issued by the Company in the quarters ended September 30, 2020 and 2019.

Following is a summary of outstanding stock warrants at, and activity during the nine months ended, September 30, 2020:

Summary of outstanding warrants as of September 30, 2020:

7. Stock Compensation

Shares Issued for Services

During the quarters ended September 30, 2020 and 2019, the Company issued no shares of common stock for consulting fees.

8. Income Taxes – Results of Operations

There was no income tax expense reflected in the results of operations for the nine-month periods ended September 30, 2020 and 2019 because the Company incurred a net loss in both periods.

For U.S. federal purposes the corporate statutory income tax rate was 21%, for 2019 and 2020 tax years.

The Company has recognized no tax benefit for the losses generated for the nine-month period through September 30, 2020. ASC Topic 740 requires that a valuation allowance be provided if it is more likely than not that some portion or all of a deferred tax asset will not be realized. The Company’s ability to realize the benefit of its deferred tax asset will depend on the generation of future taxable income. Because the Company has yet to recognize revenue, we believe that the full valuation allowance should be provided.

Our effective tax rate for fiscal years 2020 and 2019 was 0%. Our tax rate can be affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions. It may also be affected by discrete items that may occur in any given year but are not consistent from year to year.

9. Licenses and Supply Agreements

Patent and Subsidiary Acquisition

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

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

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

On May 13, 2020, the Company and Cytocom entered into Amendment to The Second Amendment to The License Agreement (“Third Amendment”) to their Second Amendment to The License Agreement that is effective December 31, 2018. The Third Amendment made changes to the lists of liabilities that were assigned by the Company to Cytocom on the effective date. Simultaneously with the Third Amendment, the companies signed a PRC Amendment to The Second Amendment to The License Agreement, in which they confirmed that the term “the Republic of China” in the Second Amendment means the People’s Republic of China and not The Republic of China, also known as Taiwan.

On February 27, 2020, the Company approved and entered into a license agreement (the “License Agreement”) with Forte Biotechnology International Corp. (“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. As consideration for the license, Forte agreed to make certain license, milestone and royalty payments to the Company. Forte is managed by Noreen Griffin, a former Chief Executive Officer of the Company.

On August 16, 2020, the Company and Cytocom closed on an agreement for the Company to sublicense LDN and MENK for developing markets to Cytocom. Accordingly, the Company transferred to Cytocom all of its right, title and interest in and to LDN and MENK in Developing Markets and the License under the License Agreement of May 1, 2018 between the companies. Cytocom agreed in return to assume and pay approximately $5,200,800 of the Company’s notes payable, accounts payable and other accrued obligations. As of September 30, 2020, approximately $3,266,000 of notes payable together with interest accrued thereon had been assigned to Cytocom. The companies are continuing to negotiate and implement the assignments to Cytocom of the remaining accounts payable and other accrued obligations.

As a consequence of the 2020 transactions, the Company has now licensed most of the previously owned intellectual property rights. In exchange the Company has acquired and continues to own equity interest in the licensees. The consideration for the licenses has provide the Company with an opportunity to reduce its liabilities and strengthen its balance sheet.

The Company intends to continue on as a bio-pharmaceutical drug company and will pursue efforts to acquire assets through acquisition and licenses. To do so the Company will be required to raise additional capital in for the form of debt and/or equity. There is no guaranty that the Company will be able to make such acquisition or raise the capital required to execute the strategy.

10. Commitments and Contingencies

In October 2013, the Company announced the signing of a Distribution Agreement with AHAR Pharma, a Nigerian company, to market Lodonal™, in Nigeria for the treatment of autoimmune diseases and cancer. AHAR intends to distribute Lodonal™ through a local distributor network, an Internet client base and directly to hospitals, pharmacists and doctors in Nigeria. The first deliveries under the agreement took place in February 2018. Because AHAR Pharma failed to meet its contractual purchase obligations, the Company formally issued notice of default under the agreement.

On April 18, 2018, AHAR Pharma transferred its rights under the Distribution Agreement to Fidson Healthcare Plc (“Fidson”), and Fidson signed an exclusive distribution agreement with the Company to distribute Lodonal™. Discussions between the Company and Fidson in the first half of 2020 did not result in any orders or shipments under this agreement. The Company’s rights to sell Lodonal™ in developing markets, which includes Nigeria, were transferred to Cytocom in August 2020, and the Company will transfer its rights with Fidson to Cytocom in accordance with that transfer.

Contract Manufacturing Agreements

On October 25, 2016, the Company and Acromax Dominicana, SA (“Acromax”), which is based in the Dominican Republic, entered into a contract for manufacturing of LDN tablets, capsules and/or creams (“Agreement”). Subject to the terms and conditions of the Agreement, Acromax will obtain all necessary licenses and permits to carry out the manufacturing and packaging of LDN in exchange for a fixed fee per tablet plus an additional fee for packaging, shipping and customs clearance. The Agreement has an initial term of five years unless terminated by either party in accordance with the terms.

Operating Leases

At September 30, 2020, the Company was a party to an agreement to lease office space in Winter Park, Florida. Rental expense for the three months ended September 30, 2020 and 2019 was $177 and $2,162 respectively.

11. Subsequent Events

In October 2020, the Company received three notices of conversion from a note holder representing $53,000 of principal and $3,180 in accrued interest for debt issued on March 30,2020. The Company issued 6,892,613 common shares in connection with these notices at share prices ranging from $0.0078 to $0.0087 per share.

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

Forward-Looking Statements and Associated Risks

This section and other parts of this Form 10-Q contain forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, the effects of the COVID-19 pandemic, and those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2019 filed with the Securities and Exchange Commission on May 14, 2020 (the “2019 Form 10-K”) under the heading “Risk Factors”.

The following discussion should be read in conjunction with the 2019 Form 10-K and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar. Unless otherwise stated, references in this report to particular years, quarters, months or periods refer to the Company’s fiscal years ended in December and the associated quarters, months, or periods of those fiscal years. Each of the terms the “Company”, “we”, “us” or “our” as used herein refers collectively to Immune Therapeutics, Inc. and its subsidiaries, unless otherwise stated. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Revenues

We had no revenues from operations during the three-month periods ended September 30, 2020 and 2019.

Operating Expenses

Selling, general and administrative

Selling, general and administrative expenses and related percentages for the three months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

For the three months ended September 30, 2020 and 2019, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

In the three months ended September 30, 2020, total selling, general and administrative expense was $131 compared to $389 for the corresponding period in 2019, a decrease of $258 or 66%. Significant items included:

Interest Expense and Finance Expense

Interest expense for the three months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

The decrease in interest expense was primarily due to the settlement of certain notes payable that carried a high rate of interest in 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 (dollar amounts in thousands)

Revenues

We had no revenues from operations for the nine months ended September 30, 2020 and 2019.

Operating Expenses

Selling, general and administrative

Selling, general and administrative expenses and related percentages for the nine months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

For the nine months ended September 30, 2020 and 2019, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

In the nine months ended September 30, 2020, total cash and accruals for selling, general and administrative expense were $516 compared to $1,372 for the corresponding period in 2019, a decrease of $856 or 62%. Significant items included:

Research and development

R&D expenses and related percentages for the nine months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

Expenses for research and development in the nine months ended September 30, 2020 was $28 compared to $0 in the same period in 2019, as there were no costs in 2019 to maintain intellectual property licenses.

Warrant valuation expense

When the Company sells its stock for cash or settles debt for stock, it periodically issues warrants to acquire additional stock at prices agreed at the date of the original sale. The Company incurs a cost for the rights attached to the warrants, which is calculated using the Black-Scholes Model (see above 8. Capital Structure—Common Stock and Common Stock Purchase Warrants.) This expense is reported in the Condensed Consolidated Statements of Operations above as the Warrant valuation expense.

In the nine months ended September 30, 2020, the Company issued no warrants to stockholders.

In the nine months ended September 30, 2019, the Company issued 14,600,000 warrants to stockholders at an exercise price of $0.005, for which it recorded a debt discount of $73,000.

Interest Expense and Finance Expense

Interest expense for the nine months ended September 30, 2020 and 2019 were as follows (dollar amounts in thousands):

The decrease in interest expense was primarily due to the settlement of certain notes payable that carried a high rate of interest in the fourth quarter of 2019.

Liquidity and Capital resources

Liquidity is measured by our ability to secure enough cash to meet our contractual and operating needs as they arise. We do not anticipate generating sufficient net positive cash flows from our operations to fund the next twelve months. We had cash of $30,937 at September 30, 2020, compared to $4,925 at December 31, 2019.

For the nine months ended September 30, 2020 and 2019, net cash from/(used in) operating activities was $(161,988) and $597, respectively.

There was no cash used in investing activities for the three and nine months ended September 30, 2020 and 2019.

During the nine months ended September 30, 2020 and 2019, there were no proceeds from the sale of stock and exercise of stock warrants. The Company received $188,000 from the issuance of notes payable in nine months ended September 30, 2020, compared to $0 in 2019. There were no loan repayments made in cash in the nine months ended September 30, 2020 ($0 in 2019).

The Company does not expect to generate revenues from sales in the second half of 2020. If the Company is unable to raise additional working capital to meet all of its operating obligations and expenditures, the Company may have to modify its business plan. In addition, the extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak and the impact on the Company’s business and financial condition.

Off-Balance Sheet Arrangements

During the nine months ended September 30, 2020 and 2019, the Company did not engage in any off-balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES

Changes in Internal Controls over Financial Reporting

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

Evaluation of Disclosure Controls and Procedures

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

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

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

Limitations on the Effectiveness of Internal Controls

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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

In the quarters ended September 30, 2020 and September 30, 2019, no shares were issued by the Company.

No consideration was received by the Company in the quarters ended September 30, 2020 and September 30, 2019 for the exercise of previously issued warrants.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The current portion of notes payable on the Company’s Condensed Consolidated Balance Sheets above contains, at September 30, 2020, certain promissory notes on which the Company was in arrears on payments of principal as follows:

At September 30, 2020, the Company had insufficient cash on hand to repay these notes.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

On November 16, 2020, Mr. Peter Aronstam notified the Company that he is resigning from the positions of Chief Financial Officer and Secretary of the Company, effective that date. His resignation was not due to any matter related to the Company’s operations, policies or practices, his experiences while serving in those positions or any disagreement with the management team.

With effect of Mr. Aronstam’s resignation and until a replacement can be found, Mr. Kevin Phelps, Director and Chief Executive Officer of the Company will temporarily take over the positions previously held by Mr. Aronstam for the roles of Chief Financial Officer and Secretary while maintaining his position as the Chief Executive Officer.

ITEM 6. EXHIBITS

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