Biostax Corp. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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)

(Former name, former address and former fiscal year, 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: Yes ☒ 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 ☒ 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.

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares of outstanding of each of issuer’s class of common stock, as of the latest practicable date:

As of August 16, 2021, there were 481,906 shares of Common Stock $0.0001 par value shares 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. 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.

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 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.

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 condensed 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 PERIODS ENDED JUNE 30, 2021 AND 2020

(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.

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:

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

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

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:

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 

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

The following is a summary of outstanding stock warrant activity for the six months ended June 30, 2021:

 Schedule of Outstanding Stock Warrants

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:

Schedule of Royalty Rate

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.

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

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 2020 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” or “IMUN”) 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 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 $1,183,108, 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. As of June 30, 2021, the Company has a stockholders’ deficit of $10,856,585.

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.

Based on our operating plan, 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 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.

If the Company is unable to secure new working capital, other alternatives 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.

There can be no guaranties that the Company will be successful in:

THREE MONTHS ENDED JUNE 30, 2021, COMPARED TO THREE MONTHS ENDED JUNE 30, 2020

Revenues

We had no revenues from operations for the three months ended June 30, 2021 and 2020.

Operating Expenses

Selling, general and administrative

Selling, general and administrative expenses for the three months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

During the three months ended June 30, 2021, the Company has focused on business development activities and the negotiation and finalization of certain licensing transactions described further in Note 7 Licensing Agreements in the notes to the financial statements.

For the three months ended June 30, 2021 and 2020, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

The trends are associated with the following:

Research and development

R&D expenses for the three months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

The Company recorded $4 during the three months ended June 30, 2021 for fees payable to Penn State University 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 agreement described in Note 7 to the financial statements. As Penn State has not consented to the assignment of these fees, the Company retains liability for them until paid by Cytocom; at which time, the Company recognizes a gain on the assignment of liabilities.

Interest Expense

Interest expense for the three months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

The Company reduced the total principal outstanding as of June 30, 2021 through the assignment of $2,728,731 of notes payable to Cytocom during in the third quarter of 2020. The decrease in interest expense reflects this decrease in outstanding principal as well as the effect of a Note Purchase Agreement, entered into in March 2021, that reduced interest on $697,600 of outstanding principal from a compounding rate of 22% to simple 5% rate.

SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020

Revenues

We had no revenues from operations for the six months ended June 30, 2021 and 2020.

Operating Expenses

Selling, general and administrative

Selling, general and administrative expenses and related percentages for the six months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

During the six months ended June 30, 2021, the Company has focused on business development activities and the negotiation and finalization of certain licensing transactions described further in Note 7 Licensing Agreements in the notes to the financial statements.

For the six months ended June 30, 2021 and 2020, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

The trends are associated with SG&A are as follows:

Research and development

R&D expenses and related percentages for the six months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

The Company recorded $153 during the six months ended June 30, 2021 for fees payable to Penn State University 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 agreement described in Note 7 to the financial statements. As Penn State has not consented to the assignment of these fees, the Company retains liability for them until paid by Cytocom; at which time, the Company will recognize a gain on the assignment of liabilities.

Interest Expense

Interest expense for the six months ended June 30, 2021 and 2020 were as follows (dollar amounts in thousands):

The Company reduced the total principal outstanding as of June 30, 2021 through the assignment of $2,728,731 of notes payable to Cytocom during in the third quarter of 2020. The decrease in interest expense reflects this decrease in outstanding principal as well as the effect of a Note Purchase Agreement, entered into in March 2021, that reduced interest on $697,600 of outstanding principal from a compounding rate of 22% to simple 5% rate.

LIQUIDITY

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 $23,216 at June 30, 2021, compared to $9,971 at December 31, 2020.

For the six months ended June 30, 2021, the Company used $126,755 in cash to support operating activities. 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 in the first quarter and $108,693 in vendor payables, previously assigned to Cytocom, were reversed in the second quarter upon direct vendor payment by Cytocom.

During the six months ended June 30, 2020, the Company used $94,658 in operating activities. The loss from operations of $1,596,420 during the six months ended June 30, 2020 was offset by non-cash items aggregating $995,343 related to depreciation, amortization on debt discount, finance charges and the change in fair market value of the derivative liability.

The Company received $140,000 from investors for which the documentation had not been completed as of June 30, 2021. These proceeds are included in financing activities during the six months ended June 30, 2021. The Company received $135,000 in cash proceeds from the issuance of notes in the six months ended June 30, 2020.

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 six months ended June 30, 2021, and 2020, 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 who is also the 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 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 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

On February 26, 2021, the Company issued 5,402 shares of common stock, at an average price per share of $10.46, in connection with a conversion notice received from a noteholder in payment of outstanding principal and related accrued interest. The transaction was exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended. The conversion made according to the terms of the promissory note and no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Please see Note 7 to the Condensed Consolidated Financial Statements of Part I Item 1, which is incorporated by reference, for additional details. The current portion of notes payable on the Company’s Condensed Consolidated Balance Sheets above contains, at June 30, 2021, certain promissory notes on which the Company was in arrears on payments of principal as follows:

At June 30, 2021, the Company had insufficient cash on hand to repay these notes.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

The Company previously disclosed in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 14, 2014 that it filed Articles of Amendment to its Articles of Incorporation on October 27, 2014 to change its name to Immune Therapeutics, Inc. A copy of this amendment has been attached with this Quarterly Report on Form 10-Q as Exhibit 3.2 and is incorporated by reference herein.

On July 20, 2021 the Company entered into Amendment No. 1 to the Agreement and Representations Letter between Cytocom and the Company, effective August 12, 2020 (“Letter Agreement Amendment”), pursuant to which the terms of the Company’s assignment, transfer and license to Cytocom of certain intellectual property rights and other assets relating to low dose naltrexone (LDN) and Methionine [Met5]-enkephalin (MENK), and Cytocom’s assumption of certain liabilities of the Company, were amended as more particularly set forth therein.  The description of the Letter Agreement Amendment is qualified in its entirety by reference to the actual terms of the Letter Agreement Amendment, a copy of which is attached as Exhibits 10.2 hereto and incorporated by reference herein.

ITEM 6. EXHIBITS

The following exhibits are filed with this Quarterly Report:

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.