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 June 30, 2016

 

OR

 

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

 

From the transition period from ___________ to ____________

 

Commission File Number __________________

 

IMMUNE THERAPEUTICS, INC.

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

 

Florida   59-3226705
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

37 North Orange Ave, Suite 607, Orlando, FL 32801

(Address of principal executive offices)

 

888-613-8802

(Issuer’s telephone number)

 

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

 

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

 

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

 

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

 

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

 

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

 

As of August 12, 2016 there were 220,989,542 shares of Common Stock outstanding.

 

 

 

     
     

 

TABLE OF CONTENTS

 

PART I FINANCIAL STATEMENTS
     
Item 1 Financial Statements  5
     
Item 2 Management’s Discussion and Analysis of Financial Conditions and Results of Operations  21
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk  31
     
Item 4 Controls and Procedures  31
     
PART II OTHER INFORMATION
     
Item 1 Legal Proceedings  32
     
Item 1A Risk Factors  
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds   32
     
Item 3 Default upon Senior Securities   32
     
Item 4 Mine Safety Disclosures  33
     
Item 5 Other Information   33
     
Item 6 Exhibits   33

 

    2  
     

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

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

 

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.

 

    3  
     

 

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

 

our lack of operating history;
   
our current and future capital requirements and our ability to satisfy our capital needs;
   
our inability to keep up with industry competition;
   
interpretations of current laws and the passages of future laws;
   
acceptance of our business model by investors and our ability to raise capital;
   
our drug discovery and development activities may not result in products that are approved by the applicable regulatory authorities. Even if our drug candidates do obtain regulatory approval they may never achieve market acceptance or commercial success;
   
our reliance on key personnel, including our ability to attract and retain scientists;
   
our reliance on third party manufacturing, some of which is outside the United States and may therefore be subject to political, economic and other uncertainties, to supply drugs for clinical trials and sales;
   
our limited distribution organization with no sales and marketing staff;
   
our being subject to product liability claims;
   
our reliance on key personnel, including our ability to attract and retain scientists;
   
legislation or regulation that may increase the cost of our business or limit our service and product offerings;
   
risks related to our intellectual property, including our ability to adequately protect intellectual property rights;
   
risks related to government regulation, including our ability to obtain approvals for the commercialization of some or all of our drug candidates, and ongoing regulatory obligations and continued regulatory review which may result in significant additional expense and subject us to penalties if we fail to comply with applicable regulatory requirements; and
   
our ability to obtain regulatory approvals in foreign jurisdictions to allow us to market our products internationally.

 

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

 

JUMPSTART OUR BUSINESS STARTUPS ACT

 

We qualify as an “emerging growth company” as defined in Section 101 of the Jumpstart our Business Startups Act (“JOBS Act”) as we do not have more than $1,000,000,000 in annual gross revenue and did not have such amount as of December 31, 2015, the last day of our last fiscal year. We are electing to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act.

 

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

 

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

 

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

 

    4  
     

 

PART I FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

    June 30, 2016     December 31, 2015  
    (Unaudited)         (Audited)  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 64,289     $ 23,149  
Accounts receivable     2,661       16,197  
Prepaids and other current assets     11,272       -  
Total current assets     78,222       39,346  
                 
Fixed Assets:                
Computer equipment, net of accumulated depreciation of $7,312 and $6,331 respectively     701       1,682  
                 
Deposits     200       200  
                 
Total assets   $ 79,123     $ 41,228  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities:                
Accounts payable   $ 1,517,788     $ 1,924,672  
Accrued liabilities     2,030,559       1,281,039  
Current portion of notes payable     3,457,436       2,793,701  
                 
Total current liabilities     7,005,783       5,999,412  
                 
Non-current liabilities:                
Notes payable, less current portion     -       -  
Total non-current liabilities     -       -  
Total liabilities     7,005,783       5,999,412  
                 
Commitments and Contingencies (Note 10)                
                 
Stockholders’ Deficit:                
Common stock - par value $0.0001; 500,000,000 shares authorized; 214,447,611 and 174,850,047 shares issued and outstanding respectively     21,445       17,485  
Additional paid in capital     354,333,473       343,434,786  
Stock issuances due     1,275,838       1,140,303  
Prepaid services     (1,983,024 )     (660,417 )
Accumulated deficit     (358,319,891 )     (347,789,889 )
                 
Deficit attributable to common shareholders     (4,672,159 )     (3,857,732 )
Non-controlling interest     (2,254,501 )     (2,100,452 )
Total stockholders’ deficit     (6,926,660 )     (5,958,184 )
Total liabilities and stockholders’ deficit   $ 79,123     $ 41,228  

 

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

 

    5  
     

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months ended     Six Months ended  
    June 30, 2016     June 30, 2015     June 30, 2016     June 30, 2015  
                         
Revenues, net   $ -     $ 5,648     $ 3,463     $ 7,718  
                                 
Operating expenses                                
Selling, general and administrative     893,917       443,585       1,833,258       845,572  
Research and development expense     67,262       414,492       48,420       591,650  
Stock issued for services G&A     1,194,761       1,450,334       3,178,598       3,611,893  
Warrant valuation     490,355       -       2,568,554       -  
Depreciation and amortization expense     434       148,726       981       297,452  
Total operating expenses     2,646,729       2,457,137       7,629,811       5,346,567  
                                 
Loss from operations     (2,646,729 )     (2,451,489 )     (7,626,348 )     (5,338,849 )
                                 
Other income (expense):                                
Interest expense     (1,051,576 )     (50,711 )     (1,353,020 )     (68,757 )
Loss on settlement of debt     (340,343 )     (88,445 )     (1,704,683 )     (88,445 )
Total other income (expense)     (1,391,919 )     (139,156 )     (3,057,703 )     (157,202 )
                                 
Net (loss)   $ (4,038,648 )   $ (2,590,645 )   $ (10,684,051 )   $ (5,496,051 )
Net (loss) attributable to non-controlling interest     (109,929 )     (138,891 )     (154,049 )     (262,956 )
Net (loss) attributable to common shareholders   $ (3,928,719 )   $ (2,451,754 )   $ (10,530,002 )   $ (5,233,095 )
                                 
Basic and diluted loss per share attributable to common shareholders   $ (0.02 )   $ (0.02 )   $ (0.05 )   $ (0.04 )
                                 
Weighted average number of shares outstanding     207,229,469       147,387,763       199,076,428       142,563,007  

  

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

 

    6  
     

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE PERIOD ENDED JUNE 30, 2016

(Unaudited)

 

    Common Stock     Additional Paid     Stock to     Prepaid       Accumulated     Non-Controlling        
    Shares     Amount     in Capital     Be Issued     Services       Deficit     Interest     Total  
                                                   
Balance, December 31, 2015     174,850,047     $ 17,485     $ 343,434,786     $ 1,140,303     $ (660,417 )     $ (347,789,889 )   $ (2,100,452 )   $ (5,958,184 )
                                                                   
Issuance of common stock for prepaid services     23,493,000       2,349       4,518,321       (19,466 )     (2,862,535 )       -       -       1,638,669  
                                                                   
Amortization of prepaid services     -       -       -       -       1,539,928         -       -       1,539,928  
                                                                   
Issuance of common stock for interest expense     896,296       90       148,910       -         -       -       -       149,000  
                                                                   
Issuance of common stock for legal fees     150,000       15       22,485                                         22,500  
                                                                   
Issuance of common stock in exchange for debt     14,433,268       1,444       2,907,814       155,001                 -       -       3.064,259  
                                                                   
                                                                   
Debt discount                     682,665                                         682,665  
                                                                   
Issuance of common stock for cash and exercise of warrants     625,000       62       49,938       -       -         -       -       50,000  
                                                                   
Issuance and modification of stock warrants     -       -       2,568,554       -       -         -       -       2,568,554  
                                                                   
Net loss     -       -       -       -       -         (10,530,002 )     (154,049 )     (10,684,051 )
                                                                   
Balance, June 30, 2016     214,447,611     $ 21,445     $ 354,333,473     $ 1,275,838     $ (1,983,024 )     $ (358,319,891 )   $ (2,254,501 )   $ (6,926,660 )

 

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

 

    7  
     

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six Months Ended  
   

June 30, 2016

   

June 30, 2015

 
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss   $ (10,684,051 )   $ (5,496,051 )
Adjustments to reconcile net loss to net cash flows used in operating activities:                
   Depreciation     981       1,335  
   Amortization     -       296,117  
   Stock issued, and amortization of stock issued, for prepaid services     1,539,928       3,530,894  
   Loss on settlement of debt     1,704,683       600,562  
   Stock issued for services     1,661,169       -  
   Stock issued for legal settlement     -       81,000  
   Amortization of debt discount     385,288       -  
   Stock warrant expense     2,568,554       -  
   Stock (returned) issued for donation             -  
   Stock issued for interest     149,000       -  
   Changes in operating assets and liabilities:                
     Accounts payable     104,131       (158,931 )
     Accounts receivable     13,536       (7,718 )
     Accrued liabilities     1,168,324       (112,285 )
     Prepaid expenses and deposits     (11,272 )     -  
                 
Net cash used in operating activities     (1,399,729 )     (1,265,077 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
                 
Net cash used in investing activities     -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
 Proceeds from sale of stock and exercise of warrants     50,000       152,000  
 Proceeds from issuance of notes payable     1,390,869       943,475  
                 
 Net cash provided by financing activities     1,440,869       1,095,475  
Net increase (decrease) in cash     41,140       (169,602 )
Cash and cash equivalents at beginning of period     23,149       191,987  
Cash and cash equivalents at end of period   $ 64,289     $ 22,385  

 

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

 

    8  
     

 

IMMUNE THERAPEUTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    Six Months Ended  
    June 30, 2016     June 30, 2015  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                
                 
Cash paid for interest   $ 10,317     $ 7,500  
                 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
                 
Conversion of debt and accrued interest to common stock   $ 3,064,259     $ 600,562  
                 
Non-controlling interest   $ 154,049     $ 262,956  

 

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

 

    9  
     

 

Immune Therapeutics, Inc. and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

June 30, 2016

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

 

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

 

The Company currently operates out of Orlando, Florida. In July 2012, the Company’s focus turned to acquiring patents that would protect and advance the development of new uses of opioid-related immune- therapies, such as low dose naltrexone (“LDN”) and Methionine [Met5]-enkephalin (“MENK”). Today, the Company is focused on the development and commercialization of therapeutic treatments for cancer, HIV/AIDS, malaria, and opportunistic infections arising from their treatment, and commercializing affordable, non-toxic therapies in Africa, to be followed by Asia and South America, and autoimmune diseases and immune disorders by combating these severe and fatal diseases through the stimulation and/or regulation of the body’s immune system. The Company’s therapies are believed to stimulate and/or regulate the immune system in such a way that they provide the potential to treat a variety of diseases. We believe our therapies may be able to correct abnormalities or deficiencies in the immune system in diseases such as HIV infection, autoimmune disease, immune disorders, or cancer; all of which can lead to disease progression and life-threatening situations when the immune system is not functioning optimally.

 

In October 2012, the Company formed TNI BioTech International, Ltd., a BVI company in Tortola, British Virgin Islands, which was set up to allow the Company to market and sell LDN in those countries outside the U.S. in which we have been able to obtain approval to sell the Company’s products.

 

In August 2013, the Company formed its United Kingdom subsidiary, TNI BioTech, LTD (the “UK Subsidiary”). The UK Subsidiary received approval to be considered a micro, small or medium-sized enterprise (“SME”) with the European Medicines Agency (“EMA”) on August 21, 2013. The designation provides the UK Subsidiary with significant discounts when holding meetings or submitting filings to the EMA. On September 19, 2013, the UK Subsidiary submitted a pre-submission package to the EMA regarding Crohn’s Disease. The EMA granted the UK Subsidiary a meeting that took place on September 27, 2013. The UK Subsidiary is eligible to benefit from the provisions for administrative and financial assistance for SMEs set out in Regulation (EC) No 2049/2005. The Company will apply to obtain EMA benefits once funding becomes available.

 

In December 2013, the Company formed a new subsidiary, Cytocom Inc. (“Cytocom”). Cytocom is a clinical-stage pharmaceutical company focused on the development of the first affordable non-toxic immunodulator for the treatment of inflammatory diseases, immune-related disorders, and cancer, and is responsible for the development of the Company’s patented therapies under the auspices of the FDA and EMA. In December 2014, the Company finalized the distribution of common stock of Cytocom to its shareholders. As part of the transaction, the Company retained exclusive rights to all international patents, in-country approvals, formulations, trademarks, manufacturing, marketing, sales, and distributions rights in emerging nations, including Africa, Central America, South America, Russia, India, China, Far East, and The Commonwealth of Independent States (former Soviet Union). The Company will continue to have access to existing clinical data as well as any new data generated by Cytocom during drug development. On December 8, 2014, the number of Cytocom shares of common stock that were issued to our shareholders totaled 113,242,522 shares. In connection with the transaction, Cytocom issued 140,100,000 shares of its common stock to the Company, which gave the Company a 55.3% equity interest in Cytocom on that date. In April 2016, the Board of Directors and a majority of shareholders of Cytocom approved a reverse stock split of Cytocom’s outstanding common stock with one new share of stock for each twenty old shares of common stock. Cytocom effectuated and finalized the reverse split in June 2016. At June 30, 2016, the Company’s equity interest had been further reduced to 41%, by subsequent issuances of Cytocom common stock to shareholders in settlement of notes payable.

 

    10  
     

 

In March 2014, the Company incorporated Airmed Biopharma Limited, an Irish corporation with an address in Dublin, Ireland, and Airmed Holdings Limited, an Irish company domiciled in Bermuda. The Irish companies were set up to benefit from incentives granted by the Irish government for the establishment of pharmaceutical companies (many of the world’s leading pharmaceutical companies have located in Ireland), and so that the Company could take advantage of Ireland’s status as a member of the European Union and the European Economic Area. An Irish limited liability company enjoys a low corporate income tax rate of 12.5%, one of the lowest in the world. The Irish-domiciled company hopes to qualify for tax incentives for Irish holding/headquartered companies and to benefit from the network of double tax treaties that reduce withholding taxes. TNI BioTech International, Ltd. will manage our international distribution, using product that is manufactured in Ireland and elsewhere.

 

Going Concern

 

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through private equity financings. Management expects operating losses and negative cash flows to continue at more significant levels in the future. As the Company continues to incur losses, transition to profitability is dependent upon the successful development, approval, and commercialization of its product candidate and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional cash. Management intends to fund future operations through additional private or public debt or equity offerings, and may seek additional capital through arrangements with strategic partners or from other sources. Based on the Company’s operating plan, existing working capital at December 31, 2015 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2016 without additional sources of cash. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.

 

The Company experienced a net loss from operations of $(7,626,348) and used cash and cash equivalents from operations in the amount of $1,399,729) during the six months ended June 30, 2016, resulting in stockholders equity of $(6,926,660) at June 30, 2016.

 

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, 2015 (including the notes thereto) set forth in Form 10-K/A.

 

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, 2015. 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.

 

    11  
     

 

Use of Estimates

 

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

 

Cash, Cash Equivalents, and Short-Term Investments

 

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

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of a default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the balance sheets. The cash accounts are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2016, the Company has no uninsured cash balances.

 

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 and cash equivalents, accounts receivable 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 approximates fair value since they bear market rates of interest and other terms. None of these instruments are held for trading purposes.

 

Fair Value Measurements

 

The ASC Topic 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value in accordance with U.S. generally accepted accounting principles, and requires certain disclosures about fair value measurements. In general, fair values of financial instruments are based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time.

 

Property and Equipment

 

Property and equipment 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 June 30, 2016 and June 30, 2015 was $434 and $667, respectively.

 

    12  
     

 

Intangible Assets

 

Costs incurred to acquire and/or develop the Company’s product licenses and patents are capitalized and amortized by straight-line methods over estimated useful lives of seven to sixteen years. Intangible assets are stated at the lower of cost or estimated fair market value. At the end of 2015, the Company determined that the unamortized carrying amount recorded for the acquisition of licenses and patents related to LDN were impaired, and recorded an impairment loss of $5,226,352. In 2014, the Company determined that the carrying amount recoded for the acquisition of licenses and patents related to MENK were impaired, and recorded an impairment loss of $9,908,477.

 

During the quarters ended June 30, 2016 and June 30, 2015, the Company did not capitalize any costs to acquire and/or develop the Company’s product licenses and patents. (See Note 10). Amortization expense for the quarters ended June 30, 2016 and June 30, 2015 was $0 and $148,059, respectively.

 

Impairment of Long-Lived Assets

 

The Company evaluates long-lived assets for impairment whenever events or changes 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. No impairment losses were recognized for the quarters ended June 30, 2016 and June 30, 2015.

 

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 FASB 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 December 31, 2015 and June 30, 2016, 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. At the end of the quarters ended June 30, 2016 and June 30, 2015, the Company had not accrued any interest or penalties related to uncertain tax positions.

 

    13  
     

 

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 market 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.

 

Non-controlling Interest

 

In accordance with ASC 810, Consolidation , the Company consolidates Cytocom, Inc. The non-controlling interests in Cytocom represent the interests of outside shareholders in the equity and results of operations of Cytocom.

 

Net 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 and options outstanding. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

 

A calculation of basic and diluted net loss per share follows:

 

    For the three months ended
June 30,
    For the six months ended
June 30,
 
    2016     2015     2016     2015  
Net loss per share:                        
Numerator                                
Net loss   $ (4,038,648 )   $ (2,590,645 )   $ (10,684,051 )   $ (5,496,051 )
Net loss attributed to Common stockholders   $ (3,928,719 )   $ (2,451,754 )   $ (10,530,002 )   $ (5,233,095 )
                                 
Denominator                                
Weighted-average common shares outstanding—                                
Denominator for basic and diluted net loss per share     207,229,469       147,387,763       199,076,428       142,563,007  
Basic and diluted net loss per share attributed                                
 to common stockholders   $ (0.02 )   $ (0.02 )   $ (0.05 )   $ (0.04 )

 

The Company’s potential dilutive securities which include stock, stock warrants and convertible debt have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average Common stock outstanding used to calculate both basic and diluted net loss per share is the same.

 

    14  
     

 

The following shares of potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as the effect of including such securities would be antidilutive:

  

    As of June 30,  
    2016     2015  
Warrants to purchase Common stock     32,748,908       9,372,750  
      32,748,908       9,372,750  

 

Recent Accounting Standards

 

During the quarter ended June 30, 2016, 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.

 

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 and did not have such amount as of December 31, 2015, 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.

 

3. Property and Equipment

 

    June 30, 2016     December 31, 2015  
Property and equipment:                
Computer equipment   $ 8,013     $ 8,013  
                 
Less accumulated depreciation     (7,312 )     (6,331 )
                 
Property and equipment, net   $ 701     $ 1,682  

 

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

 

4. Accrued Liabilities

 

Accrued expenses and other liabilities consist of the following:

 

   

June 30, 2016

    December 31, 2015  
    (in thousands)  
Accrued payroll to officers and others   $ 1,013     $ 758  
Accrued interest and penalties - notes payable     843       237  
Accrued legal settlements     174       282  
Other accrued liabilities     1       4  
Total accrued expenses and other liabilities   $ 2,031     $ 1,281  

 

    15  
     

 

5. Notes Payable

 

Notes payable consist of the following:

      June 30, 2016       December 31, 2015  
Promissory note issued July 29, 2014 to Ira Gaines. The note matures on January 27, 2015 and earns interest at a rate of 18% per annum. The Company was unable to repay the note at maturity and the note is in default, although no demand for repayment has been made by the lender.   $ 100,000     $ 100,000  
                 
Promissory notes issued between November 26, 2014 and September 30, 2015, to raise up to $2,000,000 in debt. Lenders earn interest at a rate of 10% per annum, plus a pro-rata share of two percent of the Company’s gross receipts for sales of IRT-103-LDN in perpetuity. Notes will be repaid in 36 monthly installments of principal and interest commencing no later than October 15, 2015. Notes aggregating $346,000 were in default at June 30, 2015, as the Company was unable to pay installments on those notes on their due dates. No demands for repayment have been made by the lenders. One of these notes ($60,000), together with interest accrued on the note to March 31, 2016 ($8,183), was converted to equity on August 4, 2016 for 852,292 shares of the Company’s common stock. In addition, the note holder agreed to waive future payments of his pro-rata share of two percent of the Company’s gross receipts for sales of Lodonal TM in perpetuity in return for 187,500 shares of the common stock of Cytocom.     346,000       711,500  
                 
Promissory note issued October 17, 2014 to Roger Bozarth. The note matures on October 17, 2015 and earns interest at a rate of 2% per annum. The lender converted this note to common stock in January 2016.     -       7,000  
                 
Promissory notes issued between May 1, 2015 and June 30, 2016, and maturing between June 14, 2015 and June 30, 2017. Lenders on loans aggregating $834,927 earn interest at rates between 10% and 18% per annum. On loans aggregating $198,500, interest is payable in a fixed amount not tied to a specific interest rate. One of these notes ($278,933), together with interest accrued to April 1, 2016 ($18,828), was converted on August 4, 2016 to 3,722,013 shares of the Company’s common stock. Notes aggregating $198,500 were in default at June 30, 2016, as the Company was unable to repay those notes on their due dates. No demands for repayment have been made by the lenders.     1,033,427       669,933  
                 
Promissory note issued January 26, 2015 to Robert J. Dailey. The note is senior to, and has priority in right of payment over, all indebtedness of the Company. The note earns interest at a rate of 2% per annum and was due on July 30, 2015. The Company was unable to repay the note at maturity and the note is in default, although no demand for repayment has been made by the lender. This note, together with interest accrued to April 1, 2016 ($4,778), was converted on August 4, 2016 to 2,559,725 shares of the Company’s common stock.     200,000       200,000  
                 
Promissory notes issued by Cytocom Inc. between April 29, 2015 and December 31, 2015. Lenders earn interest at rates between 5% and 10% per annum. These notes mature on September 30, 2016. One of these notes ($350,000), together with interest accrued on the note to March 31, 2016 ($11,304), was converted to equity on August 4, 2016 for 4,516,302 shares of the Company’s common stock.     775,000       800,000  
                 
Promissory notes issued in December 2015. Lenders earn interest at a rate of 10% per month. Notes are repayable on March 9, 2016. The Company was unable to repay the note at maturity and the note is in default. The Company is obligated to pay late-payment penalties totaling $5,000 per day.     100,000       130,000  
                 
Promissory note issued November 24, 2015 as settlement of amounts owing to a law firm. The Lender earns interest at the rate of 10% per annum. The note is repayable in full on December 1, 2016. This note, together with interest accrued on the note to July 19, 2016 ($10,536), was converted to equity on July 19, 2016 for 1,235,356 shares of the Company’s common stock.     175,268       175,268  
                 
Promissory notes issued between April 6, 2016 and June 2, 2016 that mature between October 1, 2016 and January 31, 2017, and include stock conversion features, warrants and original issue debt discounts.     1,161,250       -  
                 
Promissory notes issued to an officer of the Company effective November 3, 2015 and maturing November 3, 2016 for settlement of accrued payroll, bearing interest at 10% per annum and including a stock conversion feature. One of these notes ($50,000), together with interest accrued on the note to July 19, 2016 ($3,479), was converted to equity on July 19, 2016 for 1,069,589 shares of the Company’s common stock.     162,737       -  
                 
Less: Original issue discounts on notes payable and warrants issued with notes.     (596,246 )     -  
                 
Total     3,457,436       2,793,701  
                 
Less: Current Portion   $ (3,457,436 )   $ (2,793,701 )
                 
Long-Term debt, less current portion   $ -     $ -  

 

    16  
     

 

As of June 30, 2016, the Company had accrued $843,275 in unpaid interest, compared to $236,671 as of December 31, 2015. These amounts included default of penalties of $581,324 at June 30, 2016, compared to $18,954 at December 31, 2015. During the six months ended June 30, 2016, 896,296 shares with a fair value of $149,000 were issued by the Company for interest expense under promissory notes.

 

6. Capital Structure—Common Stock and Common Stock Purchase Warrants

 

Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held. No holder of shares of stock of any class shall be entitled as a matter of right to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now hereafter authorized or whether issued for money, for consideration other than money, or by way of dividend.

 

As of June 30, 2016 and 2015, the Company was authorized to issue 500,000,000 common shares at a par value of $0.0001 per share.

 

As of June 30, 2016, the Company had 214,447,611 shares of common stock outstanding, and 174,850,047 outstanding as of December 31, 2015.

 

Stock Warrants

 

In the quarter ended June 30, 2016, the Company issued 23,654,908 warrants.

 

In the quarter ended June 30, 2016, the Company extended to December 31, 2018 the maturity dates on 5,006,666 existing warrants that were originally issued with expiration dates between July 25, 2016 to December 17, 2018. These warrants were originally issued with 3 to 5 year terms, with exercise prices ranging between $0.75 and $1.00.

 

There were no modifications of the terms of any warrants issued by the Company in the quarter ended June 30, 2015.

 

Following is a summary of outstanding stock warrants at June 30, 2016 and activity during the six months then ended:

 

    Number of Shares     Exercise Price     Weighted Average Price  
                   
Warrants as of December 31, 2015     9,131,500        $ 0.07-15.00     $ 1.47  
                         
Issued in 2016     23,654,908        $ 0.14-2.00     $ 0.32  
                         
Expired     (37,500 )   $ 5.00     $ 5.00  
                         
Exercised     (0 )   $ 0     $ 0  
                         
Warrants as of June 30, 2016     32,748,908     $   0.07-15.00     $ 0.54  

 

Summary of outstanding warrants as of June 30, 2016:

 

Expiration Date   Number of
Shares
    Exercise
Price
    Remaining
Life (years)
 
                   
Third Quarter 2016     125,000     $ 5.00       .25  
Fourth Quarter 2017     350,000       1.50-9.00       1.50  
First Quarter 2018     127,500     $ 15.00       1.75  
Second Quarter 2018     33,334     $ 15.00       2.00  
Third Quarter 2018     250,000     $ 1.50       2.25  
Fourth Quarter 2018     6,089,166     $ 1.00-1.50       2.50  
First Quarter 2019     4,024,000     $ 0.50-2.00       2.75  
Second Quarter 2019     135,000     $ 0.07–0.23       3.00  
Third Quarter 2019     260,000     $ 0.50-1.50       3.25  
Fourth Quarter 2019     400,000     $ 0.14       3.50  
Second Quarter 2020     300,000     $ 0.50       4.00  
Third Quarter 2020     1,000,000     $ 0.20       4.25  
Fourth Quarter 2020     12,650,000     $ 0.20       4.50  
First Quarter 2021     7,004,908     $ 0.10-0.20       4.75  

 

    17  
     

 

7. Stock Compensation

 

Shares Issued for Services

 

During the six months ended June 30, 2016 and 2015, the Company issued 23,643,000 and 10,239,170 shares of common stock respectively for consulting fees. The Company valued these shares at $4,543,170 and $1,810,876 respectively, based upon the fair value of the common stock at the dates of the agreements. The consulting fees are amortized over the contract periods which are typically between 12 and 24 months. The amortization of prepaid services totaled $1,539,928 and $3,530,894 for the six months ended June 30, 2016 and 2015.

 

8. Income Taxes - Results of Operations

 

There was no income tax expense reflected in the results of operations for the quarters ended June 30, 2016 and 2015 because the Company incurred a net loss in both quarters.

 

The Company has recognized no tax benefit for the losses generated for the periods through December 31, 2015. 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.

 

The Company’s effective tax rate for fiscal years 2015 and 2013 was 0%. The Company’s 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.

 

As of December 31, 2015, the Company has estimated federal and state income tax net operating loss (“NOL”) carry-forwards of approximately $66,500,000, which will expire in 2032-2035.

 

9. Licenses and Supply Agreements

 

Patent and Subsidiary Acquisition

 

The Company has not entered into any new licenses or supply agreements during quarter ending June 30, 2016. All prior licenses, supply agreements, and patents remain unchanged from the prior quarter.

 

10. Commitments and Contingencies

 

Except as described below, t he Company has not created any new commitments or contingency obligations during quarter ending June 30, 2016. All other prior commitments and contingent obligations remain unchanged from the prior quarter.

 

Distribution of Lodonal TM in Nigeria

 

Through its wholly-owned subsidiary, TNI BioTech International, Ltd., in December 2015 the Company completed a 90-day bridging trial for the treatment of patients with HIV/AIDS. The trial consisted of a total of 150 patients of both genders between the ages of 18-60, each of whom was infected HIV/AIDS. The primary objective of this bridging trial was to confirm that Lodonal TM has a beneficial effect on the immune system of immune deficient patients and that it is safe. The trial separated patients into a Control (placebo) Group and a Treatment Group (which was administered Lodonal TM ). The efficacy of increasing CD4 count [cell/mm3] between Day-1 and Day-90 by at least 25% was set as the criteria for demonstrating beneficial effect on the immune system. Safety was demonstrated through quality of life assessment and vitals both of which were not adversely affected. Treatment Group patients were given a daily dose of 4.5-mg/kg of Lodonal.

 

    18  
     

 

In April 2016, the Company announced that Nigeria’s National Agency for Food and Drug Administration and Control (“NAFDAC”) had approved its Lodonal TM as an over the counter, non-toxic adjunct therapy in the treatment of HIV/AIDS and immune system regulator. NAFDAC is the Nigerian agency under the Federal Ministry of Health that is responsible for regulating and controlling the manufacture, import/export, distribution, sale and use of food and drugs. The NAFDAC approval clears the way for the Company and its distribution partners to complete the registration of Lodonal TM for sale in Nigeria. The Company is now in the process of completing the registration to import the drug into Nigeria

 

Contract Manufacturing Agreements

 

On May 16, 2016, the Company entered into an agreement with Complete Pharmacy and Medical Solutions, LLC (“CPMS”) to compound, package and distribute the LDN tablets, capsules and/or creams in the United States. The initial term of the agreement is three years, with the option to renew for an additional year. The agreement may be terminated by (i) mutual agreement, (ii) in the event of a breach, provided however that if the Company terminates the contract to reimburse CPMS for all unused packaging materials for the LDN, which unused packaging materials CPMS will provide to IMUN. If CPMS does not receive and ship at least 1,000 orders (prescriptions), the Company will be required to reimburse CPMS for 100% of the “ramp up costs” (defined as all costs and expenses of labor and materials related to the testing, and required FDA and other governmental documentation/approvals of test data) of providing and producing the LDN, even where the Company cancels/terminates the Agreement, which provision shall survive the cancellation/termination of this Agreement.  

 

Operating Leases

 

At June 30, 2016, the Company was a party to an agreement to lease office space in Orlando, Florida. Rent expense for the quarters ended June 30, 2016 and 2015 was $4,011 and $18,319, respectively.

 

Legal Proceedings

 

None.

 

11. Subsequent Events

 

In July 2016, the Company amended the terms of a $100,000 note payable that was due of March 29, 2016. In accordance with the amendment, the amount of the note was increased to $130,000, the maturity date was extended to July 31, 2016, and the number of Company shares due on the original note was increased from 100,000 to 225,000. The note is in default.

Between July 1, 2016 and August 12, 2016, the Company repaid or amended the following notes payable through conversions of obligations into shares of the Company’s common stock as follows:

 

  A note payable to an officer ($50,000), together with interest accrued on the note to July 14, 2016 ($3,479), was converted to equity on July 19, 2016 for 1,069,589 shares of the Company’s common stock.
   
A note payable ($175,267), together with interest accrued on the note to June 30, 2016 ($10,536), was converted to equity on July 19, 2016 for 1,235,356 shares of the Company’s common stock.
   
A note payable by Cytocom ($350,000), together with interest accrued on the note to April 1, 2016 ($11,304), was converted to equity on August 4, 2016 for 4,516,302 shares of the Company’s common stock .
 
A note payable ($60,000), together with interest accrued on the note to April 1, 2016 ($8,183), was converted to equity on August 4, 2016 for 852,292 shares of the Company’s common stock. In addition, the note holder agreed to waive future payments of his pro-rata share of two percent of the Company’s gross receipts for sales of Lodonal TM in perpetuity in return for 187,500 shares of the common stock of Cytocom.
   
Two notes payable ($200,000 and $278,933), together with interest accrued on the note to April 1, 2016 ($23,606), were converted to equity on August 4, 2016 for 6,281,738 shares of the Company’s common stock.

 

    19  
     

 

In July 2016, the Company issued promissory notes as follows:

 

  A note payable, dated July 5, 2016, for $50,000, paying interest at 6% per month, and maturing on October 5, 2016.
   
  A note payable, issued on July 7, 2016, for $180,000, maturing on March 07, 2017. The Company received $150,000 upon issuance of the note. The Company must apply the consideration towards obtaining governmental approvals for the use and sale of Lodonal™ in Malawi, Africa. If the Company fails to repay the note at maturity, the holder has the right, at any time after the maturity date, at its election, to convert all or part of the outstanding and unpaid principal and accrued into shares common stock of the Company, in number equal to the dollar conversion amount divided by the lesser of $0.15 or 80% of the lowest trade price in the 25 trading days prior to the conversion.

 

In July 2016, the Company issued shares of the Company’s common stock for services as follows:

 

  1,000,000 shares issued on July 14, 2016 as a bonus under an agreement to provide investor relations services.
   
  200,000 shares issued on July 19, 2016 for services related to the trial of Lodonal TM in Nigeria.

 

Between July 1, 2016 and August 12, 2016, the Company issued warrants as follows:

 

  A warrant issued to Paul Akin, director, on July 1, 2016, for services as director, to purchase 1,000,000 shares of the Company’s common stock at $0.15 per share. The warrant expires on June 30, 2021.
   
  A warrant issued to Nicholas Plotnikoff, director, on August 5, 2016, as payment for services previously rendered as director, to purchase 150,000 shares of the Company’s common stock at $0.20 per share. The warrant expires on July 28, 2021.

 

As of August 12, 2016, the Company had outstanding 220,989,592 shares of common stock.

 

    20  
     

 

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

 

Forward-Looking Statements and Associated Risks

 

This section and other parts of this Form 10-Q contain forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements also can be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2015 filed with the Securities and Exchange Commission on May 16, 2016 (the “2015 Form 10-K/A”) under the heading “Risk Factors”.

 

The following discussion should be read in conjunction with the 2015 Form 10-K/A 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.

 

General

 

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

 

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

 

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

 

In October 2012, the Company formed TNI BioTech International, Ltd., a BVI company in Tortola, British Virgin Islands, which was set up to allow the Company to market and sell LDN in those countries outside the U.S. in which we have been able to obtain approval to sell the Company’s products.

 

In August 2013, the Company formed its United Kingdom subsidiary, TNI BioTech, LTD (the “UK Subsidiary”). The UK Subsidiary received approval to be considered a micro, small or medium-sized enterprise (“SME”) with the European Medicines Agency (“EMA”) on August 21, 2013. The designation provides the UK Subsidiary with significant discounts when holding meetings or submitting filings to the EMA. On September 19, 2013, the UK Subsidiary submitted a pre-submission package to the EMA regarding Crohn’s Disease. The EMA granted the UK Subsidiary a meeting that took place on September 27, 2013. The UK Subsidiary is eligible to benefit from the provisions for administrative and financial assistance for SMEs set out in Regulation (EC) No 2049/2005.

 

    21  
     

 

In December 2013, the Company formed a new subsidiary, Cytocom Inc. (“Cytocom”), to focus on conducting LDN and MENK clinical trials in the United States. In December 2014, the Company finalized the distribution of common stock of Cytocom Inc. to its shareholders. As part of the transaction, the Company retained exclusive rights to all international patents, in-country approvals, formulations, trademarks, manufacturing, marketing, sales, and distributions rights in emerging nations, including Africa, Central America, South America, Russia, India, China, Far East, and The Commonwealth of Independent States (former Soviet Union). The Company will continue to have access to existing clinical data as well as any new data generated by Cytocom during drug development. On December 8, 2014, the number of Cytocom shares of common stock that were issued to our shareholders totaled 113,242,522 shares. In connection with the transaction, Cytocom issued 140,100,000 shares of its common stock to the Company, which has allowed the Company to retain a 55.3% stake in Cytocom until such time as funding for Cytocom closes. In April 2016, the Board of Directors and a majority of shareholders of Cytocom approved a reverse stock split of Cytocom Inc.’s outstanding common stock with one new share of stock for each twenty old shares of common stock. Cytocom effectuated and finalized the reverse split in June 2016. At June 30, 2016, the Company’s equity interest had been further reduced to 41%, by subsequent issuances of Cytocom common stock to shareholders in settlement of notes payable.

 

In March 2014, the Company incorporated Airmed Biopharma Limited, an Irish corporation with an address in Dublin, Ireland, and Airmed Holdings Limited, an Irish company domiciled in Bermuda. The Irish companies were set up to benefit from incentives granted by the Irish government for the establishment of pharmaceutical companies (many of the world’s leading pharmaceutical companies have located in Ireland), and so that the Company could take advantage of Ireland’s status as a member of the European Union and the European Economic Area. An Irish limited liability company enjoys a low corporate income tax rate of 12.5%, one of the lowest in the world. The Irish-domiciled company hopes to qualify for tax incentives for Irish holding/headquartered companies and to benefit from the network of double tax treaties that reduce withholding taxes. TNI BioTech International, Ltd. will manage our international distribution, using product that is manufactured in Ireland and elsewhere.

 

We are focused on the development and commercialization of therapeutic treatments for cancer, HIV/AIDS and autoimmune diseases and immune disorders by combating these severe and fatal diseases through the stimulation and/or regulation of the body’s immune system. Our growth strategy includes the near-term commercialization of our existing immunotherapies targeting cancer, Crohn’s disease and/or HIV/AIDS.

 

Research and Development

 

The Company’s research and development (“R&D”) activities commenced in the third quarter of 2012, the Company having only completed the initial acquisition of MENK-related patents required for research in the second quarter of that year. Through 2013 and the first nine months of 2014, we continued to build R&D organization and capabilities focusing primarily on new uses for opioid-related immuno-therapies, such as LDN and MENK. Those activities were suspended at the end of September 2014, due to lack of funding. They will resume only when we are able to raise sufficient new funding to cover planned studies.

 

Our R&D priorities include development of IRT-101 or MENK, a small synthetic peptide that is naturally occurring in the body, and IRT-103 LDN, an opioid receptor antagonist. Our pipeline provides two therapies with a wide range of indications that can be pursued. We believe that both molecules have the ability to stimulate the immune system in order to treat a variety of autoimmune diseases including multiple sclerosis, immune disorders such as Crohn’s disease, cancer, and viral infections such as HIV/AIDS.

 

Our R&D is overseen and managed internally, working with individuals, universities, and contract research organizations in order to utilize patents that we have licensed or acquired since our inception. We continue to seek to expand our pipeline of patents by reviewing other compounds, technologies or capabilities. We also seek out promising compounds and innovative technologies developed by third parties to incorporate into our discovery and development processes or projects.

 

    22  
     

 

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015 (all dollar amounts and numbers in $000s, except percentages or where otherwise indicated)

 

Revenues

 

We had revenues from operations of $0 for the three months ended June 30, 2016, compared to revenues of $5,648 for three months ended June 30, 2015.

 

Operating Expenses

 

Selling, general and administrative

 

Selling, general and administrative expenses and related percentages for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Selling, general and administrative   $ 894     $ 444  
Increase/(decrease) from prior year   $ 450     $ (1,397 )
Percent increase/(decrease) from prior year     101 %     (76 %)

 

For the three months ended June 30, 2016 and 2015, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Consulting and contractors   $ 160     $ 334  
Payroll     372       (43 )
Professional fees     50       31  
Travel     26       17  
Other expenses     286       105  

 

In the three months ended June 30, 2016, total cash and cash accruals for selling, general and administrative expense was $827 compared to $444 for the corresponding period in 2015, an increase of $383 or 86%. Significant cash items included:

 

  consulting and contactor services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $160 in 2016, a decrease of $174 or 52 % over the $334 spent in 2015. The decrease was the result primarily of the conversion of amounts owed from prior periods to equity, which resulted in a large credit to this expense category;
   
professional fees for legal, tax and accounting services in the amount of $50 in 2016, an increase of $19 or 61% over the $31 spent in 2015. The increase was the result of billing for audit and tax services in 2016 ($12) and higher legal fees related to debt settlements ($7);
 
payroll in the amount of $372 in 2016, an increase of $415or 965% over the $(43) reported in 2015. The increase reflects the fact that, in 2015, there was a $282 conversion of deferred payroll owed to a Company officer into an agreement to pay the officer a royalty on future product sales; and
   
travel in the amount of $26 in 2016, an increase of $9 or 49% over the $17 spent in 2015. 2016 travel was related mostly to investor relations.

 

    23  
     

 

Research and development

 

R&D expenses and related percentages for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Research and development   $ 67     $ 414  
Increase decrease from prior year   $ (347 )   $ 145  
Percent decrease from prior year     (84 %)     (26 %)

 

Expenses for research and development in the three months ended June 30, 2016 decreased by 84% compared to expenses in the same period in 2015. The decrease occurred mainly as a result a reduction in the cost trials in Nigeria, and legal fees paid to maintain patents and licenses.

 

In the three months ended June 30, 2016, total cash spent on R&D was $67, a decrease of $347 or 84% over the $414 spent in the same period in 2015. Significant cash items in 2016 included:

 

  payments for contracted technical services, $7 in2016, a decrease of $46 or 87 % over the $53 spent in 2015, reflecting the decreased use of contractors to perform research activities;
   
payments for professional fees $6 in 2016, a decrease of $4 or 40% over the $10 spent in 2015;
 
patent expenses of $45 in 2016, an increase of $42 or 1,400% over the $3 spent in 2015, reflecting payments for certain rights to use LDN.

 

All of the R&D spending in 2016 was on LDN. In 2015, 75% of R&D spending was on the development of LDN; the balance was spent on MENK.

 

Stock issued for services

 

The Company periodically issues stock to consultants who provide services to the Company under consulting contracts. The Company accrues a liability for these services calculated by the number of shares issued for the services multiplied by the price of the Company’s stock on the effective date of the consulting contract. The accrued liability is amortized over the period in which the services are provided to the Company. The Company reports these costs separately from Selling, general and administrative costs, and Research and development costs, to better demonstrate the true costs of Selling, general and administrative activities, and Research and development.

 

Amortization of accrued liabilities for stock issued for services G&A and related percentages for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Stock for services and Prepaid consulting services expense G&A   $ 1,195     $ 1,450  
Percentage decrease from prior year     (18 %)     (37 %)

 

The decline in expense reflects the decrease in the price of the Company’s stock year over year and the fact that the cost of shares issued for services prior to 2015 had been fully amortized prior to the third quarter of 2014.

 

The number of shares issued for prepaid consulting services G&A in the three months ending June 30, 2016 was 4,600,000 (966,668 in the corresponding period in 2015).

 

Prepaid consulting services G&A in the three months ended June 30, 2016 consisted of the following:
 
Amortization of cost of stock issued prior to 2016   $ 155  
Amortization of cost of stock issued in the first quarter of 2016     715  
Amortization of cost incurred for new stock issued second quarter of 2016 under consulting contracts entered into in 2016     325  

 

    24  
     

 

Amortization of stock issued for services R&D and related percentages for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Prepaid consulting services R&D   $ 0     $ 0  
Percentage increase/(decrease) from prior year     0 %     (100 )%

 

The cost of shares issued for R&D services have been fully amortized prior to the third quarter of 2014.

 

There were no new shares issued for prepaid consulting services R&D in the three months ending June 30, 2016 or 2015.

 

Warrant valuation expense

 

When the Company sells its stock to stockholders for cash, it periodically issues warrants to those stockholders 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 4. Capital Structure—Common Stock and Common Stock Purchase Warrants.) This expense is reported in the Condensed Consolidated Statements of Operations above as the Warrant valuation expense.

 

In the three months ended June 30, 2016, the Company issued 8,054,908 warrants. In the three months ended June 30, 2015, the Company issued no warrants to stockholders.

 

Depreciation and amortization

 

The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements. The decrease year over year in depreciation and amortization expense reflects the fact that, at the end of 2015, the Company determined that the unamortized carrying amount recorded for the acquisition of licenses and patents related to LDN were impaired, and recorded an impairment loss of $5,226,352. In 2014, the Company determined that the carrying amount recoded for the acquisition of licenses and patents related to MENK were impaired, and recorded an impairment loss of $9,908,477.

 

Depreciation and amortization expenses for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Depreciation expense   $ 0     $ 1  
Amortization expense   $ 0     $ 148  
Decrease from prior year   $ (149 )   $ (570 )
Percentage decrease from prior year     (100 %)     (79 )%

 

The decrease reflects the fact that all patents were fully amortized by the end of 2015.

 

    25  
     

 

Interest Expense

 

Interest expense for the three months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the three months

ended June 30,

 
    2016     2015  
Interest expense   $ 1,052     $ 51  
Increase/(decrease) from prior year   $ 1,001     $ (70 )
Percentage increase/(decrease) from prior year     1,963 %     (58 %)

 

The increase reflects the higher levels of interest-bearing debt in the second quarter of 2016. Interest expense for the quarter ended June 30, 2016 included $430 of penalties for late interest and principal payments ($0 for the quarter ended June 30, 2015).

 

Loss on settlement of debt (dollar amounts in thousands)

 

In three months ended June 30, 2016, certain lenders to the Company settled all or a portion of their notes or accounts payable by converting them to equity. The Company recorded an expense of $340, reflecting the fair value of the shares of common stock issued in exchange for the debt. In three months ended June 30, 2015, the Company recorded an expense of $88 to settle all or a portion of notes or accounts payable.

 

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015 (all dollar amounts and numbers in $000s, except percentages or where otherwise indicated)

 

Revenues

 

We had revenues from operations of $3,463 for the six months ended June 30, 2016, compared to $7,718 for the six months ended June 30, 2015.

 

Operating Expenses

 

Selling, general and administrative

 

Selling, general and administrative expenses and related percentages for the six months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
Selling, general and administrative   $ 1,833     $ 846  
Increase/(decrease) from prior year   $ 987     $ (1,511 )
Percent increase/(decrease) from prior year     117 %     (64 %)

 

For the six months ended June 30, 2016 and 2015, selling, general and administrative expenses were made up as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
             
Stock listing and investor relations expenses   $ 155     $ 38  
Consulting and contractors     484       356  
Payroll     767       179  
Professional fees     136       104  
Travel     45       121  
Insurance     -       (126 )
Other expenses     246       174  

 

    26  
     

 

In the six months ended June 30, 2016, total cash and cash accruals for selling, general and administrative expense was $1,833 compared to $846 for the corresponding period in 2015, an increase of $987 or 117%. Significant cash items included:

 

  consulting and contractor services obtained to assist the Company in raising capital, manage investor relations, and develop business in new markets, in the amount of $484 in 2016, an increase of $ 128 or 36 % over the $356 spent in 2015. The increase was the result of the conversion to equity of amounts owed to contractors from prior periods, and fees paid to advisors who are assisting the Company with manufacturing and marketing activities in the United States and Africa;
   
professional fees for legal, tax and accounting services in the amount of $136 in 2016, an increase of $32 or 31% over the $104 spent in 2015. The increase reflects the higher spending on audit and tax fees and legal fees related to debt negotiations;
   
payroll in the amount of $767 in 2016, an increase of $588 or 328% over the $179 spent in 2015. The increase is attributable to a $153 accrual for future payment of payroll taxes, an increase in headcount, contractually-mandated payroll increases for officers, and the conversion in 2015 of $282 of deferred payroll owed to a Company officer into an agreement to pay the officer a royalty on future product sales; and
   
travel in the amount of $45 in 2016, a decrease of $76 or 63% over the $121 spent in 2015, reflecting lower travel to Africa in 2016.

 

Research and development

 

R&D expenses and related percentages for the six months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
Research and development   $ 48     $ 592  
Increase decrease from prior year   $ (544 )   $ (479 )
Percent decrease from prior year     (92 %)     (45 %)

 

Expenses for research and development in the six months ended June 30, 2016 decreased by 92% compared to expenses in the same period in 2015. The decrease occurred mainly as a result a reduction in expenses recorded to settle payables related to amounts owing for R&D contracted technical services in 2016, and the fact that in 2015 a charge totaling $339 had been recorded for Nigeria trial expenses settled with Company stock.

 

In the six months ended June 30, 2016, total spending on R&D was $48, a decrease of $544 or 92% over the $592 spent in the same period in 2015. Significant cash items included:

 

expenses for contracted technical services, $(48) in 2016, a decrease of $187 or 135% over the $139 spent in 2015, reflecting the settlement of payables related to amounts owing for R&D contracted technical services;
   
payments for contracted services of $37 in 2016, an increase of $37 or 100% over the $0 spent in 2015, related to meetings with the FDA for resumption of trials by Cytocom;
   
expenses recorded for future license payments totaling $101, an increase of $26 or 35% over the $75 recorded in 2015, reflecting timing of accruals under license agreements.
   
rent expense of $(84) in 2016, a decrease of 99 or 660% over the $15 spent in 2015, reflecting (i) the closure of all R&D offices and (ii) the settlement of a rent dispute with a landlord in Maryland;
   
payments for professional fees of $27 in 2016, an increase of $11 or 67% over the $16 spent in 2015, reflecting the higher fees incurred to protect patent and intellectual property rights worldwide in 2016;
   
payroll of $(5)in 2016, a decrease of $10 or 200% over the $5 spent in 2015, reflecting the settlement in 2016 of claims for payroll taxes;
   
Spending on travel of $10 in 2016, an increase of $10 or 100% over the $0 spent in 2015, to oversee trials in Africa in 2016; and
   
Spending on trials of $10 in 2016, a decrease of $329 or 97% over the $339 spent in 2015, reflecting the fact that the Nigerian trial activity had mostly concluded in 2015.

 

    27  
     

 

All of the R&D spending in 2016 was for the development of LDN, compared to 75% of spending on LDN in 2015.

 

Stock issued for services

 

The Company periodically issues stock to consultants who provide services to the Company under consulting contracts. The Company accrues a liability for these services calculated by the number of shares issued for the services multiplied by the price of the Company’s stock on the effective date of the consulting contract. The accrued liability is amortized over the period in which the services are provided to the Company. The Company reports these costs separately from Selling, general and administrative costs, and Research and development costs, to better demonstrate the true costs of Selling, general and administrative activities, and Research and development.

 

Amortization of accrued liabilities for stock issued for services G&A and related percentages for the six months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
Stock for services and Prepaid consulting services expense G&A   $ 3,179     $ 3,612  
Percentage decrease from prior year     (12 %)     (70 %)

 

The decline in expense reflects the decrease in the price of the Company’s stock year over year.

 

The number of shares issued for prepaid consulting services G&A in the six months ending June 30, 2016 was 23,643,000 (10,239,170 in the corresponding period in 2015).

 

Prepaid consulting services G&A in the six months ended June 30, 2016 consisted of the following:
 
Amortization of cost of stock issued prior to 2016   $ 539  
         
Amortization of cost incurred for new stock issued in the six months ended June 30, 2016 under consulting contracts entered into in 2016     2,640  

 

 

Amortization of stock issued for services R&D and related percentages for the six months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
Prepaid consulting services R&D   $ 0     $ 0  
Percentage increase/(decrease) from prior year     0 %     (100 %)

 

The cost of all shares issued for services had been fully amortized prior to the third quarter of 2014.

 

There were no new shares issued for prepaid consulting services R&D in the six months ending June 30, 2016 or 2015.

 

Warrant valuation expense (dollar amounts in thousands)

 

When the Company sells its stock to stockholders for cash, it periodically issues warrants to those stockholders 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 4. 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.

 

    28  
     

 

In the six months ended June 30, 2016, the Company issued 23,654,908 warrants to stockholders. In the six months ended June 30, 2015, the Company issued no warrants to stockholders.

 

   

For the six months

ended June 30,

 
    2016     2015  
Warrant valuation expense   $ 2,569     $ 0  
Percentage increase/(decrease) from prior year     100 %     0 %

 

Depreciation and amortization

 

The Company amortizes the costs incurred to acquire patents and licenses over the period of the related agreements.

 

Depreciation and amortization expenses for the six months ended June 30, 2016 and 2015 were as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

 
    2016     2015  
Depreciation expense   $ 1     $ 1  
Amortization expense   $ 0     $ 296  
Increase/ (decrease) from prior year   $ (296 )   $ (1,142 )
Percentage increase/(decrease) from prior year     (100 %)     (79 %)

 

The decrease year over year in depreciation and amortization expense reflects the fact that all of the Company’s patents and licenses had been fully amortized by December 31, 2015. At the end of 2015, the Company determined that the unamortized carrying amount recorded for the acquisition of licenses and patents related to LDN were impaired, and recorded an impairment loss of $5,226,352. In 2014, the Company determined that the carrying amount recoded for the acquisition of licenses and patents related to MENK were impaired, and recorded an impairment loss of $9,908,477.

 

Interest Expense

 

Interest expense for the six months ended June 30, 2016 and 2015 was as follows (dollar amounts in thousands):

 

   

For the six months

ended June 30,

    2016   2015  
Interest expense   $ 1,353     $ 69  
Increase from prior year   $ 1,284     $ (213 )
Percentage decrease from prior year     1,861 %     (76 %)

 

The increase reflects the increased levels of interest-bearing debt in the first half of 2016. Interest expense for the six months ended June 30, 2016 included $562 of penalties for late interest and principal payments ($0 for the six months ended June 30, 2015).

  

Loss on settlement of debt (dollar amounts in thousands)

 

In six months ended June 30, 2016, certain lenders to the Company settled all or a portion of their notes or accounts payable by converting them to equity. The Company recorded an expense of $1,705, reflecting the fair value of the shares of common stock issued in exchange for the debt. In six months ended June 30, 2015, the Company recorded an expense of $88 to settle all or a portion of notes or accounts payable.

 

    29  
     

 

Liquidity

 

Liquidity is measured by the Company’s ability to secure enough cash to meet its contractual and operating needs as they arise. The Company had cash of $64,289 at June 30, 2016, compared to $23,149 at December 31, 2015. For the six months ended June 30, 2016 and 2015, net cash used in operating activities was $1,399,729 and $1,265,077, respectively. $0 cash was used in investing activities for the six months ended June 30, 2016 ($0 was used in 2015).

 

In May 2016, the Company announced that it had received approval for sale of Lodonal TM in Nigeria. The Company expects to commence sales to Nigeria by the end of 2016. The Company believes that those sales will generate sufficient cash flows for the next 12 months to pay for operating expenses and to pay off current and past-due obligations. Until such sales commence, the Company expects to fund operations through sales of equity and notes payable, and conversions of exiting obligations into equity. The Company believes it will require between $300,000 and $350,000 monthly to meet its ongoing expenses and obligations.

 

If the Company is unable to generate sufficient cash flows from sales, or if it does not raise additional working capital to meet all of its operating obligations and expenditures, the Company may have to modify its business plan.

 

In addition to the cost of its ongoing operations, the Company expects it will incur future research and development expenditures in the next 12 months through Cytocom. Cytocom plans to conduct Phase II and Phase IIB trials for the treatment of Crohn’s disease, at an estimated cost of $3,900,000 and $7,500,000 respectively for each phase. If the trials do not commence before 2017, the Company will be required to make a payment of $100,000 in December 2016 under its license agreements. In prior years, the Company has been able to raise funds through sales of notes payable, and it expects to do the same for the payment due in 2016.

 

During the six months ended June 30, 2016 proceeds from the sale of stock and exercise of stock warrants totaled $50,000, compared to $152,000 for the corresponding period in 2015. We also received $1,390,868 from the issuance of notes payable in six months ended June 30, 2016, compared to $943,475 in 2015. There were $0 loan repayments made in cash in the six months ended June 30, 2016 ($0 in 2015).

 

Our ability to continue as a going concern is dependent entirely on raising funds through the sale of equity or debt. We anticipate that we will continue our attempt to raise capital through private equity and debt transactions, develop a credit facility with a lender, or the exercise of options and warrants; however, such additional capital may not be available to us at acceptable terms or available at all. In the event that we are unable to obtain additional capital, we would be forced to cease operations altogether.

 

Off-Balance Sheet Arrangements

 

During the three months ended June 30, 2016 and 2015, we did not engage in any off balance sheet arrangements as defined in item 303(a)(4) of the SEC’s Regulation S-K.

 

    30  
     

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Changes in Internal Controls over Financial Reporting

 

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

 

Evaluation of Disclosure Controls and Procedures

 

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

 

Management assessed the effectiveness of the internal controls over financial reporting as of June 30, 2016, using the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that, as of June 30, 2016, 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.

 

    31  
     


 

PART II OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

Note 10 of the “Notes to the Condensed Consolidated Financial Statements” are incorporated in this “Item 1: Legal Proceedings” by reference.

 

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

 

In the quarter ended June 30, 2016, the Company issued a total of 9,320,081 shares of common stock (net of stock cancellations), compared to 14,706,410 in the corresponding period in 2015. 3,511,285 of those shares were issued to settle amounts owed under notes payable, including accrued and unpaid interest as applicable, to common stock as repayment of the notes (2,803,240 in 2015). 4,450,000 of the shares were issued to as payment for prepaid services to Company’s vendors (10,239,170 in 2015). Between April 1, 2016 and June 30, 2016, warrant holders exercised no warrants to purchase shares (0 in 2015). The Company sold an aggregate 312,500 shares of its common stock at an average of $0.08 per share. In total, the Company received $0.00 as consideration for the exercise of the previously-issued warrants and $25,000 for the purchase of common stock, for an aggregate sum of $25,000.

 

The following table lists all securities issued during in the three months ended June 30, 2016 without registering the securities under the Securities Act of 1933, as amended (the “Securities Act”):

 

Date   Description   Number   Purchaser   Proceeds   Consideration   Exemption  
4/7/2016   Common Stock Purchase     250,000     Director   $ Nil   Board services     Sec. 4(a)(2)  
4/8/2016   Common Stock Purchase     680,035     Lender   $ Nil   Debt settlement     Sec. 4(a)(2)  
5/4/2016   Common Stock Purchase     40,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
5/4/2016   Common Stock Purchase     40,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
5/4/2016   Common Stock Purchase     40,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
5/4/2016   Common Stock Purchase     40,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
5/4/2016   Common Stock Purchase     40,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
6/7/2016   Common Stock Purchase     296,296     Lender   $ Nil   Origination Fees     Sec. 4(a)(2)  
6/23/2016   Common Stock Purchase     1,000,000     Officer   $ Nil   Employment services     Sec. 4(a)(2)  
6/23/2016   Common Stock Purchase     437,500     Officer   $ Nil   Employment services     Sec. 4(a)(2)  
6/29/2016   Common Stock Purchase     100,000     Lender   $ Nil   Debt settlement     Sec. 4(a)(2)  
6/30/2016   Common Stock Purchase     2,000,000     Consultant   $ Nil   Consulting     Sec. 4(a)(2)  
6/30/2016   Common Stock Purchase     1,000,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
6/30/2016   Common Stock Purchase     312,500     Shareholder   $ 25,000   Share purchase agreement     Sec. 4(a)(2)  
4/20/2016   Common Stock Purchase     500,000     Lender   $ Nil   Origination fees/     Sec. 4(a)(2)  
5/10/2016   Common Stock Purchase     156,250     Consultant   $ Nil   Settlement of accounts payable     Sec. 4(a)(2)  
6/1/2016   Common Stock Purchase     987,500     Lender   $ Nil   Debt settlement     Sec. 4(a)(2)  
6/16/2016   Common Stock Purchase     50,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
6/16/2016   Common Stock Purchase     50,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
6/16/2016   Common Stock Purchase     50,000     Consultant   $ Nil   Advisory services     Sec. 4(a)(2)  
6/21/2016   Common Stock Purchase     625,000     Ex-officer   $ Nil   Board and employment services     Sec. 4(a)(2)  
6/21/2016   Common Stock Purchase     625,000     Ex-officer   $ Nil   Board and consulting services     Sec. 4(a)(2)  

 

The issuances of the Company’s securities in connection with the above issuances were completed in private transactions by the Company not involving any public offering pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The shares were issued bearing a restrictive legend and may not be resold by the holders unless such securities are registered or an exemption from registration is available. The Company determined, based on representations of the investors, that the investors were “accredited investors” as defined under Rule 501(a) of the Securities Act.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The issuances of the Company’s securities were completed in private transactions by the Company not involving any public offering pursuant to Section 4(a)(2) and Rule 506 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The shares purchased pursuant to the warrant exercises and the shares purchased were issued bearing restrictive legend and may not be resold by the purchasers unless such securities are registered or an exemption from registration is available. The Company determined, based on representations of the investors, that the investors were “accredited investors” as defined under Rule 501(a) of the Securities Act.

 

    32  
     

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

The Current portion of notes payable on the Company’s Condensed Consolidated Balance Sheets above contains, at June 30, 2016, certain promissory notes on which the Company was in arrears on payments of principal as follows:

 

1. Repayment of a promissory note for $100,000 issued July 29, 2014 to Ira Gaines. The note matured on January 27, 2015. The note earns interest at a rate of 18% per annum. The Company has continued to pay monthly interest on the note since the maturity date.
   
2. Payment of principal aggregating $346,000 on certain promissory notes issued between November 26, 2014 and September 30, 2015, to raise up to $2,000,000 in debt, on which lenders earn interest at a rate of 10% per annum, plus a pro-rata share of 2 percent of the Company’s gross receipts for sales of IRT-103-LDN in perpetuity One of these notes ($60,000), together with interest accrued on the note to March 31, 2016 ($8,183), was converted to equity on August 4, 2016 for 852,292 shares of the Company’s common stock.
   
3. Payment of principal aggregating $198,500 on certain promissory notes issued between May 1, 2015 and September 30, 2015, and maturing between June 14, 2015 and December 31, 2015. Interest is payable in a fixed amount not tied to a specific interest rate.
   
4. Repayment of a promissory note for $200,000 issued January 26, 2015 to R J Dailey. The note matured on June 30, 2015. The note earns interest at a rate of 2% per annum. This note, together with interest accrued to April 1, 2016 ($4,778), was converted on August 4, 2016 to 2,559,725 shares of the Company’s common stock.
   
5. Repayment of a promissory notes aggregating $100,000 issued in December 2015. Lenders earn interest at a rate of 10% per month. Notes were repayable on March 9, 2016. The Company was unable to repay the note at maturity and the note is in default. The Company is obligated to pay late-payment penalties totaling $5,000 per day.

 

At June 30, 2016, the Company had insufficient cash on hand to repay these notes.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None

 

ITEM 5. OTHER INFORMATION

 

None.

  

ITEM 6. EXHIBITS

 

Exhibit Number   Name of Exhibit
31.1   Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
     
10.1   Employment Agreement between Immune Therapeutics, Inc. and Robert Wilson dated May 1, 2016.
       
101.INS   XBRL Instance Document
       
101.SCH   XBRL Taxonomy Extension Schema
       
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
       
101.DEF   XBRL Taxonomy Extension Definition Linkbase
       
101.LAB   XBRL Taxonomy Extension Label Linkbase
       
101.PRE    XBRL Taxonomy Extension Presentation Linkbase

 

    33  
     

 

SIGNATURES

 

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

 

  Immune Therapeutics, Inc.    
       
Date: August 15, 2016 By: /s/ Noreen Griffin  
    Noreen Griffin  
    Chief Executive Officer  

 

  Immune Therapeutics, Inc.    
       
Date: August 15, 2016 By: /s/ Peter Aronstam  
    Peter Aronstam